Two Steps Forward, One Back: Ontario Cancels Feed-in Tariffs for Large Projects

By Paul Gipe

FITs Retained for “Small” Projects

Renewables to Remain in Province’s Energy Plan

Coal Is Dead

New Nuclear Is on Life Support—if Not Dead

Nuclear Refurbishments on the Table

Renewables’ One-Fourth Supply Rising to One-Third

There’s no sugar-coating what happened last week. Ontario’s Minister of Energy, Bob Chiarelli, used the occasion of the annual conference of the Canadian Solar Energy Industry Association (CanSIA) to announce that he was canceling feed-in tariffs for large projects.

It’s a bitter setback for all renewables advocates in North America, but an even more stinging defeat for those who believe feed-in tariffs are not only the most cost-effective renewable energy policy but also the most egalitarian, allowing all players to participate in the renewable energy-revolution–not just a few multi-national companies.

Adding insult to injury, Chiarelli said he was replacing the feed-in tariff with a bidding system–the inequitable policy that feed-in tariffs were specifically designed to replace.

To mollify his CanSIA audience, and the long-suffering renewable-energy supporters of his Ontario Liberal Party, he said that feed-in tariffs for small projects—those less than 500 kW in size—would continue. Sort of. Contracts will be offered for up to 900 MW of additional capacity through 2018.

For perspective, 900 MW of additional capacity will deliver about 2 TWh of generation per year in a system consuming 150 TWh per year—or a little more than 1% of supply in five years.

Suffice it to say, Ontario is not Germany. There will be no transition to renewables at that rate of development.

Disclosure: As we say in Indiana, I have a dog in this fight. Since 2004, I’ve worked closely with my Ontario colleagues in the community-power movement to bring feed-in tariffs back to North America. I’ve worked for or with the Ontario Sustainable Energy Association, the Toronto Renewable Energy Cooperative, and the Green Energy Act Alliance. I’ve called Ontario’s feed-in tariff program the most progressive renewable energy policy in North America in three decades.

This is a Disaster, Right?

Yes. The enemies of renewables, and especially those who are threatened by such a seemingly radical policy as feed-in tariffs, will be crowing.

But it’s not the end of the world. As one renewables advocate noted, “we had a good run, and we accomplished a lot.” Moreover, the actual effect on renewable development in Ontario will be modest at best—at least in the short term. There are a lot renewables in the pipeline that will be built in the next few years.

And, Chiarelli’s decision could have been much worse. The Liberals could have simply thrown in the towel and said, “That’s it, that’s all the renewables we want.” To their credit, they didn’t. Instead, they left the door–if not open–at least ajar.

How much more renewables are built in Ontario will largely depend on what the Long-Term Energy Plan says should happen with nuclear.

Long-Term Energy Plan

The Ministry of Energy recently began a semi-regular review of its Long-Term Energy Plan (LTEP). The current plan envisioned about 11,000 MW of new renewables. Nearly all of that capacity has been contracted for, or has already been built since the ruling Liberal Party came to power in late 2003. The plan also set aside a fixed amount of capacity for Ontario’s large nuclear fleet, including refurbishment of existing reactors and new construction.

The plan will be the subject of much back-room jostling of various interest groups, as well as the more formal public enquiries. Unlike in the past, however, the new renewables industry will be elbowing up to the table to be heard in addition to the nuclear and natural gas industry, which, with their allied unions, previously dominated such discussions.

One industry that won’t be at the table is coal.

Coal is Dead

At one time coal generated nearly one quarter of Ontario’s electricity.

No matter what happens with the Ministry’s energy plan, coal is dead in the province–and it is not coming back. Ontario will remain the only jurisdiction in North America that made a public commitment to closing its coal plants—and delivered on that promise. The province’s last plant will be taken off-line this year—one year ahead of schedule.

In 2003, both the Liberal Party and its chief opponent, the Progressive Conservative Party, campaigned in part on who was more dedicated to protecting the health and well-being of Ontarians. It may be hard to believe south of the Canadian border, but the two parties fought over who could close the coal plants the fastest.

The Liberals won that contest—and consistently have won since. For much of the past decade the Conservatives have hammered the Liberals over whether Premier Dalton McGuinty could be trusted to close the coal plants as promised.

Once it became clear that McGuinty’s Liberal government was going to deliver on closing the coal plants, the Conservatives, and the New Democratic Party—the third party of Ontario politics—shifted their campaigns to other issues.

In recent years, the Conservatives have campaigned for more nuclear power and less renewables. The New Democrats want more public ownership of generation rather than less, through what they call “back-door privatization”. What the New Democrats don’t want is more nuclear.

No one wants coal.

New Nuclear is on Life Support—if Not Dead

Ontario has a long and troubled love affair with nuclear. One could argue that the current growth of independently-owned renewables is more an outgrowth of the province’s problematic development of nuclear power than the more recent desire to offset coal-fired generation.

