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.

Letters from Nowhere

So it would have been real nice to have offered a post last week analyzing the final FIT 2.0… but the rules have still not been published! The final rules were expected May 7. So what have the OPA been doing for two weeks?

We'll see any day now, likely just in time to spoil the long weekend! I'll do my best to flag the changes I see as most relevant to the Co-op sector in an early post.

Meanwhile, LIFE Co-op has been talking with a number of friends about the prospects for partnering on projects, and there's plenty of interest in the industry. However, it seems everyone is waiting with bated breath for the final rules to arrive.  There’s a good bit of pain in the industry, too, with all this waiting. It can be hard to describe how it feels in here, but my friend Andrew Hill has done a remarkable job in an open letter to the authorities: Andrew’s got a keen pen, and his letter expresses well what many are feeling.


I'll be back next week! Have a great weekend.

Shane

(Open Letter: Originally published by Andrew Hill on Linked-In, Feed-in Tariff group, May 9, 2012.)


Open letter to the Premier, Minister of Energy and the Ontario Power Authority Re: Delay of Feed-in-Tariff review

Dear Premier McGuinty, Minister Bentley, Mr. Andersen & Ms. Hiltz,
It appears that the Ministry of Energy, despite its April 5th 2012 charge to the Ontario Power Authority to resolve the Feed-in-Tariff review “as soon as possible” has been let down. The Ontario Power Authority itself claimed it would release the finalised results of the review on May 7th, a date which has come and gone; with only the passing reference on its website that they “are continuing to review and consider stakeholder input on the draft documents and will complete this process as soon as possible”.
Working in the renewable energy industry here in Ontario, I find this deplorable.
The entire Feed-in-Tariff programme has basically been on hold for the past six months while the review has been underway. I am in contact with companies involved in providing Micro-FiT systems to homeowners across this province on a daily basis as part of my job. I am saddened to report I receive word continuously of companies closing, laying off employees and pulling out of the solar industry altogether. It is not just small businesses, some of the larger manufacturers have cut back on their workforce or pulled their offices from Ontario.
Much is said about the renewable energy sector in Ontario creating jobs and bolstering the economy, however, the lengthy review process is doing the exact opposite. I would implore you to do all that you can to hasten the closure of the review and begin the working process of the programme without delay.
It would be a shame if my colleagues in the industry and I began lobbying CanSIA, OSEA and the other industry associations to spend some of the membership fees our companies pay on a media campaign to bring their plight into the public eye. If it is a case of the Ministry of Energy, the O.P.A. or another agency not wanting the programme to proceed and succeed, rather than subjecting the industry to a form of “siege warfare” in order to starve it to death; be humane by simply cancelling it and face the political music. (There is no other industry in this country that I can think of that would A) put up with a six month “shut down” without a publicised outcry or B) even survive for that length of time without customers!)
If it is merely a case of over thinking and miscommunication between the Ministry of Energy and the O.P.A. or associated parties that is causing the delay, please do feel free to convene a “war room” type group to put things straight, soon. The time has come to move ahead; the industry is and has been waiting, ready and eager; it is up to you now.
By way of reference: (MY CAPITALIZATION, You can not highlight here!)
From the O.P.A. website:May 4, 2012 Update
Thank you for your comments and submissions on the draft microFIT Program documents. We are continuing to review and consider stakeholder input on the draft documents and will complete this process as soon as possible. microFIT subscribers and applicants will be notified when the final microFIT Program Rules and Contract have been posted.

From the O.P.A. Webinar:April 13, 2012, Slide 16
Next Steps
•Comments on draft rules and contract accepted until April 27, 2012
•POST FINAL 2.0 RULES AND CONTRACT ON MAY 7, 2012
•Re-launch microFIT programs under 2.0 rules and contracts
–Transition period for existing post September 1, 2011 applications
–New application window
–Dates to be provided

From Minister Bentley’s letter:April 5, 2012, Page 2
Continuing Commitment to Clean Energy
As a first step, THE OPA SHALL BEGIN BY AWARDING 50 MW of microFIT and 200 MW of small FIT PROJECTS AS SOON AS POSSIBLE.

FIT 2.0: It's a good day to be co-operative.

FIT 2.0 is out (draft available for comments). What does it say for community power?

