Developers voice their views on the future of the FIT program
Ontario’s Feed-in Tariff program is expected to come under increasing scrutiny as it approaches the 2-year mark, the deadline for its first comprehensive review. Although the ambitious initiative has been a boon for developers of renewable energy projects, many proponents see a need for changes, with some even saying that its open-ended terms need to be re-examined. Mike Crawley, President of International Power Canada, Inc., a significant player in the FIT program, openly acknowledged at the APPrO conference November 16 that the program can not expect to buy whatever amount of renewable power comes forward in perpetuity. “The FIT program procurement is not infinite,” he said, and noted that there has to be a robust economic test to justify any expansion of the transmission system.
While Mr. Crawley’s remarks would have made some developers uncomfortable, many saw it as the beginning of an important “adult conversation” on how to define reasonable limits on power procurement, and on how those limits can be structured in a way that is most helpful in terms of fostering sensible development in the future. In fact, the theme of “adult conversation” came up at several points during the conference. A subsequent panel on political issues considered whether the Ontario public has been properly prepared for an “adult conversation” on the cost of the current government’s green energy policy. Jim MacDougall of the Ontario Power Authority also spoke about the need for an adult conversation on pricing and terms for renewable energy. Karl Johansson of TransCanada Energy, another major developer speaking at the conference, noted that, while he is not against the FIT program, “these types of standard offers tend to reduce the element of competition.”
A central message that emerged from Mr. Crawley’s remarks and others at the conference was that many developers would benefit from clearly stated annual targets for procurement of new renewable energy capacity in each category. Although such a framework would not be as aggressive as the current program design that provides for “no upper limits,” it would allow developers and the central agencies to produce more accurate plans for their investments. In fact there are practical limits to what can be added to the system in any given year because of various technical constraints. It would be beneficial for developers to know what these limits are in dependable terms. This line of reasoning is related to efforts to encourage the development of a more robust planning process, and for the preparation and approval of a reasonably precise and detailed system plan.
In terms of the forecast for FIT procurement, Mr. Crawley said the OPA and developers need a clearer and more realistic picture as to what a long-term sustainable generation procurement program will look like. The FIT-related mechanism that encourages transmission and distribution expansion cannot be seen as a guarantee of connection. There has to be a robust economic test to justify any expansion of the transmission system, he suggested. It would make sense to try to achieve resolution on a number of these issues by the time the two-year review of FIT gets underway.
Session moderator Linda Bertoldi asked, “How important is it for the government to provide some indication of the future of the FIT program beyond 2011?” David Brochu of Recurrent Energy said he thought it very important, especially in Ontario where manufacturers play such an integral role to the program. From a manufacturer’s perspective it is highly valuable to have a 5 to 7 year picture of the future in order to plan production and amortize the costs of the manufacturing facility. And, as a developer, he acknowledged that his company moves with the procurement programs as they come out, from jurisdiction to jurisdiction. “But if we can lay down roots to be here for the long haul, that too is advantageous to the overall market conditions,” he said.
Mr. Crawley agreed and noted that, given that there are now several wind and solar manufacturers “at the altar” ready to make major investment decisions in this highly uncertain business environment, it would be especially helpful to have a longer term picture post-2011 as to what this market is expected to look like. From a government perspective, its objective of developing a domestic manufacturing capability will be lost if there aren’t clear signals given about subsequent rounds of procuring additional renewable energy capacity.
The session also explored community relations and domestic content issues. Mr. Crawley said that building public understanding about the need to expand the generation and transmission system, and the price increases that will likely result from expansion, isn’t just the responsibility of government and the OPA, but of developers too. He noted that recent laws removing municipalities from the approval process seems unfortunately to have “sent the wrong signal to developers” that community consultations are no longer needed. “The fact is those consultations have never been more important to build support and minimize the objections that inevitably come up. … It is critical to find and give voice to what is often that silent majority that supports a project’s development,” he said. He also commented that there has to be a pragmatic transmission expansion plan in place after the Bruce to Milton line to signal the longer term development opportunities.
The long term energy plan could help in this regard. Mr. Crawley said it is crucial to establish and communicate what the new targets and objectives are for wind and solar capacity; this is important for building the certainty needed to foster commitments by developers and manufacturers.
It’s also useful to put procurement into a proper context. “This is not some green ideological adventure. It’s going on in every jurisdiction around the world looking to procure new generation. While the pace may be more aggressive here in Ontario, the target energy mix is not markedly different than what is being sought elsewhere.” The panel discussion took place on November 16, about a week before the Ontario government released its Long Term Energy Plan (see page 19.) The Long Term Energy Plan of course addressed some of the points raised by the speakers.
In terms of Ontario’s domestic content rules, Mr. Johansson noted that every jurisdiction he has worked in imposes “some form of domestic content rules.” They all see green energy programs as needing to fulfill job creation objectives. They don’t want their ratepayers paying a premium for green energy without getting the tax revenues from it. Success ultimately depends, he said, on what we are trying to achieve by these rules. If the aim is to achieve some manufacturing and equipment servicing, that is feasible. However, if the aim is to create a global manufacturing centre, then he was more doubtful whether the initiative will succeed.
— By Jake Brooks, with files from Art Krause