- New Economic Development and Revenue Opportunities for Hospitals and Other Public Sector Entities
- July 31, 2013
- Law Firm: Borden Ladner Gervais LLP - Toronto Office
On June 12, 2013, the Ministry of Energy issued a directive to the Ontario Power Authority (“OPA”) pursuant to the Electricity Act, 1998 to amend the Feed-in-Tariff (“FIT”) Program. The directive follows the May 30, 2013 speech by the Ontario Minister of Energy to an energy industry association announcing major changes to the procurement and planning processes for renewable energy in the Province.
Under the directive, the OPA was tasked with revising the Feed-In Program (FIT) program for renewable projects between 10 and 500 kW (“Small FIT”) to give priority to projects partnered or led by hospitals, publicly-owned long-term care facilities and other public sector entities. These incentives include the provision of a “price adder” to the standard FIT pricing, the provision of priority points during the application process and the creation of capacity set-asides.
In addition to the other changes provided under the directive the OPA has been tasked with addressing two areas which have been particularly problematic from a hospital and other public sector entity perspective. Firstly, the OPA will be required to ensure that site access requirements for hospitals and other public sector entities are compatible with applicable public sector procurement legislation and directives. Secondly, the OPA will be required to provide hospitals and other public sector entities with access to funding for costs associated with design and development of their Small FIT projects. This funding will be similar to the funding that is already available for community co-op and aboriginal sponsored projects.
These announcements and directives clearly signal Ontario’s strong commitment to small renewable energy projects by making a total of 900 MW of new capacity available between now and 2018 for the Small FIT and microFIT (10 kW and under) Programs. The OPA will open a new procurement window for Small FIT and microFIT starting in the fall of 2013. The fall 2013 procurement target will be 70 MW for Small FIT and 30 MW for microFIT, with annual procurement targets being set thereafter at 150 MW for Small FIT and 50 MW for microFIT. The OPA will also be launching a pilot program for rooftop solar projects on unconstructed buildings during the new procurement window for Small FIT.
While the specific changes to the FIT program, FIT Rules and FIT Contracts have not yet been announced the benefits potentially being provided under the directive to hospitals and other public sector entities are substantial. Hospitals and other public sector entities will need to understand these benefits in order to be in a position to take advantage of them. The changes will most certainly draw the attention of not only developers of renewable energy projects but equipment suppliers.
Hospitals and other public sector entities that wish to take advantage of this potential opportunity and be ready for the new procurement window starting in the fall of 2013 will need to understand how the FIT process works, the impact that priority points and capacity set-asides will have on that process and that advantages that these changes bring to them.
Hospitals and other public sector entities also need to understand the key aspects of the FIT process that will not likely be changing including:
the requirement that an applicant must obtain written confirmation from a Professional Engineer that the existing building has sufficient usable surface area for a solar project and that it is suitable to support the project or would be suitable to support the project after implementation of improvements
requirements around economic interests, what they consist of and how they must be maintained
Feed-In Tariff (Fit) Program - Backgrounder
The Feed-In Tariff (FIT) Program was enabled by the Green Energy and Green Economy Act, 2009. The Ontario Power Authority (OPA) is responsible for implementing the FIT Program.
The FIT Program allows homeowners, business owners and private developers to generate renewable energy and sell it to the OPA at a guaranteed price for a fixed contract term. Renewable energy has been defined to include wind, waterpower, biomass and biogas, solar photovoltaic (PV) power and landfill gas.
Until the recent announcement, the FIT Program was divided into two streams - FIT and microFIT, based upon the number of kilowatts of electricity generated. The FIT Program is for renewable energy projects that can generate more than 10 kilowatts (kW) of electricity. The microFIT program is for small projects, at a home or small business, that can generate 10 kW or less.
The FIT Program consists of standardized program rules, prices and contracts for anyone who is interested in developing a renewable energy project. Prices vary depending upon the type of renewable resource that is being utilized but have generally been designed to cover project costs and allow for a reasonable return on investment over the contract term (generally 20 years). The pricing schedule is generally reviewed by the OPA every year and is changed to reflect the changing costs associated with developing the particular renewable resource.
As of March 31st, 2013, 1706 FIT Contracts have been entered into by the OPA under the FIT Program representing 4,540 MW of combined capacity. Of the 4,540 MW, 58 MW come from bio-energy, 1,185 MW from solar, 3,113 MW from wind and 185 MW from hydroelectricity. Under the Micro-FIT Program 15,550 MicroFIT Contracts have been entered into (roughly 140 MW) most of which come from solar projects.
One of the original goals of the FIT Program was to encourage the development of Aboriginal renewable energy projects and Community based renewable energy projects. This was done through the creation of:
an Aboriginal contract capacity set-aside, reduced security payments, additional price incentives, the granting of priority points and the creation of the Aboriginal Energy Partnerships Program.
a community contract capacity set-aside, reduced security payments, additional price incentives, the granting of priority points and opportunities for funding through the Community Energy Partnerships Program.
What has changed as a result of the June 12th, 2013 directive from the Minister of Energy to the OPA?
The Directive clearly indicated a desire to:
Encourage participation by hospitals, publicly- owned long-term care facilities and other public sector entities
Provide hospitals, publicly-owned long-term care facilities and other public sector entities with incentives under the FIT Program
What incentives are expected under the directive?
