Changes to Ontario’s green energy strategy make a whole lot of sense…

sarniasolar1Ontario Energy Minister Bob Chiarelli announced on May 30 that there would be a few major changes to the way the province procures renewable energy.

Here’s what the government is saying these days:

  • The province will develop a competitive procurement process for renewable projects over 500 kilowatts, which will no longer qualify for a feed-in-tariff.
  • These same projects will have to meet a higher community standard. Developers will need to work directly with municipalities to identify appropriate locations and site requirements.
  • Projects 10 to 500 kilowatts in size (a.k.a small FIT projects) will be given priority if a municipality is a development partner or leading the project.
  • The government will work with municipalities to determine a property tax rate increase for wind turbine towers.
  • Between now and 2018, a new block of 900 megawatts will be available for small FIT and microFIT programs. Annual procurement caps will be set at 150 megawatts for Small FIT and 50 megawatts for microFIT, a much more measured approach that will create more stability in the market.
  • The World Trade Organization has ruled that the domestic content mandate attached to Ontario’s FIT program was in violation of GATT rules. As a result, the government has decided to eliminate the local content requirement.

These are all good moves for a provincial green-energy strategy that has had its fair share of controversy and setbacks. First, I have to applaud the decision to treat small and large renewable energy projects differently. I have been arguing for more than two years now that the province needs to get back to a competitive procurement process for large wind and solar projects. The whole point of the FIT program, IMHO, was to make electricity production in Ontario more accessible to communities, homeowners, schools, farmers, etc… by creating a standard, long-term contract and process for selling green electricity into the provincial grid. Fact is, it’s expensive to participate in requests for proposals. Companies can spend millions as part of their bid only to walk away with nothing. Smaller developers don’t have the deep pockets to play that game, but big developers generally do. My only reservation about the new rules is that they set the cut-off point at 500 kilowatts, and there is no distinction between solar and wind projects. For solar projects, I would require any project over 1 megawatt to go through competitive procurement. For wind, I would require it for projects over 10 megawatts. Still, what’s contemplated in the new rules is an improvement.

The phasing out of domestic content rules is also good news, as they have served their purpose. Even with the WTO challenge, most people in the industry knew that it would take a while for the matter to get resolved. From my perspective, this gave plenty of time to developers in need of local content to lure some manufacturing (and associated jobs) into the province. True, some of those jobs might go away once the rules are phased out, but many now anchored here will decide to stay given that the market for product between now and 2018 will still be healthy (and the fact that the FIT will still exist for small and micro projects). Where this gets interesting is that developers of large projects can now source from outside of the province — including China. No longer can the domestic content rule be an excuse for higher costs. When bidding for projects, they’ll have to come in at the lowest price AND have to demonstrate a positive/collaborative relationship with the community in which they would like to build. This means, presumably, that most of the megawatts of renewable power that are built under the new rules will be much less expensive than what we’ve seen under the FIT program. The cost of solar modules has plunged. Wind turbines are getting more efficient. We’re generally getting more efficient at building these projects, driving down development costs. Ontario is now going to benefit from this trend in a more pronounced way than under the FIT program, where a two-year price review (and even the new one-year review) frankly couldn’t keep up with the pace of change.

Will we lose jobs by dropping the domestic content mandate? Probably, but there is more to “green jobs” than people standing around warehouses playing assistant to machines. This industry creates opportunities for lawyers, accountants, electricians, marketers, tradespeople, engineers, environmental consultants, truck drivers, etc…  and I’m convinced those jobs far outnumber the manufacturing jobs we’ve become so obsessed with in this province. And let’s face it, most of the “manufacturing” jobs we attracted to Ontario involved assembling components and integrating equipment that was made somewhere else. Bottom line: Employment in renewable energy is going to continue to grow in Ontario, even without domestic content rules and the domestic manufacturing jobs they helped create.

Meanwhile, the new emphasis on local participation is encouraging. Again, this goes back to the original spirit of the FIT program: to actively engage the population in the operation of our electricity system through direct participation. And as Germany and other countries have shown, the greater the participation (and associated benefits) the greater the acceptance of these new technologies. Impose something on people and their natural inclination is to resist. There will always be NIMBYs that can’t be reasoned with, but give members of a community more say and more to gain from such projects and you make champions out of opponents.

