Tag Archives: FIT

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.)

Never a dull week in Ontario energy politics

This week brought more evidence that electricity issues will dominate the upcoming provincial election. The Ontario NDP vowed yesterday that, if elected, it will kill plans to build a new nuclear plant at Darlington and potentially pull the plug — or in its words, “hit the pause button” — on plans to refurbish the province’s existing fleet of reactors. Party leader Andrea Horwath said money earmarked for new nuclear would instead go toward funding household retrofits that would, by lowering energy use, partially eliminate the need for the new power.

Now, there’s no doubt the province could do A LOT more to promote conservation, and the Liberals deserve a wooden spoon to the back of the head for not pushing and supporting it more and, apparently, having no significant plans to do so. I also think we can avoid the need for new nuclear in this province. Regarding the existing fleet, we have to be very careful. Nuclear currently supplies about half of the electricity in this province. If we’re going to reduce our dependence on it, it will be a weaning process that will depend on the health of other generation assets and their ability to supply the grid reliably. There may be some wiggle room, but at a time when we’re phasing out coal we’re going to need most of those nuclear assets whether we like them or not. Refurbishments will be necessary, but should certainly be scrutinized — not assumed — keeping in mind we can’t afford to put unnecessary strain on the system. We need to stay focused on getting rid of coal, and doing it right.

In other news, the Liberals have been making some clever and necessary moves to defend its green energy and green economy plan, and by association the jobs and industry it has created, should they lose an election to the PC Party in October. On Tuesday, it was revealed that Energy Minister Brad Duguid had issued a ministerial directive that alters the rules of the feed-in-tariff program, eliminating the Ontario Power Authority’s right to cancel a FIT contract if a developer does not yet have a Notice to Proceed to construction.

To obtain a Notice to Proceed, developers must have all permits and approvals, including all project impact assessments, a renewable energy approval from the Ministry of Environment, a plan that verifies that all domestic content requirements have been met, and a financing plan that demonstrates the developer has the money in place to build the project as envisioned. The PCs, if they were to form the government, have indicated they would exercise their rights under Sections 2.4 (a), (e) and (f) of FIT contracts to terminate contracts in cases where developers had not yet obtained a Notice to Proceed. Now, there would be a penalty to this — the government would have to cover any pre-construction development costs. But Hudak and crew have said they’re willing to take that hit.

This would create a huge problem for the FIT program, because more than 1,800 FIT contracts would be at risk of being cancelled and at no fault to the developers. Many, including Samsung, have a contract in hand but are waiting for grid capacity or to receive their renewable energy approval from the environment ministry. To protect this group, the Liberals tweaked the rules. Now, those developer can request a waiver that takes away the power authority’s right to terminate a project, as long as that developer can show a domestic content plan supported by a manufacturing equipment agreement. Developers must still submit a financing plan and receive all permits and approvals before they can begin construction, but the absence of these are no longer an opening for contract termination.

The end result is that it salvages whatever confidence is left in the industry since Hudak announced his intention to scrap the FIT program. Renewable energy developers and manufacturers in the province are still worried, but less so now. The Liberals also announced improvements to the renewable energy approvals (REA) process that will see applications dealt with more quickly, so that should bring some more certainty as well.

Samsung is among those less worried. In fact, it was announced yesterday that the government has given Samsung a one-year extension to fulfill certain contractual obligations. But Samsung had to give a little to get a little. In exchange for the extension, Samsung agreed to accept a lower economic adder, which is the amount it expects to received on top of normal feed-in-tariff rates for bringing jobs and manufacturing to the province. Specifically, Samsung’s adder over the 20-year life of its contract has been reduced to $110 million from $437 million. This is good for ratepayers, relatively speaking, but in my opinion the FIT rates alone should be enough to make Samsung happy — so the Korean giant is walking away with this new contractual arrangement quite satisfied. But a deal is a deal, right?

