Ka-ching! Ka-ching! or The Only Reason Wind Industry Exists in Ontario

By David E. Thring    langmichener.ca

  • Subsidized Premium Rate Guaranteed for 20 years
  • Flow-through shares
  • Renewable Portfolio Standards
  • Tax Incentives
  • Emission Reduction Credits

Flow-through shares

Provisions in the Income Tax Act (Canada) (“ITA”) allow most expenditures made to develop a test wind energy project to qualify as a “Canadian renewable and conservation expense” (“CRCE”).

Under the ITA, “Canadian exploration expense” (“CEE”) includes any CRCE incurred by a taxpayer. Consequently, a corporation that is developing a wind farm can issue flow-through shares to investors. The corporation can renounce CEE incurred by it and, subject to certain conditions in the ITA, the owners of the flow-through shares will be deemed to have incurred CEE renounced by the corporation and will be able to deduct 100% of CEE allocated to them from their other income.

Expenses that are eligible to qualify as CRCE include the cost of feasibility studies and wind studies, the cost of preparation and negotiation of power purchase agreements, site approval and certain site preparation costs, and the cost of test wind turbines. The number of test wind turbines that can be installed at a site is limited to intervals or space between turbines of not less than 1.5kilometers for a test period of at least 120 days before in-fill wind turbines may be installed.

Subsidies

The wind power production incentive (“WPPI”) is paid by the federal government to developers for the first 1,000 MW of newly installed wind energy generation capacity between 2002 and 2007.

The WPPI incentive can be claimed for every kilowatt hour of net production during the first 10 years of production at the rate of $0.01 per kilowatt hour if the project is commissioned before March31, 2006, and $0.008 per kilowatt hour if the project is commissioned after March 31, 2006 but before March 31, 2007. Industry participants are hopeful that the federal government will extend or increase the WPPI.

Under the federal government’s market incentive program (“MIP”) electrical utilities, retailers and marketers can apply for reimbursement for market-based programs that promote the sale of electricity from wind energy to residential and small business customers. The federal government will provide a short-term financial incentive of up to 40% of the eligible cost of an approved project, to a maximum contribution of $5 million per program. This particular incentive may be of more interest to a purchaser or distributor of electricity generated by a wind farm, rather than the owner or developer.

Renewable portfolio standards

The federal government’s “purchase of electricity from renewable resources” (“PERR”) program aims to provide leadership towards the development of consumer markets for electricity generated from wind and other renewable sources. This initiative commits the federal government to purchase electricity from these sources for use by federal facilities.

The Ontario government has set targets of generating 5% (1,350 MW) of Ontario’s total energy capacity from renewable sources by 2007, and 10% (2,700 MW) by 2010. A recent Request for Proposal seeking an additional 300 MW of new, renewable electricity capacity for Ontario constitutes the first step towards attaining these renewable energy targets.

The government of Ontario has also recently amended the Electricity Act, 1998 to restructure Ontario’s electricity sector, encourage the expansion of electricity supply and capacity, including supply and capacity from alternative and renewable energy sources such as wind energy, facilitate load management and electricity demand management, encourage electricity conservation and the efficient use of electricity, and regulate prices in parts of the electricity sector.

Tax incentives

Under the ITA, an accelerated depreciation rate of 30% per annum is available, subject to various qualifications and limitations, for capital assets which qualify under Class 43.1 and are used to generate energy from renewable and alternative energy sources in Canada.

Ontario has recently announced its intention to retroactively revoke tax incentives to generate electricity from renewable sources that had been passed into law in 2002. The 2002 legislation had provided accelerated asset depreciation and a 10-year tax holiday from income and property taxes for corporations that generate electricity from renewable sources.

Just two tax incentives for such activities will remain in Ontario. First, capital properties bought between November 25, 2002 and January 1, 2008 that are used to generate electricity from renewable sources are excluded from the computation of capital tax. (Capital tax is generally payable by corporations with taxable paid-up capital in excess of $7.5 million at a rate of 0.3% of the corporation’s paid-up capital, liabilities, retained earnings and other surplus accounts). Second, an owner of a generating facility that delivers electricity to either the grid controlled by Ontario’s Independent Electricity Market Operator or to any other person in Ontario, is entitled to a rebate of retail sales tax paid upon tangible personal property incorporated into such a facility.

