Tag Archives: Ontario Power Authority

In major policy shift, government lets Ontario Power Generation bid for large renewable projects

lakeviewIt’s been eight days since Ontario Energy Minister Bob Chiarelli directed the province’s power authority to eliminate large renewable-energy projects from the feed-in-tariff program and design a competitive procurement process that will get the best deal for ratepayers. We knew this was coming, as Chiarelli said as much in a speech a couple weeks earlier. What we didn’t know is that the energy minister would direct the power authority to let Ontario Power Generation bid for these large projects (see page 3, third paragraph of directive).

This is a major policy shift, and I’m surprised it hasn’t received any coverage in the mainstream Ontario media. OPG is a crown corporation. Under its 2005 agreement with the Ontario government, “OPG will not pursue investment in non-hydroelectric renewable generation projects unless specifically directed to do so by the Shareholder.” Instead, OPG’s mandate has been to maintain its fossil fuel, nuclear and hydroelectric fleet of generation, and pursue new large hydroelectric projects. The reason for this restriction was to limit OPG’s clout in the marketplace and give independent power producers a chance to establish a foothold in the generation mix. The decision to let OPG bid for all large renewables — including wind and solar — is significant for a number of reasons:

  • This is getting close to what the Ontario NDP said it will do if elected. According to the NDP’s energy policy, “We will maintain the feed-in-tariff for small and community-based projects” and “for new larger projects we will move towards public ownership” through OPG. The Liberal government isn’t proposing complete public ownership of large renewables, but it is letting OPG bid for some ownership in a competitive process. Could this be part of a compromise that won it NDP support for the provincial budget?
  • Independent power producers, I would imagine, aren’t very happy about this. They will assert that they can’t compete against a giant like OPG that just happens to have the government in its corner. Is it a fair fight? Maybe not. But will it get the best deal for ratepayers? Presumably, yes.
  • Having OPG compete for renewables will create more opportunities to develop renewable resources in remote areas, and to partner with aboriginal communities. OPG has experience in this area, and many private developers are too risk-averse to go into these markets. They prefer to go after the low-hanging fruit, even if the orchard isn’t located in the best area.
  • Letting OPG compete in renewables could turn the Power Workers’ Union into an ally over time. Right now, renewables mean competition with union jobs. The PWU doesn’t like that — the fact that jobs at coal-fired power plants are being phased out and there is a significant threat to nuclear jobs as well. Renewables could be a path to save OPG jobs.
  • On that note, could letting OPG get into large renewables also be a signal that the province under this government is going to abandon efforts at building new nuclear reactors?
  • Finally, as a crown corporation, OPG can be directed to do things that other private developers would never take on — such as experimenting on a large scale with energy storage technologies, and being a test bed for energy innovation coming out of the province. Indeed, it would be interesting if OPG was directed to set aside a certain percentage of profits for R&D and to support pilot projects.

So that’s why I think this latest government directive is significant and should get more attention. Perhaps I’m reading too much into this, but my gut tells me no. I’ve long argued that OPG should be able to compete for large renewable energy projects. It’s something the Society of Energy Professionals, a shareholder in the nuclear business of Bruce Power, has called for since at least 2007. Many will complain, and for good reason. If a giant like OPG is to compete for these projects, how do we make sure it’s a fair competition? Will the process be transparent? Reasonable questions, but not a reason to not do it.

My quick review of Ontario’s much anticipated FIT Review

Snipped this map from the Ontario Power Authority’s two-year FIT program review. Here are some key takeaways from the review:

  • Solar prices are coming down, and in some cases way down. Small rooftop and ground-mount installs (under 10 kw) will see the FIT rates fall roughly 31 per cent . Large ground-mount systems of 500 kilowatts or higher will see rates fall by 21 per cent.
  • Wind of all sizes will see rates drop by about 15 per cent.
  • Other renewables, such as hydro, biomass and biogas, will remain the same.
  • Going forward, FIT prices will be set when contract is offered, not at time of application.
  • It’s being recommended that the government review supply and demand at end of 2013 and consider rising its green energy targets.
  • Up to 50 megawatts of contract capacity is being reserved for hydroelectric.
  • FIT rate reviews and adjustments will now take place annually.
  • Regulatory approvals are being streamlined in some areas.
  • Projects with a minimum of 15 per cent equity participation from aboriginal groups or communities will get extra points that give them priority in the queue. More points go to projects that have municipal or aboriginal council support.
  • 10 per cent of remaining FIT contract capacity will get set aside for projects that have a minimum of 50 per cent community or aboriginal ownership.
  • It looks like programs that offer supportive funding for community and aboriginal projects, such as the Community Power Fund, will get a boost based on recommendations from fund manager and program administrator.

