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Financial incentives work, but beware potential pitfalls.

Fortnightly Magazine - December 2008

the RESOP projects rather than the larger project size for those bidding on the RFP.

This design gives a central role to the local distribution companies (LDCs) in Ontario. Virtually all of the 80+ Ontario LDCs are municipally owned corporations. Rural and small-town areas of the province are served by Hydro One Networks, Inc. (HONI), the transmission and distribution successor to the former Ontario Hydro. When the RESOP program was designed, it was recognized HONI would receive many simultaneous connection-impact assessment requests because much of Ontario’s solar and wind resources are located in its territory. 5

RESOP Rationale

RESOP is intended to allow smaller proponents to benefit from participation in the Ontario market and to add to the amount of renewable generation available. New renewable generation is expected to help OPA meet the direction it received from the Ontario Minister of Energy. The open nature of a standard-offer program relieves smaller proponents of cost burdens and uncertainties associated with the RFP processes, which are used by the government and OPA to procure large amounts of electricity.

The Minister of Energy directed OPA and the Ontario regulator, the Ontario Energy Board (OEB), to work together to design a standard-offer program that would remove these barriers for small proponents. Assisted by Navigant Consulting, OPA undertook extensive stakeholder consultation and analysis leading to the program’s ultimate design. Stakeholders gave the OPA two conflicting objectives for the RESOP: Create a program that would allow small participants, such as community groups, First Nations and farmers, to supply electricity to the OPA; and create a program that would enhance the amount of renewable power available to the OPA at a cost reflecting its value.

The resulting program reflects both objectives. The simple eligibility criteria and easy prerequisites allow community participation; and prices are set primarily to reflect value to OPA. The solar PV price reflects the value of both the electricity itself and the opportunity to gain experience with solar PV technology on a small scale.

The program is scheduled for periodic review, with the first ocurring two review years after program start. At program start, the OPA estimated it would produce about 1,000 MW of renewable capacity over a 10-year period. That would contribute to the OPA’s directed goal of 2,700 MW of new renewable capacity in Ontario by 2010 and about 8,000 MW by 2025, but the OPA still would need to procure large-scale renewables.

OPA Overload

The chief surprise to OPA was the size of the response, both in numbers and in size of participants and proposed projects. When applications were frozen on May 13, 2008, the OPA had received 430 applications for a total of about 1,500 MW. That’s 50 percent more capacity than the OPA had estimated it would receive in 10 years. This large response has created several constraint points.

One constraint is the ability of the distribution system to accept the proposed amount of generation. Overall application amounts would exceed the generation capacity of some transformer stations (see Figure 2) .

The first proponents to ask for connection-impact assessments at these