The good news in all of this is that the Liberals are starting to put up a fight, and that will increase confidence in the sector and send a message to the public that green energy in Ontario is something worth fighting for. It has been a long time coming, though decisions like killing offshore wind projects have already hurt confidence in the sector. The Liberals will have a very difficult time regaining what it lost.

Is a solar PV moratorium coming in Ontario?

I’ve heard from a few different sources now that Ontario may be considering imposing a moratorium on solar PV contracts issued under the feed-in-tariff program, and while any future backtracking by this Liberal government wouldn’t surprise me, I don’t think there’s any substance to these rumours. I may be wrong, but this appears to be a clear case of echo-chamber amplification. Sure, the Libs made an incredibly stupid decision by imposing a moratorium on offshore wind development. I say stupid for a number of reasons. One, it used the “lack of science” as an excuse to pull back, even though the previous moratorium on development was lifted precisely because the Ministry of Natural Resources said it was satisfied with the studies — the science — that had been done. Suddenly that science wasn’t good enough? Lame.

Two, it would have been more justifiable to impose another moratorium if the government had let developers keep the sites they had fairly secured. Instead, the government took the sites away and told developers that when the moratorium was lifted they’d have to start from scratch. Not a way to make friends of industry or to make investors feel comfortable in Ontario. It simply made zero sense to go that far, unless of course it was politically motivated — a likely explanation that is no comfort to the developers who put millions of dollars on the line and lost it all.

So, clearly the panicky Liberals are prone to making stupid decisions when under pressure by an opposition party that knows how to press its hot buttons. Will this be repeated for solar? If it was, it would IMHO completely sink the Liberal party heading into this upcoming fall election — particularly if it targeted small solar PV projects covered under the microFIT program. For larger projects, there is technically a moratorium in place. It’s called transmission restrictions, and it means only so many projects can be built in this province until transmission capacity is expanded to accommodate more. There have already been more project contract offers than the transmission system can accommodate, so really the throttle is the pace of transmission updates and the government, through Hydro One, controls that throttle. Better to make this fact clear to voters than to declare a moratorium that does nothing else but prove the Liberal party is on the run from a progressive energy plan it should be proudly promoting, with chest out and head held high.

For the record, I asked the Ontario Power Authority about these solar PV moratorium rumours and the agency flatly denied that a moratorium was coming. “OPA is not planning a moratorium for the FIT/mFIT program,” said spokeswoman Kristin Jenkins in an e-mail. “Right now, we are going through a process to issue contracts for the new Bruce to Milton transmission line which Hydro One recently received approval for. The developers that are eligible are the ones in the Bruce and West of London transmission areas on the FIT priority ranking list.  These developers did not receive contracts in the past because there was not transmission capacity.”

I asked as well about the planned two-year review of FIT pricing. Jenkins said the process will start in 2011, but she could offer no specifics on when. “We will carry out the required two-year program review in 2011, but a date has not yet been set to start that,” she said. The sooner the better. (note: I deleted a paragraph from the original version of this post which messed up the dates of the upcoming review, leading me to an unnecessary rant. My apologies for the mistake for those who read an early version).

Hudak’s energy strategy: throw baby out with bath water

Ontario Progressive Conservative leader Tim Hudak has vowed to kill the province’s feed-in-tariff program on the grounds that, in his view, it is leading to unacceptably high electricity costs for consumers. But when all is considered the problem, as he describes it, isn’t really with the FIT at all: it’s about FIT rates for solar PV. Take solar out of the equation and the FIT rates are quite reasonable, at least when compared to nuclear power, which is Hudak’s own half-baked solution to Ontario’s future electricity needs.

Beyond the propoganda of the nuclear industry, I haven’t seen a single credible study that calculates the cost of (new) nuclear to ratepayers below 13 cents per kilowatt-hour. Indeed, there are many reports that suggest nuke power is above 20 cents per kilowatt-hour, particularly when you choose to not hide the hidden costs and subsidies. This makes wind power, landfill gas systems, waterpower and even some large biogas systems competitive with nuclear on a kilowatt-hour basis. And, of course, under the FIT we’re not held hostage to delays or cost overruns like we have been in the past with nuclear. You pay for what you get under the FIT. No risk, no large single points of failure, no risk of meltdown, no worries about handling future radioactive waste, and very high price transparency.

