FIT review commences
October 31, 2011 by Andrew Lord
The Ontario Ministry of Energy officially launched its scheduled review of the Feed-in Tariff program today. The review comes two years into the FIT program and on the heels of a tight election in which the future of the FIT program was a hotly debated issue. The Ministry is seeking public input from today until December 14, 2011.
The <linkhere http://fit.powerauthority.on.ca/sites/default/files/FIT%20Rules%20Version%201.5.1_Program%20Review.pdf>rules of the FIT program</link> provide for a bi-annual review of the FIT Program, Rules, Standard Form Contract and Pricing. Industry stakeholders therefore knew that the review was coming and will no doubt be making their voices heard as the government considers how to amend the program.
The FIT program has certainly produced a huge amount of interest from the developer community. To date, the Ontario Power Authority has awarded about 2,500 FIT contracts for medium- and large-scale projects. In addition, about 11,000 microFIT (i.e., <10kW) projects have already connected or will soon connect to the grid. By virtue of its domestic content requirements, the FIT program has also attracted several new renewable equipment manufacturers and service providers to the province.
However, the FIT program has also been heavily criticized by some, most notably Tim Hudak, leader of the provincial Conservatives, whose advances in the recent election left the incumbent Liberals one seat shy of another majority government. Critics have expressed concerns about FIT pricing, which is higher than that paid to legacy forms of generation, and about certain special deals that the government made in connection with the FIT program (especially the deal with the Samsung-led consortium).
The Ministry will therefore likely find itself in the position of having to preserve and prolong the successes of the FIT while addressing the demand of ratepayers to make material adjustments to the program. In fact, the Ministry<linkhere http://www.energy.gov.on.ca/en/fit-and-microfit-program/2-year-fit-review/> describes one of its goals</link> as being a "careful examination of FIT pricing to maintain a balance between the interests of ratepayers and the continued encouragement of clean energy investment in Ontario."
When the program was launched, FIT prices were set with reference to the capital cost of projects and other factors so as to allow developers to earn a reasonable rate of return. In the two intervening years, the cost of some renewable equipment, especially solar panels, has dropped substantially. The current FIT prices will therefore result in significant windfalls for new projects. There therefore appears to be a need to rebase some of the FIT tariffs. Other jurisdictions have done so in the recent past. The <linkhere http://www.google.ca/url?sa=t&rct=j&q=uk%20solar%20subsidy&source=web&cd=1&ved=0CCQQqQIwAA&url=http%3A%2F%2Fwww.reuters.com%2Farticle%2F2011%2F10%2F31%2Fus-britain-solar-cuts-idUSTRE79U2HW20111031&ei=7QWvTszbM8nKrAfz7Ji9DA&usg=AFQjCNGBNI7p_0lBu83oHOmBIFUCoJmIjw&sig2=D3OXCSMbxvnm-1rqgmpxew>UK announced a 50% reduction in its solar tariff today</link>. Last week, <linkhere http://www.pv-magazine.com/news/details/beitrag/german-fits-cut-in-2012_100004759/>Germany announced that it is again scaling back its solar tariff, this time by 15%</link> (a move that may result in solar achieving <linkhere http://www.pv-magazine.com/news/details/archive/2011/october/beitrag/jefferies--grid-parity-a-reality-in-germany_100004781/>grid parity</linkhere> with other forms of generation in that country).
In addition to changing pricing, the government may also face pressure to narrow the scope of projects that are eligible for tariffs. Some are calling for a return to a competitive bidding process for large-scale projects.
Hopefully, the government will also be looking at ways to lower some of the procedural barriers that have plagued developers. The Ministry expressly states that it will be considering "outreach techniques to complement the province’s Renewable Energy Approval (REA) process." More importantly, it should give serious consideration as to how to ensure that the grid accommodates new distributed renewable generation. The grid operators, particularly Hydro One, have been very slow and reluctant to connect FIT projects to their distribution and transmission networks.
For more information about the review process, see the <linkherehttp://www.energy.gov.on.ca/en/fit-and-microfit-program/2-year-fit-review/> website of the Ministry of the Environment </link>.