The mismanagement of nuclear power by the former provincial utility, Ontario Hydro, is notorious in the annals of an industry noted for cost overruns and poor performance. In the late 1990s, the province carried a multi-billion dollar debt for several reactors that were inoperative—and had been for some time. This led the previous Conservative government to break Ontario Hydro into its component parts of generation, transmission, and distribution.

It was the partial privatization of the electricity sector by the Conservatives that opened a window of opportunity for independent power generation (although Ontario ratepayers are still paying off the stranded nuclear debt). It also gave the Liberal Party the opening it later needed to bring on new renewables.

             Canadian Pride Was Costly

Canada had jumped on the nuclear band-wagon early and the Canadian industry developed in Ontario, Canada’s most populous province and the country’s industrial heartland. The core of the nuclear industry is concentrated in Ontario, as are most–20 out of 22–of the country’s reactors.

There is one reactor in Quebec and one in New Brunswick. Quebec recently chose not to refurbish its reactor.

Ontario’s nuclear plants were by built by a federally-financed Canadian company, Atomic Energy Canada Ltd. (AECL), based in Ontario and using Canadian developed technology. The CANDU (Canada Deuterium Uranium) reactors use pressurized heavy water rather than the light water used in most other reactors.

There was no small amount of national pride and desire for local affecting Ontario’s decision to use the CANDU reactors. This proved a costly mistake.

At one time as many as one-fifth of the reactor fleet was out of service. And, like elsewhere, all the reactors have gone seriously over-budget costing Ontario consumers billions of dollars in debt that has yet to be retired, for reactors that are nearing the end of their useful lives.

            Decision on New Units “Delayed”

Nevertheless, nuclear has been a favored technology and currently generates half of all the electricity produced in Ontario. The McGuinty government agreed to a Long-Term Energy Plan that maintained nuclear’s central role, including the construction of two new reactors.

In the spring of 2008, Ontario called for proposals to provide 2,000 to 3,500 MW of new nuclear capacity. But there was a bump on the road to the Canadian nuclear renaissance.

After France’s Areva was disqualified on a technicality, the province was left with two bidders: the favored hometown team of AECL, and Toshiba’s Westinghouse.

Rumors swirled around the negotiations. No one but the parties involved in the negotiations knew any details, because the bids and discussions were declared “confidential”. Speculation centered on the provincial government’s negotiations with Conservative Prime Minister Stephen Harper’s federal government and AECL for financial guarantees to cover any cost overruns—as opposed to Ontario ratepayers picking up the full tab as in the past.

Eventually the Harper government sold off AECL to SNC-Lavalin, a Quebec engineering company. It’s now unlikely that the Canadian government will offer any guarantees to Ontario if it chooses to bet again on AECL.

When the bids were opened in mid-2009, the Toronto Star’s Tyler Hamilton reported that the minister of energy, George Smitherman, suffered from “sticker shock”. Smitherman had a well-deserved reputation as a man not easily shocked or deterred when he wanted to do something. And he wanted to build new nuclear as well as renewables.

At the time, Smitherman knew exactly how much new renewables would cost. As the father of feed-in tariffs in Ontario, he knew how much the province would pay for new wind-generating capacity. There were rumblings that the price for nuclear—the estimated price—was more than that for wind, which was being offered $0.135 per kilowatt-hour. No one knew, including Smitherman, what the final price of nuclear would be.

If the past was any guide, the new reactors would cost far more than that estimated. The last reactors built in Ontario, those at Darlington in the 1980s, cost twice what had been projected.

Smitherman hesitated.

Since then, the decision to award the contract has been delayed repeatedly. Observers speculate that the decision to build the two new reactors will continue to be “delayed” for the foreseeable future.

Nuclear Refurbishment

Meanwhile, the existing nuclear fleet is aging. Several reactors have been refurbished and have been brought back into service and several more are slated for renewal.

In the final days before Dalton McGuinty stepped down as Ontario’s premier, the provincial government awarded a $600 million, no-bid contract to SNC-Lavalin to begin the “preparations” for refurbishing the four units at Darlington, the youngest reactors in Ontario’s nuclear fleet.

Ontario is now committed to the rebuilds at Darlington.

The reactors at Pickering are the province’s most problematic. Since the eight reactors were built, beginning in the late 1960s, suburban sprawl from the mega-city of Toronto has grown around the plant. Any accident at Pickering requiring mass evacuations would prove disastrous. The plant also has the dubious honor of being one of the most expensive and least reliable nuclear plants in the world.

The most recent refurbishment by AECL (SNC-Lavalin’s predecessor) did not go well. The Point Lepreau reactor in New Brunswick took 2.5 times longer than expected and cost nearly twice as much as contracted.

