News & Updates
Obtaining Conditional Notice to Proceed or Incremental Notice to Proceed From The Ministry Of Energy
July 27, 2011
The Progressive Conservative Party of Ontario (“PC Party”) has released its formal policy platform which suggests that there could be changes with respect to Ontario’s energy policy should Tim Hudak be elected as the Premier of Ontario. The policy provides as follows:
A Tim Hudak government will end the Liberal government's schemes that have families subsidize hydro prices. We will end the feed-in tariff program that, in some cases, pays up to 15 times the usual cost of the hydro. Hardworking farmers and other Ontarians who signed contracts to host energy production on their property will have their contracts honoured. But there will be no more of these deals.
For many investors and stakeholders in Ontario’s renewable energy industry, it has become increasingly difficult to see past the rhetoric of Mr. Hudak’s anti-Feed-in Tariff (“FIT”) Program campaign. The PC Party’s election campaign has been fraught with contradictory statements as to whether the party will honour existing Ontario Power Authority (“OPA”) FIT Contracts. On May 10, 2011, for example, Mr. Hudak spoke at the Ontario Power Summit and stated as follows:
Those who have already invested in Ontario under the current FIT rules can count on an Ontario PC government to honour those contracts.
Notwithstanding the above statement, there has recently been some speculation that FIT Contract holders who have not been issued Notice to Proceed (“NTP”) by the OPA could have their FIT Contracts terminated should the PC Party come to power. If so, the PC Party would be exercising its express contractual rights under Section 2.4 of the FIT Contract. The result would be devastating as many FIT Contract holders have yet to apply for and be issued NTP by the Ontario Power Authority. Billions of dollars in private investment would be wasted, thousands of well paying jobs in construction, manufacturing, operations and maintenance would be lost, and Ontario’s international reputation as a great place for foreign investment would be severely tarnished.
The current version of the OPA FIT Contract allows the OPA to terminate the agreement in its sole discretion. The liability of the OPA is limited to a return of the Completion and Performance Security as well as payment of the reasonable pre-construction development costs incurred by the FIT Contract holder. However, the pre-construction development costs exclude the cost of generating equipment, the FIT Contract application fee, non-arm's length payments made above fair market value, and profits, and are capped at the following limits:
Biogas, Biomass and Landfill Gas $400,000 + $2.00 per kW of contract capacity
Solar PV $250,000 + $10.00 per kW of contract capacity
Waterpower $500,000 + $20.00 per kW of contract capacity
On-shore Wind $400,000 + $2.00 per kW of contract capacity
In our discussions with senior officials at the OPA, we were advised that the discretion to terminate the FIT Contract prior to the issuance of NTP by the OPA would generally only be exercised in extraordinary circumstances. However, the question remains whether the PC Party would wish to exercise this option in order to conveniently fulfill the presumed objectives of the party’s policy platform.
As someone who acts for numerous rooftop and ground-mounted solar companies, wind energy clients and biogas development companies from Europe, the USA and Canada, I can confidently say that in most instances the financial indemnification obligations of the OPA would not be sufficient to cover an investor’s losses if the FIT Contract were to be terminated.
To lessen this uncertainty and mitigate the risk for FIT Contract holders and investors alike, various FIT Contract holders and other industry stakeholders are currently making submissions to and discussing this matter with the Ontario Ministry of Energy. A possible option is to amend the FIT Contract and introduce a so-called Conditional Notice to Proceed or Incremental Notice to Proceed. This would be a irrevocable NTP with the only condition being the submission of a satisfactory Financing Plan and Domestic Content Plan to the OPA. For certain projects, the submission of a Renewable Energy Approval to the Ministry of the Environment would be a pre-condition to securing Conditional Notice To Proceed. Alternatively, Conditional Notice to Proceed could be issued prior to completion of a Renewable Energy Approval and a Connection Impact Assessment, but would only be effective once the Renewable Energy Approval and Connection Impact Assessment are received by the FIT Contract holder.
My message to all stakeholders is that it is important to remain positive about the future of renewable energy in Ontario. If all proponents work together, FIT contract holders will mitigate the risk of a future FIT Contract termination by the PC Party, financiers will continue to invest in energy projects and the renewable energy industry will continue to prosper long after Tim Hudak and the PC Party come to power in Ontario (should this even happen!).
