Important Changes to the OPA FIT Program: New Domestic Content Requirements and New Pricing

On August 16, 2013, the Ontario Power Authority (“OPA”) announced two significant changes affecting its Feed-in Tariff (“FIT”) program. Firstly, the minimum required domestic content levels have been significantly lowered in order to bring Ontario towards compliance with the recent World Trade Organization (“WTO”) rulings (click here to see article http://www.dalelessmann.com/en/news/blog/wto-appellate-body-releases-app...). Secondly, a new feed-in tariff pricing schedule has been released, most significantly marking a reduction of the feed-in tariff rates for electricity generated by solar power generation facilities. At the same time, pricing for wind energy remains constant and the rates for bioenergy and water power facilities have increased.

Domestic Content Requirements 

In an effort to bring the FIT program towards compliance with the WTO ruling dated May 24, 2013, the OPA has reduced the minimum required domestic content levels for wind and solar power generation facilities as follows:

Renewable Energy Technology

Minimum Required Domestic Content Level

On-shore wind facilities 20%
Solar photovoltaic (PV) facilities utilizing crystalline silicon PV technology 22%
Solar photovoltaic (PV) facilities utilizing thin-film PV technology 28%
Solar photovoltaic (PV) facilities utilizing concentrated PV technology 19%

The new requirements apply to the Fall 2013 procurement window for Small FIT, microFIT, and pilot solar projects on unconstructed buildings, as well as to the unused capacity carried over from the Small FIT window that closed on January 18, 2013. 

The new minimum domestic content requirements represent a significant decrease from the previously required 60% minimum required domestic content level for solar projects, and the previously required 50% for wind power generation projects over 10 kW.

Pricing

The OPA has reviewed the feed-in tariff rates offered to suppliers under its FIT and microFIT programs and has established the following new pricing schedule that will come into effect on August 26, 2013:

FIT/ microFIT Price Schedule as of August 26, 2013

Renewable Fuel

Project Size Tranche*

Price (¢/kWh)

Escalation Percentage**

Solar (PV) (Rooftop) ≤10kW 39.6 0%
  > 10 ≤ 100 kW 34.5 0% 
  > 100 kW 32.9 0%
Solar (PV) (Non-Rooftop) ≤10kW 29.1 0%
  > 10 kW 28.8  0 %
On-Shore Wind All sizes 11.5 20%
Waterpower All sizes 14.8 20%
Renewable Biomass All sizes 15.6 50%
On-Farm Biogas ≤ 100 kW 26.5 50%
  > 100 kW ≤ 250 kW 21.0 50% 
Biogas All sizes 16.4 50%
Landfill gas All sizes 7.7 50%

* The FIT program is available to Small FIT projects; that is, projects generally ≤ 500 kW.                             

** Escalation Percentage based on the Consumer Price Index will be applied to eligible Renewable Fuels as calculated in the FIT Contract. The Base Date is January 1st of the year in which the project achieves commercial operation, unless the project achieves commercial operation in October, November, or December, in which case the Base Date is January 1st of the following year.FIT/ microFIT Price Schedule Changes

  Project Size Tranche* August 26, 2013

Price (¢/kWh)

April 5, 2013

Price (¢/kWh)

% Change

 

Solar (PV) (Rooftop) ≤ 10 kW 39.6 54.9 -27.9%
  > 10 ≤ 100 kW 34.5 54.8 -37.0%
  > 100 kW 32.9 53.9 -39.0%
Solar (PV) (NonRooftop) ≤ 10 kW 29.1 44.5 -34.6%
  > 10 kW 28.8 38.8 -25.8%
OnShore Wind All sizes 11.5 11.5 0%
Waterpower All sizes 14.8 13.1 13.0%
Renewable Biomass All sizes 15.6 13.8 13.0%
OnFarm Biogas ≤ 100 kW 26.5 19.5 35.9%
  > 100 kW ≤ 250 kW 21.0 18.5 13.5%
Biogas All sizes 16.4 16.0 2.5%
Landfill gas All sizes 7.7 11.1 -31%