The Pickering reactors will be shut down. It is only a question of when, as Ontario Power Generation has applied only to extend its life until 2020. The public hearings on the license extension have just begun.

How the recent decision by Southern California Edison Company to retire its two units at the San Onofre generating station between Los Angeles and San Diego will influence Ontario is unknown. The two units had just undergone an expensive refurbishment when they suffered extensive damage to their steam generators.

What happens with nuclear—new construction and refurbishments—is the elephant in the room of Ontario energy policy.

Nuclear Limits More Renewables

Nuclear doesn’t play well with renewables. Renewables, because their generation varies during the day and by season, work best with other sources of electricity that can ramp up generation when needed. Nuclear is a “must run” resource, and when it provides such a high percentage of the generating mix as in Ontario it forces a rigidity on the entire system. When a power outage swept across the northeast of the continent in 2003, Ontario’s “heavy reliance on nuclear power contributed to the delay in restoring power to the province.”

Thus, the Liberal Party’s decision to avoid confronting the powerful provincial nuclear industry–and the bureaucracy that served it–left it with little choice but to accept only a modest amount of new renewables.

Liberal Party leaders fought running battles with the old guard inside the province’s energy and electricity bureaucracy even to include new renewables as anything more than a token presence. Those inside the existing institutions preferred nuclear and big hydro. They didn’t hide this. They had no reason to. These were the technologies that Ontario was built on.

In light of this, the decision to maintain nuclear’s status quo could be seen as part of a necessary bargain made by proponents in the McGuinty government in order to bring on new renewables over the objections of the old guard.

Renewables One-Fourth Supply Rising to One-Third

Ontario generated 22% of its electricity in 2012 with large hydro. New renewables, primarily wind, accounted for less than 4% of supply. Altogether, renewables supplied one-quarter of Ontario’s generation, far more than most US states and about that of renewables in California, the one-time renewables leader in the US.

So, despite all the Sturm und Drang around Ontario’s feed-in tariff policy, new renewables account for only a small portion of Ontario’s generation, and only a portion of that is from the feed-in tariff program.

By the end of 2012, total renewables projects in operation–other than large, heritage hydro resources–represented 2,755 MW. Such a fleet would typically generate somewhat more than 5 TWh per year, about the actual generation recorded by Ontario’s Independent System Operator.

Of this, more than half of operational capacity was from the McGuinty government’s procurement of renewables through a traditional system of Request for Proposals (RFP).

More significantly, three-quarters of all operating wind capacity was from the result of  the RFPs—not from the later Feed-in Tariff Program or its predecessor, the Renewable Energy Standard Offer Contract Program (RESOP).

Ontario’s vocal anti-renewable lobby has focused its ire particularly on large wind farms. Minister of Energy Chiarelli’s announcement at CanSIA cancelling FITs for large projects was particularly aimed at large wind projects, and included a number of provisions to make the siting of large wind farms more acceptable to the communities where the turbines would be located.

Ironically, Chiarelli chose to supplant FITs with RFPs for the procurement of large projects. What he euphemistically called “competitive procurement” was the very type of contracting that had caused the backlash against renewables.

There’s an additional 6,000 MW of new renewables in the pipeline, nearly all of which must be built within the next two years. Combined with the existing operational projects, new renewables should generate more than 18 TWh per year, or about 12% of total supply in a system producing 150 TWh per year.

Existing large hydro and new renewables will meet one-third of Ontario’s electricity generation, not counting the major expansion of large hydro facilities currently underway.

Meeting Targets

If all the projects in the pipeline are built as planned, Ontario will meet the targets agreed to by the former McGuinty government in the Long-Term Energy Plan.

The 900 MW of additional contracts announced by Minister of Energy Chiarelli for “small projects” simply completes the capacity set out in the plan for the period through 2018.

Knowing this, the government has, in effect, put a hold on contracts for any substantial new renewable capacity, using various stratagems.

The two-year review of the FIT program was much delayed. Then implementation of the program’s revisions, dubbed FIT 2.0, was further delayed.

The FIT applications window for small projects was only opened briefly. The FIT program for large projects has been effectively closed to new contracts for the past two years, as OPA has been working its way through the backlog of existing contracts and contract applications.

Consequently, Chiarelli’s cancellation of FITs for large projects will have no immediate effect on renewables development in Ontario. The program had been stalled anyway.

Who Loses?

Nevertheless, there are losers from the Liberal government’s controversial decision.

Foremost are the political opponents of current Premier Kathleen Wynne–the Progressive Conservatives (PC). The PCs had been calling for cancellation of the FIT program since 2010. They had also been campaigning for more local decision making in the siting of large wind farms. Specifically, they wanted to stop further wind development. In Chiarelli’s one announcement, Wynne’s Liberal Party took away two of the Conservatives’ principal campaign themes.

