Why Ontario’s FIT review will take place in the full glare of the political spotlight

by Benjamin Romano, Recharge News

Jim MacDougall, the FIT programme manager, says any decisions made during the review would be implemented on or near 1 October, just five days before a provincial election in which the Dalton McGuinty-led Liberal government’s support of renewable energy is expected to be a main issue.

“We recognise that it’s awkward timing,” MacDougall tells Recharge. “However, we still need to engage with the industry well in advance of that timeline. Then we’ll have to determine closer to the time what we want to do with implementation around the revised FIT programme.”

While the FIT has catapulted the Canadian province to the top tier of North American renewable-energy markets, it is by no means perfect and a two-year review was always planned.

Some changes have already been made. The OPA cut the rate last summer for the micro-FIT programme for projects under 10kW and a new commercial FIT was added to accommodate financing of portfolios of small projects. And this year, the government put a temporary halt on offshore wind development — a move that was viewed by some as acknowledgment of significant opposition to the explosive growth in renewables in the province.

MacDougall says the review process will be similar to the consultation the OPA undertook in 2009 when developing the FIT.

He says the OPA wants to avoid setting rules that pick winners and losers. “We create the opportunity and let the private sector decide if they want to do it or not,” MacDougall says.

The OPA will solicit input from the industry and public on what needs to be addressed during the revision. It will have its own list of issues, too.

All aspects of the programme will be up for review, including the contract itself, eligibility requirements and price schedules.

“Essentially, the review process will focus on ways in which we can ensure the success and continued sustainability of the programme,” MacDougall says.

The OPA is required to set FIT rates that offer investors a “reasonable” rate of return. MacDougall notes that the current rates are designed to provide an 11% return on equity for the typical project financed with 30% equity and 70% debt, assuming a 7% interest rate on the debt.

That is roughly in line with investor expectations, as articulated at the Renewable Energy Finance Forum Canada in Toronto last month. But given declining capital costs for solar panels and wind turbines, the return calculations may need to be adjusted.

As with European FITs and renewable-energy incentives elsewhere, the policy goals go far beyond simply procuring electricity. In Ontario, political leaders want to see job creation, a revitalised manufacturing sector and the phase-out of coal power plants.

The Ontario FIT’s domestic-content requirements are a means to some of those ends, and manufacturers have been flocking to places such as Mississauga, Windsor and Guelph. But it has also been a source of uncertainty, as financiers and developers look for assurances that their vendors will satisfy the requirement.

MacDougall says the programme has exceeded internal expectations. “Definitely there was a view that this should be a big splash,” he says. “I don’t think anybody expected it to be as big as it has been, with over 3GW already procured under the FIT programme, and the programme is still operating and still running.”