Pricing and Rules are Up in the Air

Yesterday, the OPA announced that the official review of Ontario’s FIT and microFIT programs is finally underway. The results of the review may have broad-reaching implications for the solar PV, wind, biomass, micro hydro industries and the overall Cleantech sector.

As part of the review process, the OPA has scheduled a teleconference for tomorrow morning, 2 November 2011, at 10 am EDT. The teleconference is sure to be widely attended.

To solicit feedback on the FIT program, the OPA has posted a survey for input on a variety of FIT related issues. Responses to the survey can be submitted until December 14. The OPA is also accepting written submissions at 2yearFITreview@ontario.ca. The link to the survey can be found part-way down the FIT program review notice.

Some projects unaffected

According to the OPA, “The microFIT Program review will not affect existing contracts or conditional offers.” Existing microFIT applications will thus be unaffected. The same commitment has not been made for FIT contracts, conditional offers or existing applications, however.

The OPA has stated that “the FIT Program review will not affect existing contracts.” This includes those contracts where operation has begun, as well as those contracts that have not yet reached commercial operation.

Notably, though the program is two years old, only two of the contracted large ground mount PV projects (along with six Wind and two Bioenergy projects) have thus far successfully made it through the extensive Renewal Energy Approval (REA) application process. The REA process has been the subject of considerable industry concern, and has been flagged by the OPA for review during this process.

Another area of broad controversy has been the Ontario program’s domestic content requirements, and the unfair trade practices complaint to the World Trade Organization (WTO) is still proceeding.

While the WTO action is ongoing, there is no mention of a review of the domestic content requirements, however, in the OPA notices. The survey does ask for input on what further support can be provided for domestic manufacturers, specifically mentioning support of export opportunities.

Most large projects affected

Applications that are in the extensive queue on the priority ranking list, however, as well as any and all new applications for large rooftop or groundmount projects will be subject to both the new rules and new pricing. There were 370 FIT projects that were on the priority ranking list, representing 7,320 MW of capacity, when last posted in July 2011. Some of these projects have been waiting almost two years for transmission capacity.

Perhaps reflecting the extensive period that some of these projects have been waiting, the OPA’s notice states that, “While not normally refundable, the OPA will refund the FIT application fee for applicants who wish to withdraw their application as a result of the program review announcement.” At $500, however, this fee is negligible with respect to the development costs and the security deposit (e.g. $20,000 per MW, or $200,000 for a 10 MW solar groundmount project) for these large projects.

Broad implications

This FIT program review will be an important milestone not just for the Ontario program, but for the global solar PV industry as well. When first conceived, the Ontario FIT program was highly lauded. At the time, Deutsche Bank observed that “Two of the most advanced FiTs in our view at present are Germany and Ontario.” Changes to the Ontario program have generated considerable controversy, however. Ontario remains the second largest PV market in North America, and the program is an industry reference point. It is in the industry’s collective best interests to provide thoughtful input directly through the survey.

Ontario’s precedent setting domestic content requirements also ushered in a protectionist semtiment that appears to be gaining momentum.

Survey

The survey questions are far-ranging. Preparing answers may take more than a couple of minutes. The questions themselves are not posted for easy review, but only available through the survey form itself. These questions have been extracted, and are provided here for further insight:

Questions

1. Given declining costs, especially with respect to solar PV technology, and the development of new renewable energy technologies, should changes be made to the current FIT prices and price categories? If yes, please provide feedback on suggested changes to existing size tranches and contract prices.

2. “Some jurisdictions use a tiered pricing system known as ‘dynamic degression’ where a certain price is paid until a targeted amount of renewable energy is developed, and that price reduces by a certain percentage after that target is reached. This process is sometimes laid out in legislation, allowing developers to plan ahead.”

To ensure program sustainability, what mechanism/process should the government of Ontario incorporate for future FIT price reductions?

3. In addition to FIT prices, should Ontario consider other mechanisms/tools to support clean energy manufacturers based in Ontario? For example, should Ontario consider a more robust strategy to support clean energy export opportunities?

4. Should the FIT Program consider new renewable energy technologies? Which new technologies should be considered and what requirements should apply to them?

5. To compliment REA, what other ways could citizens and municipalities be engaged and consulted about renewable energy projects being proposed in their communities?

6. “…some jurisdictions, including Ontario, have ‘price adders’ on top of prevailing FIT rates, to help certain groups or communities overcome obstacles to renewable energy development. One obstacle, in particular, is securing project financing.”

Are there more effective incentives, support programs, or mechanisms that could be provided to encourage more participation in renewable energy projects by community organizations, Aboriginal communities and the broader public sector such as municipalities and school boards? Do you support ‘price adders’ for specific groups?

7. The Ontario government has demonstrated its commitment to renewable energy development. How should the Ontario government diversify renewable energy development beyond the FIT Program?

8. The Government has made recent improvements to streamline the provincial environmental approvals process. While the integrity of the process must be maintained, are there further efforts that could be considered?

Please respond

As was well stated by Deutsche Bank in their review of the Ontario program two years ago, it is in the best interests of the overall solar PV industry to have programs that are transparent, long-lived, and clear. The OPA is now providing a window for our collective input.

Please consider taking the time to provide your thoughtful input to the OPA.

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