Emission reduction credits

It is anticipated that markets for emission reduction credits (“ERCs”) may develop to allow trading in ERCs in North America, and that this may occur whether or not the U.S. formally adopts the Kyoto Protocol. Generating electricity from renewable sources such as wind can create ERCs by displacing electricity generated from fossil fuel sources. The ERCs can then be purchased and used by businesses that generate and emit greenhouse gases – CO2and other gases – to effectively lower their overall emission levels and to meet regulatory or industry standards. Consequently, ERCs represent a potential revenue opportunity for developers of wind energy projects, but the market is at an early stage of development.

Conclusion

The federal and Ontario governments have created financial incentives that will be attractive to developers of wind energy projects. Non-financial incentives, such as relaxing of environmental review thresholds and facilitating grid access for wind generation projects, would also be of considerable assistance. These initiatives are welcome and reflect a commitment by governments to develop a clean, sustainable energy supply that can supplement nuclear and fossil fuel energy sources. It should also be noted that this paper has only discussed financial incentives available in Ontario. Other provincial governments have introduced a variety of incentives to stimulate development of wind energy projects including, for example, the refundable tax credit, which is available in Quebec. 

5 thoughts on “Ka-ching! Ka-ching! or The Only Reason Wind Industry Exists in Ontario

  1. “Lang Michener is a leader in Canada’s legal profession and has been for more than 80 years. Our international firm, with offices in Ottawa, Toronto, Vancouver and Hong Kong, has over 200 dynamic professionals who provide effective, innovative solutions to Canadian and international clients. We have played a major role in shaping Canada’s economic and political institutions, and understand the competitive global needs of our country’s leading companies and industries. With commitments to excellence, service and value in all that we do, Lang Michener is dedicated to helping all of our clients achieve their business and personal goals.”………..

    This article was written by Lang and Mitchener LLP and who better to dictate the future of our Province than a bunch of “legal eagles” who know nothing but how to interpret the Law in the favour of the few who have enough $$$ to pay for the services!

    As for the rest of us….the citizens…….we should just be glad to “suck it up” and pay, pay, pay the piper!

  2. I have seen mining deals that had less going for them — all they had was minerals. This is a whole system to make money whether that claim has enough ore to support a mine or not!

    Perhaps I should raise a few bucks and go over to the dark side and make a few bucks before the gravy train gets derailed and the gravy is dumped and spoiled in the inevitable derailment.

    Maye a little campaign contribution and a promise of more when things work out… and I could be in business.

  3. Just to let you Ontario readers know that PEI and NS are now paying about 13 cents per kWh for power. You heard me. And because of the wind turbines now being installed, they are expecting a 10% increase this year and another 10% next year to over 15 cents! I kid you not.

    I feel without question that Mcguinty looks to the east coast and realizes that if the poor east coasters can pay 15 cents, so can the rich Ontario people. Higher power rates equals higher tax revenues. If they can pay it on the east coast, they can pay it in Ontario.

    Be warned, folks. Unless you dump this McGuinty fellow, 15 cents will be coming your way.

  4. Sorry Klem, but according to the sample bill on Nova Scotia Power’s site, you don’t have another 8.5% added to your metered use for line loss, and the entire non $/kWh is under $7 – and is that a point-of-sale rebate on the provincial portion of the HST.

    Most ontarions pay more than 15 cents/kWh, and it will climb another 16% on their next bill ($ divided by metered use).

    Most haven’t a clue what they actually pay, let alone how to compare it to other jurisdictions.

    I’ll brag though
    We’re #1

  5. The fundamental issue is that the planet is burning up and alternative energy will generate less CO2. Right?

    So Is it burning up?

    Maybe…

    http://www.climatechangefraud.com/climate-reports/7491-official-satellite-failure-means-decade-of-global-warming-data-doubtful

    Maybe not!

    *******************

    Official: Satellite Failure Means Decade of Global Warming Data Doubtful

    “US Government admits satellite temperature readings “degraded.” All data taken offline in shock move. Global warming temperatures may be 10 to 15 degrees too high.

    Great Lakes Sees Unphysical Wild Temperature Fluctuations

    Great Lakes users of the satellite service were the first to blow the whistle on the wildly distorted readings that showed a multitude of impossibly high temperatures. NOAA admits that the machine-generated readings are not continuously monitored so that absurdly high false temperatures could have become hidden amidst the bulk of automated readings.

    In one example swiftly taken down by NOAA after my first article, readings for June and July 2010 for Lake Michigan showed crazy temperatures off the scale ranging in the low to mid hundreds – with some parts of the Wisconsin area apparently reaching 612 F. With an increasing number of further errors now coming to light the discredited NOAA removed the entire set from public view. But just removing them from sight is not the same as addressing the implications of this gross statistical debacle.”

    ******************

    So maybe the windmills should be sent up to fan the satellites and coll them — or sumpin’

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