Unlikely Coalition Joins Forces to Recommend Changes to Ontario's Feed-in Tariff Program

The 100-page report filed on on December 14, 2011 by the Green Energy Act Alliance and Shine Ontario Association to Minister of Energy Chris Bentley urged the government to stay the course and maintain the integrity of the FIT program while proposing significant changes to details of the program.

Ontario launched a comprehensive feed-in tariff program in the fall of 2009. The first of its kind in North America, the program set feed-in tariffs as the mechanism for procuring new renewable generation from wind turbines, solar panels, hydro-electric plants, and biogas generators. Administered by the Ontario Power Authority (OPA), the program included a review after two years.

The Green Energy Act Alliance (GEA) was the major public interest organization advocating for a feed-in tariff program in Ontario. The GEA is a who's who of Canadian environmental groups and renewable energy advocates, including Environmental Defense, the Pembina Institute, World Wildlife Fund, the David Suzuki Foundation, the Ontario Sustainable Energy Association, and the Community Power Fund among others.

Shine Ontario is a new Ontario trade association representing solar photovoltaic (solar PV) manufacturers, project developers, and installers. The association includes the largest solar PV manufacturer in Ontario, Canadian Solar, whose plant near Guelph is capable of 250 MW of modules per year, and SkyPower a major developer of solar power plants.

The joint submission is unusual because the objectives of renewable energy advocates often differ from those of trade associations. However, the disparate groups and businesses agreed on several key recommendations.

• Raise Ontario's sights — set annual targets of installations by technology
• Keep integrity of the program: Keep FITs for all technologies, all sizes
• Cut Solar PV tariffs from 11% to 32%
• Introduce annual tariff degression targets for Solar PV
• Introduce new Solar PV "brownfield" tranche
• Add new technologies to the FIT program including solar hot water, ground-source heat pumps, small wind, and energy efficiency
• Make price-setting and grid connection more transparent
• Establish a carve-out for FIT contracts by community and aboriginal groups
• Reduce wind costs by introducing differentiated wind tariffs
• Revise future FIT reviews to allow more time for stakeholder engagement

Significantly, the joint submission urged Ontario's Minister of Energy Bentley to set annual installation targets for each technology that would result in more than 15,000 MW of new renewables by 2018, including more than 6,000 MW of solar PV and more than 7,000 MW of wind. Under Ontario conditions, this mix of new resources could generate more than 30 TWh, contributing a modest 23% to the province's supply of electricity.

The report notes that many other jurisdictions have much more aggressive targets for new renewable energy than the proposed program.

As part of the report, proponents commissioned a California consultant, Robert Freehling, to construct a model for estimating the impact of the proposed program on Ontario ratepayers. Freehling calculated that the mid-cost scenario would add about 10% to ratepayers' cost of electricity through 2018, the midpoint of OPA's planning horizon.

Ontario is planning to build two new nuclear power plants within the next decade. Freehling calculated that if the new renewable generation offset the construction of the new nuclear plants, there would be little or no additional cost to Ontario ratepayers for the renewable generation.

The solar industry participants in the joint submission provided data on installed costs, annual operating costs (including substantial lease fees for rooftop installations), and their desired return on equity. This data was used to calculate "indicative" tariffs for the different solar PV tranches in the proposed program.

As part of their call for increased transparency in Ontario's FIT program, the proponents placed their tariff calculations and Freehling's costing model in the public domain. OPA, the Ministry of Energy, and the public have full access to both models.

Previous tariff calculations were made by OPA using a proprietary discounted cash flow model. The model used in the joint submission adapts the Profitability Index Method developed by Bernard Chabot. The latter method uses fewer key variables than required in a discounted cash flow model, allowing for more transparent rate setting.

Chabot had advised the Ontario Sustainable Energy Association in 2005 for its first report to the Ontario Ministry of Energy for what eventually became the Standard Offer Contract program. Chabot has presented workshops on his methodology for tariff setting across Canada and the U.S.

Now that both the model for calculating indicative tariffs and the model for estimating program costs are in the public domain, they can be used by proponents of feed-in tariffs elsewhere in North America.

The joint submission also urged that Ontario expand the feed-in tariff program to include solar hot water, ground-source heat pumps, and energy efficiency as recently pioneered in Great Britain.

The report also recommended that Ontario revise the tariffs for wind energy by moving to differentiated tariffs like those used in Germany, France, and Switzerland. Adopting differentiated wind tariffs would have the effect of cutting wind tariffs at windier sites in the province while keeping the base tariff the same as in 2009.

• Background: Ontario Feed-In Tariff: 2011 Review
• Report: Ontario Feed-In Tariff: 2011 Review
• Proposed revised solar PV feed-in tariffs for Ontario in 2012
• Ontario Ratepayer Impact of Sustainable FIT Program

Disclosure: Paul Gipe participated in the Green Energy Act Alliance's contribution to the joint submission by the GEAA and Shine Ontario Association.