OPA's FIT program kicks off and REA regulations come into force

20 octobre 2009

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As Ontarians turned off their air conditioners earlier this month, the Ontario Power Authority (OPA) opened the gates to the widely anticipated Feed-In-Tariff (FIT) Standard Offer Contract Program. The FIT program was officially launched on October 1, 2009, finally allowing renewable-energy project developers to put the FIT framework to the test. The OPA has stated it intends to respond to project developers within sixty days of receiving a complete application, although the anticipated high number of applicants may cause delays to the expected execution of FIT contracts.

Key features of the FIT program

  • Generally, in order to be eligible, projects must be (a) renewable generating facilities not already in existence; (b) located in Ontario, provided they are not located in expressly exempt areas; and (c) projects that do not have or have not had a prior power purchase agreement, unless such agreement was terminated prior to March 14, 2009 or more than twelve months before the date of application.
     
  • Solar projects with a contract capacity greater than 100 kW are not eligible if located on certain high-quality Class 1 or Class 2 agricultural lands, and, if located on Class 3 agricultural lands, are only eligible if located on identified lands.

Application

  • Application fees under the FIT program range from a minimum of $500 to a maximum of $5000, and the application security charge is $20/kW for solar projects and $10/kW for all other projects.
     
  • A complete application must also include evidence of access rights to the project location. Such evidence may be in the form of a lease, an option, a letter of intent, a memorandum of understanding or a conditional grant contingent on obtaining a FIT contract.

Domestic Content

  • The domestic content of a project is calculated based on the OPA's domestic content grid for each specified renewable energy source and contract capacity. This grid allocates a qualifying percentage to designated activities occurring within Ontario or completed by Ontario residents. Designated activities include the manufacturing and assembling of specified materials, certain construction and on-site labour, and certain consulting services.
     
  • The following domestic content thresholds must be met:
     
    • wind power projects with a contract capacity greater than 10kW: (a) 25% for FIT contracts with a milestone commercial operation date (COD) prior to January 1, 2012; and (b) 50% for FIT contracts with a milestone COD on or after January 1, 2012;
       
    • solar projects with a contract capacity greater than 10 kW: (a) 50% for FIT contracts with a milestone COD prior to January 1, 2011; and (b) 60% for FIT contracts with a milestone COD on or after January 1, 2011;
       
    • solar projects with a contract capacity less than 10 kW: (a) 40% for FIT contracts with a COD prior to January 1, 2011; and (b) 60% for FIT contracts with a COD on or after January 1, 2011;
       
  • The OPA must be provided with a plan, in a prescribed form, setting out how the FIT program applicant intends to meet the minimum required domestic content level, no later than six months prior to the milestone COD.

Launch Applicants

  • All eligible FIT contract applicants who apply during the first sixty days following the launch of the FIT program (prior to November 31, 2009) will be assigned a time stamp, allocated in priority based on (a) the applicant's commitment to reduce the number of days between the date of contract and the milestone COD; (b) the project's acceleration characteristics, including whether it is REA exempt or has an executed EPC agreement; and (c) the date access rights were granted.

Advanced RESOP Applicants

  • A Project Developer with a Renewable Energy Standard Offer Program (RESOP) contract can either: (a) retain the RESOP, unamended; (b) amend the RESOP before October 31, 2009, through the FIT program's Advanced RESOP FIT Amendment, where the RESOP is in respect to a wind generation project that has been issued a Certificate of Approval (Noise Emissions) from the Ministry of Environment; (c) repudiate and terminate the RESOP by applying through the FIT Program Launch, before November 31, 2009; or (d) repudiate and terminate the RESOP and apply through the standard FIT program after twelve months.
     
  • The Advanced RESOP FIT Amendments include:

    • a substitution of the contract price with 12.1¢/kWh, comprised of a fixed portion of 9.68¢/kWh and an indexed portion of 2.42¢/kWh;
       
    • relief from the requirements of the RESOP to share with the OPA payments the applicant may be able to obtain under the ecoENERGY grant;
       
    • a requirement to maintain the completion and performance security, which will be returned on the COD; and
       
    • a requirement that the facility achieve commercial operation no later than December 31, 2010, with liquidated damages payable for each day commercial operation is late, culminating in an event of default if the COD is after December 31, 2011.
  • Project developers who amend their RESOPs remain bound by the RESOP contract and are not subject to the terms of the FIT program, including domestic content requirements.