A lot of coverage of this is making it seem like the government is reacting to rural protest against wind and solar farms, and unfounded public concerns about higher energy costs due to green energy. This is partly true, such as with the move to give communities more say, to encourage greater community participation, and to set aside capacity for projects with community ownership. These are all good moves. But the reduction in solar and wind prices, that was all to be expected. This is how FIT programs work — prices are supposed to come down over time. Even for solar, many in the industry seemed prepared to accept a reduction of around 25 per cent to reflect lower technology costs. The 15 per cent reduction for wind is also fair, in my view. My own opinion, however, is that large-scale solar should have seen greater reductions, and small rooftop rates should have seen lower reductions. MicroFIT solar installations, taken together, are still so small that they barely register in the overall price mix. Large solar projects benefit from economies of scale, do have a much greater impact on electricity prices, and should have taken a slightly larger rate haircut.  There’s also the fact that small rooftop projects aren’t controversial and make it possible for more citizens to participate in Ontario’s energy future.

What I didn’t see in this review was a much-needed call to accelerate transmission build-out and upgrade distribution systems with an eye to modernizing our electricity system — i.e. building a smart grid that makes the system more efficient and can accommodate more renewables. This entire area, in my view, has been neglected. There was also no talk of creating FITs for geothermal heating/cooling and solar thermal, and no talk of moving larger projects — particularly large wind projects, of say 20 megawatts or more — to the RFP model we used to use. Also, no talk of trying to work energy storage into the mix. At the moment, the FIT program discourages experimentation with solar because wind and solar producers aren’t penalized for producing energy during off-peak times when we don’t need it. The failure to come up with a FIT rate that differentiates between peak and off-peak times won’t lead to the kind of innovation we need.

One small note: It was good to see that domestic content rules are being created for concentrated solar thermal technology. The absence of these rules has made it difficult for Toronto-based Morgan Solar to participate in the FIT program.

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.

LoyaltyOne tries to influence positive “green” choices by dangling Air Miles in front of consumers — and it works

My Clean Break column this week takes a closer look at Air Miles for Social Change, a new division within LoyaltyOne, which runs the popular billion-dollar Air Miles rewards program. This new business division has spent the past 18 months partnering with government agencies, utilities and environmental groups on programs that get consumers to buy greener products, take transit, consume less energy, reduce their waste and embrace healthier diets and lifestyles. Normally I’m skeptical of anything having to do with loyalty programs, but here’s the thing: it seems to work, and work really well.

For some reason, a large percentage of the population really dig getting Air Miles. There’s trophy value to them, and while they’re worth much less than cash itself, members of the Air Miles program seem to treasure these rewards more than cash. An odd phenomenon, but a good one. That’s because for government agencies and utilities and transit authorities, handing out Air Miles in exchange for good behaviour is much cheaper than handing out cash in the form of discounts and rebates. And because they’re partnered up with LoyaltyGroup, which has direct access to and detailed information on nearly three-quarters of Canadian households (i.e. about 10 million), it gives them a less expensive yet highly more targeted way to reach out to consumers — at least when compared to that relatively ineffective and expensive medium called advertising. The Ontario Power Authority, the first agency to work with Air Miles on such a program to encourage energy conservation, found that it spent two-thirds less but got seven times the results compared to its advertising- and rebates-based approach a year earlier. You’ll get more details on that if you read the column.

Since working with the OPA, Air Miles for Social Change has run with the concept and now has about 25 similar programs on the go across Canada. It’s catching on.

It’s not that issuing rewards for good behaviour is an entirely new thing. It’s what Toronto’s Lowfoot.com is doing, as well as New York City-based Efficiency 2.0 — both focused on energy management for consumers. But what Air Miles brings to the equation, at least in Canada, is unmatched reach into households. And with that comes the power to influence positive change with carrots instead of sticks — not that we don’t need both.

Soo paper mill to generate 30MW and capture heat using wood waste as fuel

It would be nice to see more of these combined heat and power projects announced across Ontario, particularly those that take advantage of local wood waste. The Ontario Power Authority just announced that it has struck a 10-year power purchase agreement with St. Marys Paper Corp., a large paper mill in Sault Ste. Marie, which is in northern Ontario. The mill plans to build (and co-locate) a new power plant that will use bark and wood waste to generate 30 megawatts of electricity. Waste heat from the plant will be used by the paper mill for industrial processes. Construction is expected to begin next year, and it’s anticipated that 555 direct and indirect jobs will be created as the plant works toward commercial operation in 2014.

This project achieves many things. Jobs, for one, as well as green and efficiently used energy. It also makes St. Marys Paper more competitive, so in a way it provides some added job security for existing employees at the plant. One concern, however, is the fact that St. Marys has negotiated access to up to 400,000 tonnes of biomass annually from the area’s Crown forests for the life of the project. What this means, exactly, I don’t know. Does it mean St. Marys can harvest the forest slash or directly cut down trees for fuel? I would hope that whatever is harvested from these forests will go toward producing paper products first, and then whatever is left over can be used for energy production.

It would also be nice if the power authority disclosed exactly how much it’s paying for this electricity or any other incentives it may be offering. There’s a hint in this report that tens of millions of dollars may flow to the company from the province’s forestry sector prosperity funds, and this would be on top of the $17 million or so in financial aid that went to the struggling company after it was rescued from a bankrupty sale in 2007. The hope, one assumes, is that the CHP plant will lower energy costs for St. Marys and help it to eventually wean itself from corporate welfare.