The time-honored discounted cash flow method for determining appropriate utility returns falls short when interest rates are low. Inadequate ROEs ultimately increase cost of capital and wipe away...
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Financial incentives work, but beware potential pitfalls.
in part intended to prevent such projects from participating in RESOP.
A program envisioned by stakeholders to provide opportunities for farmers, community organizations, First Nations and other small groups to participate in electricity supply has become a vehicle primarily for well-financed and well-ordered larger organizations. Also, at the time of the program review, over 95 percent of the applications were from wind or solar PV suppliers. That has left very little capacity on the system for biomass projects, and is of particular concern for proponents of farm-based digester gas projects.
The extent of achievement of the program’s goal to increase renewable generation purchased by OPA will not be known until the contracted capacity is due to be in service. The extent to which it achieves the goal of encouraging smaller participants already is compromised by the strong involvement by larger players.
Policymakers originally expected that the program would be reviewed after two years. But the large number of contracts and their attendant problems prompted OPA to begin the review after 18 months, and to freeze applications while the review is underway. The review includes three open stakeholder consultation sessions. OPA characterized these sessions as the first phase of the two-year review. The second phase will address pricing and eligibility.
OPA’s proposed changes would allocate capacity more evenly and prevent large developers from locking up the capacity. The major proposed changes include: limiting development to no more than 50 MW of one resource type by one proponent; limiting proponents to one 10 MW-project per transformer station; and increasing the prerequisites for contract eligibility—namely:
• Wind projects must have gathered at least six months of wind data;
• Biomass projects must hold a letter of intent for fuel supply; and
• All project developers must notify local municipalities and show that either no zoning change is needed or that they have applied for the change.
Additionally, the proposed changes would include three contract milestones to be met 12 months after contract signing:
• The proponent must have submitted its final environmental screening report;
• The municipality must have passed any required zoning amendments; and
• Proponents for all projects of 1 MW or more must deposit $10,000 per project MW with the OPA, repayable on project completion.
Failure to meet these milestones would result in loss of the contract with OPA. However, it would not automatically require the proponent to give up its place in the distribution assessment queue, which is controlled by the distribution utilities.
Stakeholder reaction to these proposals is mixed. Proponents of small, community-based projects say no such projects have access to sufficient funds to meet required deposits. Some say these requirements increase risks for proponents, while others say the milestone proposals are not workable.
In September 2008, the new Ontario Minister of Energy directed OPA to reconsider the amount of renewables and conservation in its integrated power-system plan, which then was under review at the OEB. From the context, it’s clear he intends the planned amounts of these resources to increase as a result of this reconsideration.