Before I sign off,  I will point out one more piece of good news in these proposed rule changes. Now that the largest projects will be selected through competitive procurement, this creates more flexibility in terms of how the Ontario Power Authority prices renewables. For example, it could set different rates for peak and off-peak wind and solar power. Not only does this more accurately reflect the cost of electricity in the wholesale market, but depending on the price spread it may create an incentive for developers to use energy storage as a way to maximize revenues from every kilowatt-hour produced. This motivation simply doesn’t exist under the current FIT program, which doesn’t discriminate between the time of day kilowatt-hours are produced. One can envision third-party energy storage providers and aggregators emerging in the marketplace to offer such services to developers, in addition to the many ancillary services that energy storage can bring to the grid.

Let’s keep in mind that the government recently put out a request for information (RFI) on the  “State of Energy Storage Technology in Ontario.” It is seeking to better understand the “potential of these technologies to provide value to Ontario’s electricity system” and the “barriers to realizing this potential.” That’s a good sign, and hints at the thinking going on in the background. Here’s hoping that this new thinking is reflected in the updated Long-Term Energy Plan, which is currently under review.

With renewable energy development in Ontario put a more sustainable path, the government should now re-commit itself to energy conservation, which has been all but ignored in recent years despite talk of creating a “culture of conservation” in this province.

(NOTE: I’m still hopeful that the moratorium on offshore wind will be lifted and the government will direct the Ontario Power Authority to accept bids for a demonstration/study project of no less than 10 megawatts. This is a step we must take to know for sure, through direct study in the field, the degree to which we would should develop offshore wind and what the rules should be.)

6 thoughts on “Changes to Ontario’s green energy strategy make a whole lot of sense…”

  1. Why must renewable energy compete through an RFP process when Nuclear does not?

    Also, not enough emphasis has been placed on Biogas and Biomass sources, and they should be exempt from the 500kW cap. Perhaps we should be looking at the same sort of FIT caps as other countries which are much higher than 500kW.

  2. From what I understand, if and when they go with building new nukes at Darlington (which I don’t think is going to happen) they will be going to competitive bidding. It won’t be transparent, mind you. That said, it will likely just be theatre.

    As I said before, I think creating a FIT for nuclear would expose nuclear’s economics for what it is.

  3. Great essay, Tyler.

    I was also impressed with the new policies. The municipalities deserve more revenue and the large projects can handle the bid process. Bidding in large projects will find the market price better that the OPA constantly revising its models. FIT is still well suited for smaller projects, especially when the industry is just starting off.

    I also thought that it was a politically astute policy. Many of the municipalities currently accept nothing less than a veto power but this shift will put pressure on them to compromise. Weekend rural homes with $1 million valuations will always be NIMBY’s, though.

    Longer term, I’d like to see the industry introduce more royalty sharing with neighbours and maybe even some form of property value indemnification. Government could play a useful role there.

  4. Good summary of the changing RE landscape in Ontario. I think however, that it is unfortunate that the greater than 500 kW PV systems have yet again another major change in how they will be dealt with. If you are a firm wanting to do MW sized PV, you now have to put everything on hold again, and wait for the RFP. I think a continuation of existing approaches with an announced extended phaseout and timeline would create a more bankable scenario for the major players.

    I also think the 50 MW annual cap for microfit allotment is way too small, that is only 5000 ten kW systems in a province with 1,000,000’s of rooftops, so it doesn’t allow many people to participate relative to the opportunity.

    That being said, great that Ontario is still engaged seriously with RE, but I think the Liberals are spooked by the near term apparent political risk of more ambitious RE policy and are seeking to slow the rate of change down.

    Cheers
    steve

  5. I can see what you are saying, and certainly they needed to find a way to bring the municipalities back into the process, given the experience of the last few years. But many of the players in the RE industry in Ontario are not big companies with deep pockets. Particularly for projects from 500kw to about 20MW, most of them are fairly small companies who were already struggling to keep up with changing regulations–this further delay could effectively destroy them, and in the future, only the larger companies will still be here.

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