***
Update, (April 12), long after reading the FIT Contract Sec 17. Watch for the risks involved. If a supplier enters a contract as a community project and (for all but rooftop solar) the project community participation level drops below 15% at any time over the Term of the contract, the supplier is in default. Thus in any partnership we need to ensure that safeguards are in place to prevent the ownership from so doing. (For rooftop solar the limit is 5 years, rather than 20.)

In addition, Sec 17 has no comparable mechanism of default in the case where community participation drops below 50%. Recall that the Recommendations indicted a 10% set-aside for community projects with >50% community equity. This says to me that the 10% set-aside is not yet included in the contract, and there is no mention of it in the rules.  So unless it is being abandoned in its entirety, it seems fairly clear that we will be getting a community FIT one of these days. I'll put a bet on July, to coincide with the CEPP re-launch.
***

http://fit.powerauthority.on.ca/comments-welcome-draft-fit-program-rules-and-contract

The new Feed-in Tariff Rules have been published, and are very welcome. The OPA team should be commended this time for their quick action; they have clearly been working very hard on this.

The “FIT Rules 2.0” remain close to the recommendations offered by the Deputy Minister a short while ago.  A lot of attention has been paid to the points system by which priority for contracts will be granted, and it is sure that “community equity” will be highly sought after as a way to achieve higher points. (Read my previous post if you're not with me on this.


Some important questions were still being asked, including:

1) Are they serious about this new definition of community?

2) What kinds of partnerships are now facilitated? Will developers be knocking on co-ops’ doors?

3) What about the CEPP and existing applicants?

I’m going to offer a brief analysis based on a first reading of the rules and relevant definitions. My short answers are:

1)    Yes, they were/are serious.
2)    Lots of partnerships are possible, and co-ops (existing and new) will be sought after. But the requirements for co-op participation may not be entirely welcome (or entirely co-operative).
3)    It’s still tough to say.

Now the longer answers:

1) Are they serious about this new definition of community?

In true OPA legalese...

52. Community Investment Member means:


(a) in respect of a Large FIT Project or a Large FIT Facility, a Co-op with at least 50 Co-op Members that are Property Owners; or


(b) in respect of a Small FIT Project or a Small FIT Facility, a Co-op with at least 35 Co-op Members that are Property Owners.

 - and then this:

238. Property Owner means a natural person that, as of the date two years prior to the date of an Application, and at the date of such Application still is, the registered owner of real property in a Municipality in which a Project described in such Application is (in whole or in part) located.

“A” municipality…?


179. Municipality means a municipal corporation as defined by the Municipal Act, 2001, SO 2001, c.25.


Which is about what the recommendations had given us, but with more clarity.  As one new member suggested, it sounds a bit like France prior to the Revolution. No property? No rights!

Short answer: Yes, they were serious.

To be sure, this definition of property owner is exclusive, and will alienate a large number of people who rent, or co-own property, etc. It seems hard to justify this, and it will be challenged by a lot of parties.


2) What kinds of partnerships are now facilitated? Will developers be knocking on co-ops’ doors?


First, it is confirmed that existing applicants will be invited to re-submit their applications and retain their time stamp (but be careful about the timing!). Small projects (<500kW) get to re-apply first.
[FIT Rules 5.2 Transitional Provisions for Pre-Existing Applications]

Prioritization [FIT Rules Section 6]
Applications will be prioritized according to 1) points and 2) original time stamp. Points are the priority. They will be highly sought.

The points system is as we saw it, with 3 points for Co-op participation >15%, 3 for First Nations >15%, 2 for Education/Health Participation.

These are “Project Type” points, and CANNOT be combined. They each can, however, be combined with “non-project type” points. These are 2 for Municipal and FN support, project readiness or Ed/Health host, and 1 for “system benefit”. There are two exceptions: First Nations projects can’t get points for their own FN support, and Ed/H can’t get points for both type and host.


So let’s consider a few partnerships:

1)    A Co-op 15% share, with FN and Municipal support, on Ed/H property, project ready (one extra if water, biomass, biogas): 11 (12) points

2)    A Co-op or FN 15% share on Ed/H property, project ready: 7 points

3)    A private lease, co-op 15% share, municipal support, project ready: 7 points.

4)    A School w Municipal support, project ready: 6 points

5)    Private lease, co-op 15% share, no municipal support, project ready: 5 points

6)    Private lease, project ready: 2 points.


