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Ontario's Feed-In Tariff

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

Fortnightly Magazine - October 2009

approximation of the price that would be paid” based on the technology’s cost, available tax credits and other incentives, and return on equity no less than that received by a Vermont investor-owned retail electric service provider.

In March 2009, Gainesville Regional Utilities (GRU), the state’s fifth-largest municipal electric utility, implemented the first solar feed-in tariff in the United States. For 2009 and 2010, GRU purchases excess solar power generated by customers at a fixed rate of 32 cents/kWh for 20 years. For contracts entered after 2010, the rate gradually decreases from 30 cents in 2011 to 23 cents in 2016. The program sets a soft annual cap of 4 MW. The purchase rate was set to provide a 5-percent return on large-scale investments.

The Gainesville program has been oversubscribed. In February, a month before the program launched, GRU announced it had reached its targeted 4 MW-cap for 2009. By early March, it already had sold out contracts for 2010 and now has received enough applications to fulfill all contracts through 2014.

Ontario’s experience with RESOP and Gainesville’s experience with its solar program illustrates the difficulty of accurately establishing prices that provide sufficient, but not excessive, returns to incent renewable-project development at a level that reasonably can be incorporated into the grid. Given the relatively low return target, it’s possible that Gainesville’s response level was significantly influenced by customers valuing the environmental attributes of solar power. Ontario’s RESOP experience also illustrates the dangers of having programs without sufficient financial commitments. For such programs, consider- ation needs to be given to strategies for addressing the integration of the renewable generation into the system. Ontario’s approach of considering connection and reinforcement costs as part of the selection of viable projects holds promise.

FITs are not necessarily appropriate for all jurisdictions. The stability provided by the FIT was needed to allow Ontario to compete with the United States for the jobs from renewable energy-technology manufacturers. The various renewable portfolio standards implemented by 29 states plus Washington, D.C., create demand for over 70,000 MW of renewable energy by 2020, and the American Recovery and Reinvestment Act of 2009 allows renewable project developers to convert the production tax credit to an investment tax credit or grant covering up to 30 percent of the project’s qualifying costs. Transportation costs for wind turbines and other logistical considerations make locating these manufacturing facilities close to the ultimate market desirable, so this demand represents a strong draw for manufactures. The stability offered by FIT was essential given the smaller size of the Ontario market relative to the United States.

 

Endnotes:

1. Forrest Small and Mitchell Rothman, “ Ontario’s Standard Offer ,” Public Utilities Fortnightly , December 2008.

2. The Ontario Power Authority’s (OPA) informal expectation was 1,000 MW of capacity over 10 years. As of the first quarter of 2009, the OPA had 1,412 MW under contract in the RESOP program, but only 107 MW in service. Of the contract totals, about 52 percent is for wind capacity and 38 percent for solar PV. Of the in-service capacity, almost 2/3 is