Now, Hudak would have Ontario voters believe that the rate we pay today is what we should expect to pay for future generation. I don’t believe this is a naive belief on Hudak’s part; I believe it’s to intentionally mislead. Fact is, there isn’t a single form of clean (or dirty) generation that can be built new today that isn’t more expensive than the 6 or 7 cents per kilowatt-hour that Hudak (and most media, for that matter) recklessly bandies about. Now, could we get wind generation cheaper through a competitive process? Yeah, we could maybe carve a couple of cents off the FIT rate. But the FIT was intentionally designed to lower barriers to market access — to open up the market beyond the big, deep-pocketed corporate giants who can afford the upfront millions required to respond to a request for proposals (RFP) and, after participating in such a process, can afford to walk away empty handed. The province created the FIT to encourage community participation, and to stimulate the kind of growth that would attract manufacturing and jobs — and it has, despite a few spineless moments and missteps from the Liberal government.

 Now, on to solar. Hudak and his legion of backers, including National Post columnist Parker Gallant (who has somehow managed to turn his column into an official soap box for the Ontario PCs — hell, he even hands over fresh quotes for Hudak’s press releases now), always point to solar prices when talking about the FIT. After all, it’s easier to anger voters by saying generally that we’re paying 80.2 cents per kilowatt-hour under the FIT and that this is 10 times more than the wholesale market rate for electricity. Wow — 10 times more! Crazy. But the comparison shouldn’t be to the wholesale market rate, and the rate itself is far from representative of the FIT program pricing. That scary 80.2 cents, which will soon be lowered, is for less than 1 per cent of FIT contracts when measured on a megawatt-hour contribution basis. Also, that money doesn’t go to big corporate conglomerates intent on vacuuming money out of Ontario. It goes to farmers and homeowners who are taking risks to become participants in the electricity system. The thousands of people taking part are literally changing the energy landscape in Ontario and they’re creating local jobs. You can see it just driving around this province. Put into perspective, the premium being paid to them is more than worth what the province is getting back. Hudak, however, would prefer to demonize them to score votes.

Now, let’s talk about the elephant in the room — big solar. Big, multimegawatt solar projects are getting 44.3 cents per kilowatt-hour. But unlike the small solar rooftop systems, these larger systems will collectively have an impact on electricty rates over the coming years. At the same time, we have to acknowledge that it is because of these large systems that a lot of manufacturing has shifted to Ontario. Still, it’s a lot of solar and a lot to pay, and this is in my view the Achilles heal of Ontario’s FIT program. If there are going to be changes to the program, the most dramatic changes have to come here, but it has to be done in a way that balances the need to nurture an emerging industry and the interests of ratepayers. The answer, in my view, is to embrace a competitive bidding process for these large-scale projects and set caps (targets?) on the amount of big solar we want in Ontario by 2015, 2020 and 2025.

But Hudak isn’t thinking or talking that way. He wants to throw the baby out with the bath water, and in doing so kill investor confidence in the Ontario market, kill green jobs and build new nuclear plants that we’ll have to start paying for 10 years before the first kilowatt-hour is generated. His approach is reckless at a time when Ontario needs surgical, not blunt force, solutions. He’s being destructive at a time when Ontarians want our politicians to be constructive.

On a final note, let’s keep in mind that we don’t have to choose nuclear over renewables or vice versa. While building new nuclear plants may be an unwise decision economically, there is plenty of job creation to come from reburishing or extending the life of Ontario’s existing nuclear fleet — even if we retire a couple of plants, such as Pickering. Indeed, OPG and Bruce Power have expressed concerns about doing these refurbishments and building new because of the limited labour pool and the logistical nightmare of taking so much on in such a tight window. So, the message here is you can continue to aggressively build green energy and capture the associated jobs while keeping folks in our nuclear industry gainfully employed for the next 10 years, simply following through on an existing refurbishment schedule. Talk of building new nukes is a distraction — there will be opportunities in both sectors, and plenty of jobs to go around. We don’t have to choose one over the other.

