FIT 2.0 – DRAFT RULES TO FINAL FORM – INDUSTRY’S VOICE IS HEARD
The comment period on the draft form of FIT 2.0 rules and contract (“Draft FIT 2.0”) ended on April 27, 2012. The final version, expected to be released in early May, was issued in August following the OPA’s consideration of industry’s strongly voiced comments.

SO WHAT CHANGED
Draft FIT 2.0 provided ample foreshadowing that the revised program would contain more than tinkering amendments. Once industry understood that the lower prices still provided profit opportunity, attention turned to the other significant changes. Most noticeably, the rush to the start under FIT 2.0 will still be tempered by a layered priority ranking system, procurement caps and application windows.

Some significant differences between Draft FIT 2.0 and final FIT 2.0 did emerge. The following is a non-exhaustive list of key differences. FIT 2.0:

1. no longer contains the controversial termination for convenience and stop work order provisions considered to be prohibitive to project development by developers and financers alike;
    
2. recognizes earlier movers by making additional points available to applicants for applications submitted before certain dates;
    
3. adds time stamps as a factor considered when an application is being reviewed;
    
4. provides for the assignability of resubmitted applications in very limited circumstances;
    
5. introduces the concept of a contract capacity set-aside project which will receive a higher ranking than all other applications;
    
6. changes the points available in the Aboriginal support category to be applicable only to a small FIT project; and
    
7. provides an option for an applicant that has entered into two or more FIT Contracts that collectively qualify as a rooftop portfolio, to extend the milestone date for commercial operation to 36 months following each contract date.
    

FIRST THINGS FIRST – WHEN DO THE DOORS OPEN?
Well, at the time of writing, not quite yet. As we learned in Draft FIT 2.0, the initial open-endedness of the FIT Program will now be at an end and the issuance of contracts now subject to periodic procurement targets set by the OPA in its discretion.

The OPA has posted on its FIT Program web page that the application window for small FIT projects (those 500 kW or smaller) is anticipated to open on October 1, 2012, and close on November 30, 2012. This is consistent with previous direction issued to the OPA by the Minister of Energy. About 200 MW are expected to be awarded.

SO WHO GAINS ADMISSION?
Applications will first be judged on whether or not they meet the completeness requirements set out in the FIT 2.0 Rules. Then each application will either pass or fail depending on whether the application meets the eligibility requirements set out in the FIT 2.0 Rules. Finally, each application will be evaluated to determine whether it qualifies as a contract capacity set-aside project (i.e. an Aboriginal or community participation project with greater than 50% participation level).

Applications will then be ranked by their qualifications as a contract capacity set-aside project, as applicable, priority points, and by time stamp (or a resubmitted application’s pre-existing application time stamp). Finally, Applications will, in order of rank, be assessed under the transmission availability test and the distribution availability test (as applicable) and, if it passes and availability remains within the applicable procurement target, an application will receive an offer notice. Whew.

Eligibility Requirements
A number of changes have been made to eligibility requirements, some of which affect specific types of renewable fuels.

Solar – Amendments to land restrictions for solar projects have been introduced. Ground-mounted solar projects may not be located on residential property or on property abutting residential property. However, for property where the lawfully permitted use is agricultural, these types of projects are permitted on the property or on an abutting property if residential use is permitted on both properties as ancillary to the agricultural use. Such projects are permitted on commercial or industrial property as long as the project is not the main, primary, or only use of the property. Such projects cannot, with few exceptions, be located on:

• specialty crop areas,
• lands with organic soils, or
• lands with mixtures of class 1, 2, or 3 lands (exceptions exist if the project is on an airport or aerodrome, a closed landfill, a federal military installation, a contaminated property, an industrial property, or, in respect of class 3 soils land, property that is owned by a municipality;
  • a residential property that is not exempt;
  • a property that abuts a residential property unless such resident property is exempt; or
  • a property in respect of which one or more non-rooftop solar projects would constitute the principal use.

Solar (PV) Projects continue to be limited to a maximum of 10 MW.

