Changes to Ontario’s FIT: Implications for the Co-op Sector and Others

On May 30, 2013, Ontario’s Minister of Energy Bob Chiarelli announced changes to the FIT program. Most significant are the declared end of Feed-in Tariffs on “Large FIT” projects (those with nameplate capacity > 500kW); the continuation of the “Small FIT” (10-500kW) and MicroFIT (<10kW) Programs, with 900MW to be allotted over the next four years; the stated intent to eliminate domestic content requirements; and an enhanced role for municipalities, including the prioritization of projects with municipal ownership (“participation” in OPA parlance).

At the same venue, the OPA’s Shawn Cronkwright revealed the results of the current round of FIT applications. For the past two weeks applicants have been receiving notices of whether their applications had been terminated as “incomplete” or “ineligible”, or whether they were successful and would move on to the TAT/DAT. Of some 825MW of applications, it turns out that only 192.8MW successfully applied to the program. The rest of the applications – over 75% of the kW – have been terminated.

Over the past year, the renewable energy co-operative (REC) sector has expanded from about a dozen RECs to about 60, as developers and communities got together to avail of the new FIT 2.0 Rules which favoured, through the Priority Points system, applications for projects with co-op “participation” – that is, equity input from co-ops (all of whose members are natural persons resident in Ontario). With the attrition rate among applicants, it turns out the highly prized “points” for co-op participation are redundant: there is no points competition, as the number of eligible applicants is already reduced below the 200MW planned contract allotment.

The elimination of applications has made not only the points system redundant, but has also eliminated any competitive advantage for earlier applicants: pre-existing time stamps are thus redundant as well.

The irony of all this will not be lost on those property owners and developers who quite reasonably believed that they would have little chance at getting a contract unless they partnered with an aboriginal group or a co-op. Now they’ve partnered, selling off between 15% and 51% of their projects, incurred legal fees to draw up joint venture and other agreements, spent significant time negotiating terms, all in order to gain an advantage that turns out to be completely unnecessary.

Indeed, it now seems that partnering would in fact have put applicants at a disadvantage. Ultimately, given attrition, the key to getting a contract turns out to be simply submitting a complete and correct application. But the participation projects had to fill out more Prescribed Forms than others, which left more room for mistakes to be made. Higher points thus meant higher risks in the application stage (and higher future risks, which will be the subject of a future post).

Interestingly, this appears not to have affected Applicants as might have been expected. According to statistics provided by OPA (see http://powerauthority.on.ca/news/shawn-cronkwright-cansias-solar-ontario-2013  and the table below), a total of 3938 applications were submitted, and 1163 passed through Stage 1&2. This represents a success rate of 29.5% (only 23% if we count in terms of kW). The proportion of these that were participation projects changed little between application and announcement, which suggests that overall participation projects were not at a disadvantage – or that perhaps they generally worked harder to ensure quality applications.

Within the participation projects, the quality of applications (as measured by successfully passing Stage 1&2) was lowest among aboriginal participation projects, which dropped from 41.8% of applications to 24.2% of successful applications. Quality was highest among Education and Health Participation projects, which jumped from 23.6% to 38.3% of successful applications. Co-op representation improved somewhat, from 11.6% to 14.7%, though the proportion of Capacity Set-Aside (CCSA) applicants remained constant.

Applications	Submitted	Submitted (%)	Successful (Stage 1&2)	Successful (Stage 1&2)
Aboriginal	1645	41.8%	281	24.2%
Of which CCSA	494	12.5%	109	9.3%
Co-op	458	11.6%	171	14.7%
Of which CCSA	326	8.3%	95	8.2%
Education/Health	930	23.6%	446	38.3%
Total Participation Projects	3033	77.0%	898	77.2%
No Participation	905	23%	265	22.8%
Total	3938		1163	1163

All of this suggests there was no inherent disadvantage, or higher risk, for participation projects. In these applications there was however substantially more work involved; and there may have been a higher level of diligence applied by applicants, though this would be difficult to verify. It’s clear that many applicants feel the elimination of applications was at times rather arbitrary, which if true suggests that diligence played a lesser role than the whims of the bureaucracy.

Nor, as it turns out, was there any advantage to having a partner or points (due to attrition eliminating this competition).  So we might reasonably ask, what was the point of all that?

Well, some of us in the sector have noted a distinct tendency for the OPA to make us jump through hoops for no apparent reason, except perhaps to satisfy a certain sadistic tendency within that bureaucracy. That’s perhaps overly speculative.

But it certainly seems that the Ministry wanted to see co-ops and aboriginal groups participate in project ownership, and that wish has been fulfilled: fully 77% of applications in line for TAT/DAT have either aboriginal, co-op, or education/health ownership or siting.

That much of these community-owned kW were effectively expropriated from developers and property owners by stealth is an issue that remains to be assessed. I am thinking of the farmer who sold 15% of his project to a co-op because it seemed he had to if he wanted a contract. On the other hand, what of the projects that didn’t even apply, because they didn’t feel they stood a chance without taking on partners, and who simply stepped out of the game.

Looking ahead, as the Ministry has announced its intent to procure (via OPA) another 70MW under a second small FIT window before the end of 2013, no doubt a large number of the recently terminated applications will be re-submitted. Assuming we’ve learned through this process what needs to be done to submit complete and eligible applications, there may well be a genuine points competition in the next round.

What we don’t know yet is how the priority points will be structured in the next round. Municipalities are clearly slated to be sources of points, but what is not yet confirmed is if co-ops and aboriginal groups will maintain their (so recently won) attractiveness. I’m betting they will – I think it would be folly for the Ministry to back away from this initiative so soon – but I won’t bet much until the Ministry makes a stronger statement.

As ever, uncertainty is a key theme under the evolving landscape of renewable energy in Ontario.