OPA to consult on FIT price impact of complying with WTO ruling
June 26, 2013 by Andrew Lord
Ontario will comply with the WTO ruling that found that the domestic content requirements of the Ontario Power Authority's Feed-in Tariff program violated Canada's international free trade obligations. That was the message delivered by Minister of Energy Bob Chiarelli when he announced major changes to the FIT program at the CanSIA conference held May 30. On June 12, he issued a directive to the OPA indicating his expectation that complying with the WTO ruling "would affect the domestic content requirements of the new FIT program procurements lauched after May 24, 2013." Now it appears that the OPA is considering exactly what that might mean for the FIT.
Commencing June 24, the OPA is soliciting feedback from the renewable industry on what removing domestic content requirements from future microFIT and FIT procurements should mean for FIT prices. The OPA is consulting closely with CanSIA and CanWEA and is asking stakeholders to provide their input through these industry organizations to the extent possible. The consultation period will close Wednesday, July 10, 2013. This new round of consultation supplements an earlier round of more general consultation regarding the OPA's ongoing review of FIT pricing.
If the domestic content requirements are removed, FIT prices will almost certainly be reduced, particularly for solar. The OPA uses estimates about equipment and construction costs, financing costs and reasonable rates of return to construct compelling power pricing for various renewable technologies and projects sizes. Historically, the cost estimates for equipment and certain other items took into account domestic content requirements which required that a large percentage of these items be procured in Ontario. If the domestic content requirements are removed, developers will be able to shop for these items in the more competitive global market. Global competition will drive down the capital cost of renewable projects in Ontario. This may be particularly true for solar projects given the global oversupply of solar modules that is expected to continue into 2014. If the OPA expects capital costs to be reduced, it will likely reduce FIT pricing accordingly.
Lower capital costs and the correspondingly lower price paid for renewable power will be a positive development for many people in Ontario, including project developers and electricity rate payers. However, for equipment and service suppliers who established businesses in Ontario to take advantage of the domestic content requirements, the changes will likely be quite painful. Faced with increased price pressure and a declining volume of procurement under the modified FIT program, a number of these business may struggle to continue operating in Ontario.
Stay tuned for the outcome of the price review and the final fate of the domestic content requirements.