The Ontario Power Authority (“OPA”) launched draft rules for the third series in Ontario’s Feed-in Tariff Program (“FIT 3.0”) on September 4, 2013. While final rules and contract documentation has not yet been issued at the time of writing, a direction issued by the Province’s Minister of Energy earlier in June clearly indicated that large renewable projects (greater than 500 kW) would no longer be eligible to participate in FIT. Instead, large renewables would become subject to a new competitive procurement process.

Development of a New Renewable Energy
Competitive Procurement Process
During the summer of 2013, the OPA engaged in consultations for the development of a renewable energy competitive procurement process for large renewable projects. The OPA’s resulting interim recommendations are set out in its report entitled ‘Development of a New Large Renewable Procurement Process – Initial Engagement Feedback and Interim Recommendations’ (the “Report”), which was submitted to the Minister of Energy on August 30, 2013.

The Report does take into account feedback received during the OPA’s other major engagement activities:

• The work between the OPA and Independent Electricity System Operator (“IESO”) to improve regional electricity planning and siting of large energy facilities;
• The Long-Term Energy Plan (LTEP) consultations.

Reactions So Far – General Stakeholders
The OPA hosted a webinar for the general public and stakeholders on August 7, 2013. Over 300 people participated and more than 200 questions were submitted. Key comments provided include the following:

• A request for proposal process would limit participation to large proponents only. Community groups would face challenges in competing;
• More participants felt separate procurements for different technology types and sizes would be warranted, as compared to a bundling of all technologies into a price competition;
• Some felt the prioritization of Aboriginal groups, cooperatives or public sector partnership projects should incorporated (along with price adders or similar incentives) similarly to the FIT Program;
• Regional electricity planning processes should drive procurement requirements;
• Communities and municipalities should be engaged during the siting of projects;
• Non-price factors should be included such as community involvement or social benefit;
• Transparency in the connection testing process remains important.

Municipalities
The municipal webinar session highlighted the continuing importance of the following issues:

• Improved alignment between siting project guidelines and local municipal guidelines and zoning;
• Improved alignment between project approvals and sit plan approvals;
• Challenges in supporting a project before detailed environmental studies, site plan drawings and community engagement are complete.

In addition, in-person meetings were conducted and written submissions invited. Similar themes as those described above emerged:

• Separate procurements based on technology (e.g., solar should not compete against wind);
• Separate procurements based on size (e.g., < 10 MW vs. > 10 MW);
• Expand FIT to include projects < 5 MW;
• Municipal involvement in decision making (some lobbying no veto);
• Land use and siting criteria should be handled by municipalities;
• Public meetings needed during proposal phase to inform communities of proposed projects;
• Strike a balance between impact on ratepayer (and competitiveness of Province) and promotion of ancillary benefits (e.g., job creation, environmental improvements);
• Small, community based groups, Aboriginal communities and co-op involvement should be prioritized;
• Developer experience and track record should receive higher weighting relative to other factors;
• Higher security deposits should be required;
• Financial acumen should be assessed;
• Maintain capacity set asides, price adders, FIT pricing, FIT prioritization system;
• Incentives should be included to encourage local sourcing
• An RFP process is appropriate (without EOI); an RFQ/RFP is more appropriate than EOI/RFP
• Better inter- and intra-government as well as agency coordination required around project approvals;
• Regular procurement ‘windows’ required to provide industry stability;
• Align procurements with regional energy planning and LTEP;
• Waive the 120% solar DC/AC limit;
• Concerns about government-owned OPG participation in procurement and unfair advantage over independent power producers;
• Include energy storage technologies in the procurement process.

Link to Electricity Regional Planning Initiative
The OPA and the IESO released their report on regional electricity planning entitled ‘Engaging Local Communities in Ontario’s Electricity Planning Continuum’ in August 2013 (the “Planning Report”). The Planning Report was prepared in response to the Minister of Energy requesting that the OPA and IESO work together to develop recommendations for a new integrated regional energy planning process that would focus on improving how large energy infrastructure projects are sited in Ontario. It will be critical for the recommendations in the Planning Report to be least complementary, but perhaps integral, to some of the key factors identified by stakeholders as critical in the procurement process for large renewable projects.

