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Ontario's Feed-In Tariff

Can a European-style renewable model work in the Americas?

Fortnightly Magazine - October 2009

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The FIT is to be a key instrument to accomplish these goals. The GEGEA allows the minister to set minimum Ontario content requirements and to direct the Ontario Power Authority (OPA) to find ways, including funding programs, to facilitate participation by aboriginal and community groups in development of new renewable energy facilities or transmission or distribution. FIT implementation is carried out by OPA, which is the electricity planning and procurement agency for Ontario. The OPA performs all procurement under both the previous standard-offer program and the proposed FIT.

The difference between FIT programs and standard-offer programs is the basis for pricing the electricity from renewables. Standard-offer programs rely on value-based pricing ( e.g., avoided costs or prices established by a request for proposal or auction process regarding the value of renewable generation); FIT programs use cost-based pricing. In the Ontario standard-offer program all forms of renewable generation (except solar photovoltaic) received the same price of $110 per MWh.

The price in FIT programs is based on the cost of the renewable generation being procured and is calculated to allow a typical facility to recover its cost plus a “reasonable” rate of return. Since cost varies with the kind of renewable generation and project size, prices in FIT programs typically are differentiated according to the kind of renewable generation offered (for example, wind vs. solar) and in many instances the size of the project. The key is to identify generation types and sizes with different cost structures and determine the cost (and therefore FIT price) for a typical installation. A second element of many FIT programs is a long-term schedule of prices that specifies how these prices will change over time. This provides equipment manufacturers with the certainty needed to make investment decisions essential to realizing the economic development benefits offered by a FIT.

By using cost-based pricing, the expectation is that a FIT will attract a more diverse range of technologies than a similar standard-offer program and will help Ontario achieve its economic development goals.

The OPA enunciated four goals for the Ontario FIT program: increase capacity of renewable energy supply to ensure adequate generation and reduce emissions; simplify the method to procure and develop generation; create new green industries through new investment and job creation; and provide incentives for investment in renewable energy technologies. 6

Among these priorities, OPA gives economic-development goals almost equal importance with the electricity supply and environmental goals. The FIT design and the GEGEA sought to promote these goals and address the identified failings of the RESOP.

Ontario FIT Design

In addition to avoiding the problems of the past, the design of the FIT had to address the challenges unique to the FIT itself. The main such challenge is getting the various prices right. Too low a price won’t increase renewable energy supply; too high a price can attract more renewable generation than the system needs or can afford. Spain’s experience is a case in point. With a high FIT rate, in one year Spain committed to $26.4 billion in payments for solar power, forcing