A rooftop solar facility must reach commercial operation within 18 months of receiving a Contract, but if the Facility forms part of a Rooftop Portfolio with more than 15 MW of projects contracted from the same application window, the Applicant can have 36 months to reach commercial operation.

Waterpower Projects – continue to be limited to a maximum of 50 MW.

There are also specific provisions for co-locating projects and limitations on developers submitting similar projects during the same application period. In addition, a proposed project (other than a waterpower project) will need to be located within fifty kilometres of the facility’s contemplated connection point.

Application Requirements – Generally
All project applicants, including those with small FIT projects, will need to submit application security under the new Rules. The size of the application security is representative of the size and development complexity of a potential project – either $20 per kW of capacity for solar PV, $10 per kW for other projects, or $1,000, whichever is greater. Lower security rates apply to projects with greater than 50 per cent community or Aboriginal participation.

In addition, an applicant must provide representations and warranties which attest to an awareness of certain project requirements, such as environmental permitting and particular FIT Program Rules, and which confirm that certain preparatory actions have been completed in respect of the project, such as obtaining all access rights and supporting documentation (e.g. independent engineer report, a written opinion of a Land Use Planner, maps, requisite consents and statutory declarations, Environmental Site Assessments, land titles or land registry search, soil study, etc.). The effect is to place a greater degree of responsibility as well as additional costs on the applicant to ensure the viability of its proposed project.

Resubmitting an Application
Pre-existing small FIT applicants who wish to participate in the FIT Program will need to submit a revised application during the anticipated application window (between October 1, 2012 and November 30, 2012) in order to maintain their original time stamp. New and resubmitted applications will be reviewed according to the FIT 2.0 Rules. Applications can be modified to conform but the legal applicant name and location must stay the same to retain the original time stamp. The project must also be located on the same site. However, applicants will be allowed to change the legal applicant name on the application if they are adding participation of 15% or more from an Aboriginal or local community, school, college, university, hospital, or long-term care home.

New evidence and security must be submitted, along with a new application fee; the application fee and security submitted with the Pre-Existing Application will be returned.
Existing applicants who do not wish to proceed under the FIT 2.0 Rules may withdraw their application and they will have their application fees and application security returned.
Any existing application that is not resubmitted within the required window will be terminated and the fees and security returned.

The Priority Points System
Under the FIT 2.0 Rules, a new priority points system will be used to rank applications with the time stamp now acting as tie breaker. An application may only proceed if the proposed project can receive at least one point. The new system clearly assigns priority to projects that have a community, Aboriginal or municipal, education or health sector component, whether as a direct participant in the project or as supporting entity.

PRIORITY POINTS TABLE

The FIT 2.0 Rules do not permit a project to obtain more than one type of participation project points but do permit certain combinations of project and non-project points under certain situations.

New restrictions around change of control and assignment have been added to ensure that the economic interest and membership levels specified under the project type category (e.g. Aboriginal or community economic interest) do not fall below the level that resulted in the project receiving priority points during the application review process.

Additional points are also now available based on the time stamp of a pre-existing application: One point is available for projects that applied on or before July 4, 2011, and one half point is available for projects that applied on or after July 5, 2011.

THE CONTRACT
Developers will no longer have the option to buy back (by paying liquidated damages) any part of the contract’s term lost as a result of failing to achieve the milestone date for commercial operation.

Domestic content requirements remain at 50% for wind projects and 60% for solar projects.

AND SOON THE GATE WILL OPEN
Let’s see who will be the fittest of the FIT.

About the Author

Bernadette Corpuz is a Senior Associate in the Electricity Markets Group of the law firm Borden Ladner Gervais LLP (BLG). As a member of the Electricity Markets Group, Bernadette advises a wide range of energy market participants, including distributors, transmitters, generators, and commercial users with respect to a variety of commercial and corporate transactions related matters, including mergers and acquisitions, financing and energy markets. Bernadette can be reached at bcorpuz@blg.com or 416-367-6747.