* The FIT program is available to Small FIT projects; that is, projects generally ≤ 500 kW. FIT Price Adders

  Aboriginal Participation Project Community Participation Project Municipal or Public Sector Entity Participation Project
Participation Level (Equity) > 50% > 15% ≤ 50% > 50% > 15% ≤ 50% > 50% > 15% ≤ 50%
Price Adder (¢/kWh) 1.5 0.75 1.0 0.5 1.0 0.5

Note: The above table applies to all FIT Project sizes and all technologies except Solar (PV) (Rooftop).

For more information on these changes, please see: http://fit.powerauthority.on.ca/what-feed-tariff-program

The reduction of the minimum required domestic content level will likely lead to a gradual scaling down of the renewable energy manufacturing sector in Ontario. There will be a gradual scaling down as OPA contracts awarded under FIT 1.0 and FIT 2.1 are still subject to the old minimum required domestic content levels of 60% for solar and 50% for wind projects. Thus, we predict a gradual ramping down of the renewable energy manufacturing sector commencing in mid-2015 based on existing FIT contract milestones. In addition, based on our review of the new minimum required domestic content levels versus the existing tables of designated activities contained in the OPA FIT contract, it appears that the new minimum domestic content levels are designed to ensure that labour and consulting services are performed by Ontario-based parties. Meanwhile, it is likely that products and equipment will be manufactured outside of Ontario for most renewable energy power generation facilities. Accordingly, it is likely that many manufacturers of renewable energy equipment will need to restructure their businesses as service and after-sales support organizations in order to remain competitive and profitable in the Ontario renewable energy industry.

The reduction of the minimum required domestic content requirements will allow for the sourcing of less expensive equipment from outside of Ontario using established supply chains. It is anticipated that the capital cost for equipment will continue to fall. In the solar industry, for example, the majority of these cost reductions will derive from technology innovations such as diamond wire sawing for PV wafers, advanced metallization solutions, and increased automation in place of manual labour. Three or four years ago, the solar industry was targeting one-dollar-per-watt costs in 2013; today, manufacturers are producing for 50 cents or less per watt outside of Ontario.  Thus, it is likely that investors will still be able to generate attractive returns on their investment due to declining capital costs for renewable energy equipment.

The sustainability of the renewable energy industry in Ontario requires that ratepayers embrace renewable energy technology as a viable alternative to natural gas, coal and nuclear power generation. There is currently a great amount of political debate and rhetoric in Ontario with respect to the province’s energy future. Opponents of renewable energy have been quick to identify the high feed-in tariff rates under the OPA’s FIT program as being the cause for electricity rate hikes. Many ratepayers are unaware that the Province of Ontario’s electricity grid requires billions of dollars in upgrades, that coal plants are being decommissioned at great cost to the Province’s taxpayers and that renewable energy projects (other than hydro power generation facilities) only account for a small percentage of Ontario’s overall energy supply mix. In light of the misinformation surrounding the renewable energy industry in Ontario, the reduction of the feed-in tariff rates for solar PV and the lowering of the minimum domestic content requirements for solar and wind projects represents a positive step in the right direction to gaining greater public acceptance of renewable energy technology as a viable and sustainable source of electricity in Ontario.

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Sven Walker is a Partner at Dale & Lessmann LLP, a Toronto, Ontario, Canada-based full service law firm with specific focus on renewable energy law and in particular solar, wind, hydro and biogas energy law. Sven is a legal counsel to a number of industry equipment and technology manufacturers, suppliers and installers, as well as investors, developers, purchasers, contractors, consultants and financing entities. To speak with Sven, please call 416-369-7848 or email him at swalker@dalelessmann.com.

Prepared with the assistance of Phaydra Falkner, student-at-law at Dale & Lessmann LLP.