In a much anticipated decision, the Ontario government released its changes to the province’s groundbreaking Feed-in Tariff Program on March 22, 2012. Most significantly, the government emphasized its continued commitment to developing its renewable energy resources, the use of feed-in tariffs policy for doing so, and a further expansion of Ontario’s green energy economy.
Details of the new program, dubbed FIT 2.0 by participants in the review process, are contained in a report to the government. The government has formally accepted the report. Regulations are now being developed by the Ontario Power Authority to implement the program.
For the most part, renewable energy advocates breathed a sigh of relief with the announcement.
The move puts Ontario squarely in competition for leadership of North American political jurisdictions developing renewable energy. No other jurisdiction has such a comprehensive policy covering most renewable sources of electricity generation, nor the tariffs to make development possible.
Other jurisdictions, such as California and New Jersey, have specific programs for solar photovoltaics (solar PV), and overall targets for renewable energy that typically favors large wind projects, but none have taken the portfolio approach Ontario has chosen.
There are no tax subsidies for renewables in Ontario, or Canada for that matter. As a consequence, Ontario’s new feed-in tariffs remain among the most aggressive in North America.
Ontario, and the much smaller province of Nova Scotia, are also among the few jurisdictions in North America to emphasize community or local ownership of renewable generation.
Nevertheless, Ontario’s announcement did not address a major barrier to the rapid expansion of renewables in the province: the antiquated grid and the reluctance of the grid operator to increase connections.
Disclosure: Paul Gipe was a participant in the Ontario FIT review on behalf of the Green Energy Act Alliance.
Significant Cuts to Solar PV Tariffs and Introduction of New Size Classes
Reflecting the rapid changes in the cost of solar modules, Ontario substantially cut tariffs for solar PV from as little as 10% to as much as 30% from the program’s original tariffs launched in the fall of 2009.
Projects less than 10 kW suffered the biggest cut of approximately 30%. Tariffs for large groundmounted systems were cut 22%.
Still, the new tariffs remain substantially higher than those for comparable size systems in Germany, one of the world’s largest markets for solar PV.
In addition to the changes in specific tariffs, the new program uses different size tranches than in the original program both for rooftop applications and for groundmounted systems.
The original rooftop tranche from 10 kW to 250 kW was changed to 10 kW to 100 kW, and the 250 kW to 500 kW tranche was changed to 100 kW to 500 kW. Similarly, two new tranches for groundmounted systems were added: 10 kW to 500 kW and 500 kW to 5 MW. In the original program there were only two tranches for groundmounted systems: microFIT of less than 10 kW, and all other sizes up to 10 MW.
Wind Tariffs Cut 15%
Solar was not the only technology that saw its tariffs cut dramatically. Tariffs for wind energy were cut nearly 15%.
Other Tariffs Remain Unchanged
Tariffs for hydro, biomass, on farm biogas, biogas, and landfill gas remain unchanged.
Inflation Adjustment Raised for Bioenergy
The review substantially raised the inflation adjustment for bioenergy (biomass and biogas) from 20% in the original program.
For long-lived capital projects with contract terms of two decades or more, the degree with which tariffs rise with inflation can make or break an investment. This is often overlooked in the focus on the initial tariffs. The French program adjust tariffs from 60% to 70% of the rate of inflation depending upon the technology. The British micro-generation program raises the tariffs fully with inflation, in other words the tariff adjustment is a full 100%.
Thus, raising the bioenergy inflation adjustment may be one of the more significant developments in Ontario’s new program.
The inflation adjustment for wind and hydro remain the same. And the absence of any inflation adjustment for solar PV continues in the new program.
Reviews Move to One-Year Cycle
To keep pace with changes in the cost of generation, particularly for solar PV, reviews of the Ontario program will move to a one-year cycle. Moreover, the program now clearly delineates when new prices will be introduced.
The next review will begin in November of this year, with prices for new projects implemented in January, 2013.
Community Power Preference
Ontario found that the original FIT program’s first-come, first-served approach to awarding contracts didn’t account for the increased complexity and increased time required to develop community-owned projects. Consequently, the government has proposed changes to the Feed-in Tariff Program to encourage more community ownership.
FIT 2.0 will take several steps to boost participation by Ontario citizens.
- Introduce a system for prioritizing connections for community, aboriginal, and public institutions,
- maintain the price adders or bonus payments for community- and aboriginal-owned projects, and
- set aside 10% of grid connection capacity for community and aboriginal projects with a minimum of 50% equity ownership.
Projects with more than 50% of the equity owned by aboriginal communities receive a bonus payment of $0.015 CAD/kWh. Projects with more than 50% of the equity owned by community groups, farmers, and cooperatives receive a bonus payment of $0.01 CAD/kWh.
New Ranking System Introduced
New contracts will be awarded on a points or grading system. No contracts will be awarded unless the project has a minimum of one point.
Community-owned and aboriginal-owned projects receive the highest number of points, three, with schools and other public institutions receiving two points.
Projects that receive municipal council support receive two points as do “shovel-ready” projects.
Hydro and bioenergy projects receive one point for providing “system benefits”.
By definition then, hydro, bioenergy, community and aboriginal projects have preference within FIT 2.0.
Possible Increase in Renewable Target
Despite Ontario’s aggressive Feed-in Tariff Program, the province’s renewable target remains extremely limited by international standards, and even by North American Standards.
The Ontario Power Authority’s Long Term Energy Plan allocated only 10,700 MW of new renewables by 2018 or about 13% of electricity consumption in the province.
For comparison, California’s recently updated renewable target of 33% is increasingly seen as modest.
At the same time Ontario was issuing its announcement, the Danish government was also issuing a press release. On March 22, seven of Denmark’s eight political parties endorsed new renewable targets: 50% of electricity supply by 2020, and 100% of the country’s consumption of electricity, heating, and transportation would be renewable by 2050.
To address concerns that Ontario will quickly reach its renewable target, FIT 2.0 moves the target up to 2015, allowing development to occur more quickly than in the original plan. In addition, the government announced it will launch a review of the target in 2013 to determine whether or not the target should be raised.
Connection Barriers Remain
Despite the generally favorable response to Ontario’s announcement, analysts were quick to note that the biggest obstacle to completion of more renewable projects, as opposed to more contract awards, was connection to Ontario’s aging grid.
The largest local distribution company in Ontario, Hydro One, has become notorious for its arcane, contradictory and often arbitrary rules for interconnection.
The government’s announcement didn’t address these issues and went so far as to enshrine one of Hydro One’s most often questioned policies, the 7% rule, “pending the results of additional studies.”
The utility dictates that no more than 7% of any distribution transformer can be used for renewable energy of any type.
In California, a similar rule by the state’s major utilities limits renewables to 15% of capacity or twice that by Hydro One.
No Solar DHW or Other Technologies
FIT 2.0 doesn’t broaden the program to include new technologies. No tariffs were provided for solar domestic-hot-water (solar DHW), for storage technologies, for small wind turbines, for ground-source heat pumps, or other technologies-all technologies included in the British micro-generation program.
Despite these drawbacks, the Ontario government has withstood the fierce opposition of the anti-renewables lobby and refined a pioneering program that has made the province a beacon of renewable energy policy in a sea of mediocrity in North America.