Maximizing points will maximize priority, and that suggests developers will be seriously weighing the sale of a portion of a project in order to get the contract. And why not? Isn’t that what many of us have been advocating? Note the last option (6) is effectively the industry standard - and this looks to be unlikely to achieve a contract in upcoming rounds. So grab your partners!


But how easy is it to “sell” a 15% portion of a project (at the application stage)?


[DEFINITIONS] 53. Community Participation Level means, in relation to a Project or a Facility, the percentage of the total Direct Economic Interest in the Applicant or the Supplier that is held by a Community Investment Member, provided that the Community Participation Level shall be reduced by a percentage equal to the percentage of the total Economic Interest (without double counting indirect Economic Interest) held in such Community Investment Member by any Person or Affiliate thereof whose primary business or employment is the development of non-community based electricity generation projects, as determined by the OPA in consultation with the third party administrator of the “Community Energy Partnership Program”.



That seems to say a developer could partner with a co-op, but must genuinely release the portion of the project to others through a co-op (unless the developer is already a deemed Community Power developer). Interesting role for CEPP here.


Note also the [DEFINITIONS 55] Community Participation Project Declaration which means that the co-op members who provide points eligibility also need to provide contact info, and a signed authorization that OPA may collect and use that information and may contact that person. Note the declaration must be part of the application. But while 35/50 resident members must provide their information, it does not seem the *investment* needs to come from those particular members. Rather, the investment comes from the co-op itself.

Nonetheless, the *members* are recognized as individuals, and there is something un-co-operative about, for instance:

[RULES] 3.3 Other Application Requirements
(a) If an Application is for a Participation Project, such Application must include
Supporting Documentation evidencing the requisite Participation Level with respect to eligibility for claimed Priority Points, Application Security amount and Price Adder. In the case of a Community Participation Project, the Application must include signed consent from each Co-op Member of such Co-op who is a Property Owner:
(i) to the collection, use and disclosure by the OPA of such member’s personal information contained in or supplementing the Application; and
(ii) to the OPA contacting each such member for verification purposes.


I think we need to ask OPA to clarify/correct this, because it would *seem to* require that 100% of the co-op's members who are "property owners" must consent to being contacted. In the definition of "Community Participation Project Declaration", it is only the minimum (35/50) who need to actively consent, which seems much more reasonable.

Generally, though, co-ops work by majority, not consensus; and collectively, rather than individually. I can understand the need for the Rules to be careful that "artificial" co-ops don't arise, and to verify the local participation... but some members are going to be uncomfortable with being “verified” as individual, consenting members of the co-op. As members of the co-op, members have *already* consented (to act collectively).

At any rate [Short Answer], it seems a wide range of partnerships are possible and attractive for developers and partners. Where co-ops are involved, however, the limitations on “property ownership” may bring some justifiable resentment. One can certainly imagine it being challenged on the basis of human rights. Could the OPA not use "residency in the municipality" as the criterion, verified using driver's license or some other records?

***
Updated, (April 12), after reading the FIT Contract Sec 17. Watch for the risks involved. If a supplier enters a contract as a community project and (for all but rooftop solar) the project community participation level drops below 15% at any time over the Term of the contract, the supplier is in default. Thus in any partnership we need to ensure that safeguards are in place to prevent the ownership from so doing.

In addition, Sec 17 has no comparable mechanism for default in the case where community participation drops below 50%. Recall that the Recommendations indicted a 10% set-aside for community projects with >50% community equity. This says to me that the 10% set-aside is not yet included in the contract, and there is no mention of it in the rules.  So unless it is being abandoned in its entirety, it seems fairly clear that we will be getting a community FIT one of these days. I'll put a bet on July, to coincide with the CEPP re-launch.
***

3) What about the CEPP and existing applicants?


There is very little to go on as yet regarding the CEPP. The Recommendations stated there would be new rules by July. I would expect them sooner. Will only-co-ops be eligible? What about existing applicants and/or grant recipients?

My gut feeling is that the CEPP will be restricted to Community Investment Members – that is, co-ops with 35 or 50 members – from here on in.  I would expect applicants who have not yet received a Funding Agreement to be out of luck.

For those who have a funding agreement, there is still no certainty that I can see. It is worth noting that it is considered an “event of default” if the recipient is no longer eligible to receive funds under CEPP, but there is some flexibility in how that is treated. Still, I would not be surprised if existing recipients who no longer fit the eligibility terms have their grants discontinued. That's going to upset a lot of people, no doubt "one or more individuals resident in Ontario". Well, it’s nice while it lasts.