MicroFIT

  • microFIT is a standard-offer program focused on homeowners and other micro-project developers. The rules and the governing contract have been simplified, but contain similar obligations regarding domestic content and environmental attributes. There are no application or security fees associated with contract application under the microFIT rules.

Renewable Energy Approvals

In addition to the commencement of the FIT program, the Ministry of the Environment released key regulations on September 24, 2009 relating to the Renewable Energy Approval (REA) amendment under the Environmental Protection Act.

A REA is required for all projects which were previously required to seek certificates of approval under s. 9(1) and (7) of the EPA (i.e. construction, altering, extending or replacing or operating any plant, structure, equipment, apparatus, mechanism or thing that may discharge or from which may be discharged a contaminant into any part of the natural environment other than water), s. 27(1) (waste management), and all those that generally were required by regulation to seek an "approval, permit or other instrument."

Prior to the EPA REA amendments, solar projects were not required to undergo an environment assessment (EA). Wind projects may have had to undergo an environmental impact study or potentially a full EA, depending on the location and the project's generation capacity. Certificates of Approval were required by regulation for both wind and solar projects.Projects are exempt from seeking a REA where:

 

  • all approvals, permits and other instruments that are required to construct, install, operate or use the facility were obtained before May 14, 2009;
     
  • no approvals, permits or other instruments listed above were required to construct, install, operate or use the facility and the construction or installation of the facility began before May 14, 2009;
     
  • an EA Notice of Completion in respect of the facility was issued prior to May 14, 2009 and the facility has a power purchase agreement with the OPA;
     
  • before May 14, 2009, (i) a power purchase agreement was entered into with the OPA; (ii) the use of the land at the project location was not prohibited by a zoning by-law or order under Part V of the Planning Act; and (iii) the facility was not an undertaking that was designated to be subject to the Environmental Assessment Act.

General REA obligations include:

 

  • consultation with the public and aboriginal communities surrounding the project, including at least two public meetings;
     
  • consideration of archaeological and heritage resources, where applicable;
     
  • specified setbacks for wind energy facilities;
     
  • submission of a project's construction plan report, construction report, decommission plan report, design and operations report, noise study report (for non-rooftop solar facilities with a capacity greater than 10 kW), project description report, and wind turbine specifications report or off-shore wind facility report (where applicable).

Care should be taken when reviewing the various transition provisions related to the RESOP and FIT programs and the REA requirements.

Commentary

The Ontario government should be pleased with the level of activity in the renewable sector these days. There is a flurry of new entrants, particularly from the U.S. and Europe, who are thoroughly investigating opportunities in Ontario, from both development and equity investment perspectives. At the same time, some organizations are suggesting that the FIT program needs to be more user friendly. For example, the solar industry is concerned about the restriction on the use of Class 1, 2 and 3 agricultural lands and is looking for certain relief from those provisions , as well as some loosening of the domestic content requirements. Those same domestic content requirements, which while lower for wind applicants, are also being raised as concerns by the wind industry. Both solar and wind proponents note that the current capacity in Ontario for meeting the domestic content requirements is seriously constrained and more time than the government has allowed may be necessary to meet the deadlines imposed. Finally, the great unknown-issues relating to transmission capacity constraints-will start to reveal themselves in the months to come, once the initial round of FIT applications are reviewed and queues start to form for new transmission development. Stay tuned for further word from the OPA as they work through the first round of mature applications that will be filed prior to the end of November 2009.

The launch of the FIT program and the commencement of the REA represent the final pieces that complete the implementation of Bill 150, which was first introduced in February. Watch for further guidance from both the OPA and the Ministry of Environment as these new pieces are "fit" into place.

We will continue to keep you regularly informed as the FIT marketplace develops and matures.

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