While the exact form and type of incentives has not yet been specified, the Directive indicates that they will be similar to those provided to communities. The incentives include:
Contract Capacity Set-Asides
Revised prioritization points
Reduced security payment requirements
Access to Funding
What is a Contract Capacity Set-Aside?
As the name suggests, a specified amount of MWs are set-aside/reserved for a particular group - in this case hospitals, publicly-owned long-term care facilities and other public sector entities.
For the next 2013 Small FIT application window, the OPA has been directed to provide a Contract Capacity Set Aside for projects involving greater than 50% equity participation from hospitals, publicly-owned long-term care facilities and other public sector entities of 24 MW.
If the Contract Capacity Set-Aside for other programs (Community/Aboriginal Set-Asides) are not fully allocated (i.e. the amount of MW applied for Community/Aboriginals is less than the amount set-aside) the OPA shall then apportion 1/3 of the remaining capacity of these projects to hospitals, publicly-owned long-term care facilities and other public sector entities.
What is the benefit of the Contract Capacity Set-Aside?
The OPA deals with any applications under Contract Capacity Set-Asides first, ahead of applications not under Contract Capacity Set-Asides. By way of further background, under the FIT Rules all applications for FIT Contracts are processed by the OPA in 6 distinct stages:
Stage 1 Application Completeness Requirement - pass/fail
Stage 2 Eligibility Requirements - pass/fail
Stage 3 Ranking of Contract Capacity Set Aside Eligible Projects
If an application qualifies as a Contract Capacity Set Aside Project it will be awarded a point score based on the prioritization process. Applications are then ranked by Priority Points and by Time Stamp.
The OPA gives greater priority to any applications for projects that have greater than 50% equity participation and prioritize them over any other applications that obtain prioritizations points. The OPA will be required to offer contracts to these projects before offering contracts to other projects in the application window.
Stage 4 Connection Availability for Contract Capacity Set Aside Eligible Projects
Based on the order of rank determined in Stage 3, Contract Capacity Set Aside Eligible Projects will be assessed to determine if they can be connected. If they can be connected they will be added to the Offer List for a FIT Contract. The procedure is repeated until all of the MW under the Contract Capacity Set Aside are fully allocated.
Stage 5 Ranking of Other Projects
After all Contract Capacity Set Asides are fully allocated, all remaining FIT Applications will be ranked by their Priority Points and by Time Stamp. So if for example, a hospital or publicly-owned long-term care facility applied under the Small FIT Window but the Contract Capacity Set Aside was fully-allocated, the applications would then be ranked with all of the remaining projects.
Stage 6 Connection Availability and Procurement Target
The remaining applications then go through the same test as in Stage 4 to see if they can be connected.
How have the Prioritization Points been changed?
Prioritization Points are based upon a table that is contained in the FIT Rules. A revised Table was provided with the Directive and provides that - a project in which hospitals, publicly-owned long-term care facilities and other public sector entities have a minimum 15% equity interest - will be awarded 3 points. 2 Priority Points were previously awarded.
What are the FIT Price Adders?
The Directive suggests that hospitals, publicly-owned long-term care facilities and other public sector entities will receive the same FIT Price Adders as are provided to Community Participation Projects. The price adder is 1 cent/kWh in addition to the contract price for a project in which there is greater than 50% equity participation and ½ a cent/kWh for a project that has more than 15% equity but less than 50% equity participation. However the FIT Price Adders do not apply to rooftop solar (at least currently).
What are the current security requirements and what is being reduced as a result of the Directive?
Applicants for FIT Contracts (including hospitals, publicly-owned long-term care facilities and other public sector entities) are currently required to provide Application Security to the OPA in an amount which is the greater of: $1000; or either $20 per kW of Contract Capacity for Solar (PV) Projects or $10 per kW of Contract Capacity for other projects. For Community and Aboriginal Participation Projects (and provided the applicable Participation Level is greater than 50%), Application Security is reduced to an amount equal to $5 per kW of Contract Capacity.
Completion and Performance Security is also required to be provided under the FIT Contract and similar reductions are provided for Community and Aboriginal Participation Projects.
Based upon the Directive, we would expect that the revised FIT Contract/FIT Rules will provide the same reductions to hospitals, publicly-owned long-term care facilities and other public sector entities.
What access to funding is going to be provided as a result of the Directive?
Under the Directive, the OPA is required to provide hospitals, publicly-owned long-term care facilities and other public sector entities with access to funding for costs associated with the development and design of Small FIT projects similar to the funding available to Community/Aboriginal projects. In the interim (until that access is provided) the OPA is required to provide funding for the costs associated with the development of the Small FIT Applications.
The OPA has not yet clarified when and how this funding might be made available.
What is the benefit to hospitals, publicly- owned long-term care facilities and other public sector entities from this Directive?
If the hospitals, publicly-owned long-term care facilities and other public sector entities structure their projects so that they have an equity interest in the projects, it will mean that their applications will be considered ahead of developer/third party applications. It will also mean that the competition for FIT contracts will initially be between hospitals, publicly-owned long-term care facilities and other public sector entities and then subsequently as between those hospitals, publicly-owned long-term care facilities and other public sector entities and private/third party developers. In short this will provide hospitals, publicly-owned long-term care facilities and other public sector entities with a competitive advantage in securing FIT Contracts over developer/ third party applications.