Short Answer to it all: It’s time to get serious about Community Power, and it’s a good year to be a co-op (or, it seems, a co-op developer).

These new rules ensure that co-ops – along with First Nations, Municipalities, and Schools and Hospitals - have a significant role to play this next round of the game. And for that the CP sector is surely thankful.

Still, co-ops will have new challenges dealing with their membership if they’re going to play. But it’s developers who should take the initiative and offer some assistance to cover the added costs. Developers need to pony up – this is the new cost of doing business. Effectively, every Municipality could support at least one co-op, and some could surely handle a large number.

After a dreadful drought, these new rules arrive like a flash flood. The next few weeks and months will be busy, and I fear they may get ugly, as everybody – developers and co-ops alike – tries to grab their bit of the pie. I think it’s essential that the co-operative sector tries hard to co-operate, to build relationships and networks and trust, so we don’t fall prey to the boom and bust. If we work together, we may manage to ensure that there is a steady purpose for co-ops in the future of energy in Ontario.

FIT 2.0: Did they just completely change the game for community power?

The Ministry threw a fairly generous bone to the Community Power sector with its recommendations for FIT 2.0 (http://www.energy.gov.on.ca/en/fit-and-microfit-program/2-year-fit-review/). First, 10 per cent of remaining FIT contract capacity is to be set aside for local community and Aboriginal projects with greater than 50 per cent equity participation. And second, the points system, which will “prioritize projects” according to a points system where 15% or greater community/aboriginal equity ownership score 3 points – and projects need at least one point to get a contract. (Project readiness is likely the easy 2 points to get.)

How the OPA determines what “prioritization” means, and how it is done, will be a big part of what determines just how strong an incentive developers now have to engage community co-ops, aboriginal groups, or hospitals/schools.

Note the definition of a “Local Community Project: A co-op with a minimum equity participation of 15 per cent and a minimum participation level of 50 property owners in a municipality where the FIT Project is located.” ***This is a radically new notion of what constitutes a “community” under OPA rules, and could change the game substantially.*** It used to be that any individual resident, NFP, or charity in Ontario was a “community”. It's not entirely clear, but is certainly appears that this may no longer be the case.

If that's the case, how will this new understanding affect already submitted applications? Note the priority points are to be given where a community group is the applicant – so is it even possible for a developer to obtain these points by “selling” 15% of their project to a co-op? (And how likely is it they will?) Will existing “community” projects lose their adder (and be subject to higher security payments) if they’re not an eligible co-op?

And what about the CEPP (www.communityenergyprogram.ca)? Will individuals and NFPs still be eligible? Will grants be terminated? Will co-ops with fewer than 50 members be restricted to partial grants until they qualify?

Anyone with news on this is encouraged to share!

There are real opportunities here, surely, especially with regard to developers ready to partner with community groups to get hold of that 10% of remaining contract capacity. That’s a fairly substantial portion, and we know it’s tough for community groups to gather the capital for larger projects - so this 10% may become the more “distributed” part of the program. (To date, it appears community and aboriginal groups together have submitted over 3500MW, out of a total of 21,287MW of applications – or about 16% of the total applications submitted. But that includes individuals.)

I work with Local Initiative for Future Energy Co-op (www.lifecoop.ca) on a 2MW wind project near Kitchener; the 10% rule likely bodes well for us getting a contract from OPA, and we welcome new members. LIFE may also be open to exploring other partnership opportunities (in smaller wind or solar FIT projects); we have over 100 members eager for a chance to invest in a renewable energy project. Note that most of LIFE’s members are in the Regional Municipality of Waterloo – and that matters. CREW (www.crewzone.ca) is also working on starting an urban solar co-op in Kitchener-Waterloo.

There are lots of other co-ops out there (or trying to start up). If you’re looking to talk with your local co-op, give me a shout and I’ll try to connect you. If you want help in setting one up, I am available for consulting work, or you can look to:

www.ontario-sea.org (Harry French, Community Power Services Group)
www.coopzone.ca (has a list of co-op developers, myself among them)
www.trec.on.ca (TREC has long been a leader in the Renewable Energy Co-op Sector)

At any rate, I’d say it’s time for developers to start taking community power seriously.