The gloves are off: anti-green Hudak says he will kill Ontario feed-in-tariff program and Samsung deal

Ontario Progressive Conservative leader Tim Hudak has been great so far at telling Ontarians what he won’t do, or what he plans to kill. As far as what he will do, he’s pretty much a blank slate aimed at fueling taxpayer anger with misleading commentary. Sound familiar?

His latest press release makes clear that he plans to kill Ontario’s feed-in-tariff program and, associated with that, the Ontario government’s deal with Samsung to bring green jobs and green manufacturing to the province. “An Ontario PC government will integrate renewable energy into Ontario’s energy supply mix by ensuring the process is competitive and transparent and, above all, affordable to Ontario families,” Hudak says.

For one, Hudak is delusional if he thinks he can “bring relief” to hydro bills and at the same time assure a “competitive” and “transparent” market, as well as a reliable electricity system.  Bringing relief entails hidden subsidies that keep Ontarians believing they can continue to get cheap electricity while overhauling and cleaning up an electricity system that has suffered years of neglect during the 1980s and 1990s. Such subsidies will come from the tax base, so he’s going to steal from Paul to pay Peter. Great strategy.

Meanwhile, is he going to stop upgrading the power and transmission system and let it deteriorate? He once talked about aggressively building nuclear plants, at least until the disaster at Fukushima. Suddenly, Hudak doesn’t talk about nuclear as much, let alone the cost of building it (which according to a California Energy Commission report (see page 20, Table 5) is much  more expensive than relying on wind and other renewables). And even with an all-out nuclear strategy, that just won’t cut it. Deciding tomorow to build new nuclear plants means we still wouldn’t see that power until 2020. What do we do until then? Burn more coal? Burn more natural gas? Well, Hudak has also criticized the current buildout of natural gas plants, so I guess Hudak’s only answer is to kill the coal phaseout strategy and spend billions of dollars cleaning up half-century-old plants that, even with upgrades, will continue to spew CO2 (since scrubbers don’t capture CO2 and carbon capture and sequestration isn’t an option in Ontario).

The fact is Hudak doesn’t have a plan, has no concern for climate issues, and has abandoned many of the principles of the PC party to fuel anger and score votes. The little snippets he’s released indicate that his “alternative” approach will also come with a heavy pricetag and may be impossible, given the timelines he is constrainted by.

What Hudak talks about is likely to cost more, not less. He wants to scrap a smart meter program that’s already paid for. He wants to subject the government to potentially billions of dollars worth of lawsuits by breaking FIT contracts, at the same time making Ontario an even less attractive jurisdiction in which to do business, as investor confidence would be all but destroyed. He wants to take away green jobs and green manufacturing that is just beginning to gain momentum in the province. He wants to continue to use tax money to subsidize electricity rates. He wants to aggressively build nuclear, despite the risks, long-term buildout and rising costs.

Now, what would be a reasonable approach that still accommodates voter concerns? Continue nuclear refurbishment projects, which would keep the nuclear industry busy and folks working, but scrap plans for any new builds. Keep but rework the FIT program by limiting the size of projects, adjusting FIT rates lower (as originally envisioned under the program) and requiring that big projects (say, 10 megawatts or higher for wind, 1 megawatt or higher for solar) bid under a competitive process. Also, we should provide guidance to the market by setting a target for how much large wind, solar and other renewables we want on the system by a given date. Beef up the commitment to electricity conservation. And finally, follow through on programs that provide assistance to folks on low or fixed incomes, so they can better cope with what is a global transition to higher energy prices. The Liberals have failed miserably on this front and they’re suffering for it as a result.

Hudak is doing nobody any favours by misleading voters. Sure, some of his criticisms of the existing Liberal plan are fair and changes are necessary. But from what I’ve heard, Hudak’s alternative approach is no better from a cost perspective and certainly much dirtier.