The key areas of focus of the Planning Report include:

• Regional electricity planning;
• Enhancing engagement with municipalities, energy stakeholders and First Nations, Métis;
• Ensuring these groups are engaged in processes related to the siting of large electricity generation and infrastructure projects.

The recommendations of the Report are designed to support the following overall objectives for improving electricity planning:

• Bringing communities to the table;
• Linking local and provincial planning;
• Reinforcing the planning/siting continuum;
• Enhancing electricity awareness and improving access to information.

The following three core recommendations represent a rough consensus of the stakeholder community:

1. Strengthen processes for early and sustained engagement with local governments and the public. The IESO and the OPA will build on existing processes to improve stakeholder engagement.
2. Provide local governments and communities with greater voice and responsibility in planning and siting. The OPA, IESO, Ontario Energy Board, and the Ministry of Energy should explore mechanisms to provide greater flexibility to municipalities and First Nations to meet local needs. These mechanisms should also explore cost responsibility and reliability of service.
3. Support inter-ministerial coordination. The province should develop an ‘inter-ministerial action team’ of senior officials from the Ministries of Energy, Transportation, Infrastructure, Health and Long Term Care, Municipal Affairs and Housing, Environment, and Aboriginal Affairs to coordinate policy development and clarify decision making.

Recommendations
The OPA has made a number of interim recommendations to the Minister of Energy for two distinct time frames: (a) the period leading to the launch of the procurement, and (b) the duration of the procurement.

Action Pre-Launch

• Fall 2013, continue the municipal, First Nation and Métis, and stakeholder consultations
• Include in the Long Term Energy Plan recommendations regarding quantity and timing of new resources to be procured
• Generation procurement should follow the provincial and/or regional electricity system need
• Conduct multiple successive rounds of procurements, organized by technology, size or area of need – larger projects (greater than 10 MW) would be focused on experienced developers. Mid-size (500 kW to 10 MW) could encourage partnerships (Aboriginal, municipal, community).
• Procurement need, goals and expectations should be clearly articulated
• Municipal electricity generation preferences should be considered
• Local outreach should be conducted prior to procurement commencement

Components of Procurement Exercise

• Continue procuring through the Request-for-Proposal (“RFP”) model
• Project bid price should remain a key RFP evaluation factor
• Proponent experience and financial capability should be considered
• Continue to encourage community, Aboriginal, municipal and public sector entity participation through procurement incentive mechanisms
• Site due diligence evidence should be required
• Interconnection information and cost estimates provided earlier in the process
• Provide greater municipal control over land use and siting
• Require community engagement sessions and council deputations during the RFP phase
• Minimum community acceptance criteria should be considered
• Further clarity on OPG participation is needed
• Conduct further research on technology bundling

The Report does not include recommendations for identifying the quantity or types of renewable generation facilities for which to issue a procurement call. This is expected to be addressed by the LTEP once completed.

What’s next?
Clearly, Ontario is still highly engaged in the renewable file. FIT 3.0 is expected to be finalized in October with the first application window opened shortly thereafter. Current pricing has been confirmed with the release of an updated price schedule for the FIT and microFIT programs and for FIT price adders for Aboriginal Participation Projects, Community Participation Projects and Municipal or Public Sector Entity Participation Projects. The OPA’s revised price schedule and FIT Price Adders are as follows:

Large renewable projects will have to wait for the new competitive procurement process to be determined. On this front, the OPA will be undertaking additional engagement activities on the interim recommendations in the fall to further inform the development of the new competitive procurement process and will also incorporate the feedback that is being received by the Ministry as part of the ongoing LTEP review.

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.