Equally furious with the announcement was the anti-renewables lobby. One could reasonably expect that if its intentions were really to increase local control it would have celebrated a great victory. Chiarelli gave local-control advocates everything they wanted—short of a veto on future projects.

Whatever legitimate grounds renewables opponents once may have had, their cause was long ago hijacked by Conservative Party operatives and they’ve become a clearly partisan voice. The Liberal Party’s decision puts off an early election, buttresses Liberal support among moderate voters, and otherwise avoids a PC victory any time soon to the chagrin of anti-renewables campaigners. (The antics of Conservative Toronto mayor Rob Ford, accused of smoking cocaine on a video, have certainly not helped the PC’s brand in Ontario.)

Politics is, after all, about power—gaining it, and keeping it once you have it. Ontario’s Liberal Party may well cling to power with this decision.

It’s some measure of non-hydro renewables’ new-found importance in Ontario that it has become a political football worthy of fighting over.

Another loser is Ontario job-seekers and the once-budding Ontario renewable energy industry.

Ontario’s Feed-in Tariff Program was launched with the high hopes of building a new industry to replace the waning auto-manufacturing industry that had been hard hit by the worldwide banking crisis. To that end, Ontario’s FIT program required that participants used solar and wind equipment with a minimum of domestic content. Such policies had long been used to nurture domestic industries in Ontario and neighboring Quebec.

Ontario’s domestic-content rules were disallowed in a World Trade Organization (WTO) decision. The federal government of Canada led only a lukewarm appeal of the decision, which it subsequently lost.

Canadians are conversant in trade disputes. They have a decades-long dispute on soft wood with their big neighbor to the south, that–despite decisions in Canada’s favor–has yet to be resolved. Similarly, they joke about the long-running “banana wars” between the US and Europe.

Wynne’s Liberal government could have chosen to fight the WTO and crafted a response that would have dodged the decision. The dispute could have gone on for decades. In the meantime thousands of MW of wind and solar systems could have been built in Ontario with Canadian labor. It chose not to.

In his announcement, Chiarelli made lofty statements about how he was confident that Ontario’s solar and wind industries had matured and were now competitive on the world market.

In short, the Liberal Party abandoned those companies that had located in Ontario. They were on their own in a North American market dominated by the US, where “buy American” policies are the norm in public procurement.

Ontario, as a leader in North American renewable energy development, also lost. While in the North American context they will continue to remain “among” the leaders in renewable energy development for the next two years, they will do so only because of the low expectations in North America. The 900 MW of new contracts they will offer over the next five years look paltry in comparison to regions in Germany and Italy.

And, of course, proponents of feed-in tariffs and community power were losers as well. Though the feed-in tariff market was effectively dead already, the largely  symbolic act by the government sent a clear signal that the only significant jurisdiction in North American using feed-in tariffs was walking away from the policy. Ontario would henceforth relegate feed-in tariffs to a small-project ghetto of projects less than 500 kW in capacity.

No commercial wind energy can be developed for less than 500 kW when each wind turbine is 2 MW or more. Thus, community wind is dead. One wry observer asked, “Was it ever alive?” No. Community wind had been stymied at every turn. But hope remained alive, while the opportunity still existed. Now the opportunity has been quashed, killing hope.

Are FITs Dead in North America?

Certainly Ontario’s decision is a staggering blow. But as Washington State’s long-time renewable champion’s Mike Nelson says, “If it was easy, it would have been done already.”

In the swirl of trends, movements, and counter-currents common in public policy, it’s often hard for us down in the trenches, slugging it out with our opponents, to see the bigger picture. When we lose a battle it’s hard to imagine winning the war.

It’s also easy to lose sight of how far we’ve come. Renewables are here to stay—even in fossil fuel-crazy North America. Ontario alone is on track to bring 12% of new supply principally from wind and solar to the province with the next two years. That’s a remarkable accomplishment in a country that seems hell-bent on exporting as much fossil fuels to the US as it can.

Ontario is entitled to a hiatus to take stock of their program. They’ve done more than any other Canadian province and more than most US states in developing non-hydro renewables. In the interim, they must tackle their thorny nuclear problem. If Ontario then decides to publicly abandon new nuclear construction and any further refurbishments, the delay will be worth it. Such a decision will open the door to more renewables—and the possibility of re-introducing feed-in tariffs for large projects.

In the meantime, we have to soldier on.

Feed-in tariffs have worked remarkably well in Europe, implemented on the model of 1984’s Standard Offer Contract Number 4 here in California. And in Germany and Denmark feed-in tariffs have enabled an unprecedented number of citizens from all walks of life to develop and own their own renewable sources of generation. That hasn’t changed.

We took two steps forward in Ontario. Now we’ve been forced to take a step back.

That’s still progress.