New Restrictions on Standard Offer

The Ontario Power Authority (OPA) announced new restrictions on the Standard Offer that will make it even more difficult for Ontario to achieve its renewable energy goals.

Before announcing the new restrictions in a webinar yesterday, they talked glowingly about the success of the program. Oddly, they seem to consider the program a success based on the number of contracts they sign. Anyone in the power business should know that there is a big difference between signing a contract, and seeing concrete in the ground. I would guess that they would be lucky if 25% of the contracts signed are built.

There is some past evidence of this disconnect between contracts signed and projects built at the OPA. The OPA missed the provincial 2007 target of 1350 MW by 64%. They are now set up to also miss the 2010 target of 2700 MW too. They need to contract for more than the target, and they need to do the contracts earlier. And stop gloating over contracts signed – they mean nothing. Built projects are all that matter.
So far under the Standard Offer, less than 40 MW are operating. 1300 MW’s of contracts are signed. But many of these projects will not be built. Some projects won’t get through the connection process, some won’t get through the municipal planning process, some will not be able to attract lenders, some will not get through the environmental assessment process. It is not easy to build a project.

Since the government announced their 2700 MW goal for new renewable energy capacity for 2010, 500 MW are operating.  There are 830 MW of contracts that have been signed, and some of this new capacity is under construction.  And the OPA announced a 500 MW RFP for new renewable energy.  Contracts for this RFP won’t be signed until late this year.  The odds of the projects being built by the end of 2010 are slim, with current equipment lead times, and permitting barriers.  So that is 1830 MW, plus whatever gets built from the 1300 MW Standard Offer contracts.  2700 MW won’t happen by 2010.  Indeed, they may once again be 64% behind.
Yesterday, the OPA put restrictions on prospective developers. Developers will now be restricted to a total of 50 MW of contracts in each of wind, water, solar, and biomass. This would seem to be a restriction targeting large developers, and should free up some capacity in the distribution system for smaller developers. It must be acknowledged though, that the reason large developers are participating in the Standard Offer is because the OPA had no other procurements underway.

But they also put a restriction on the number of MW’s that a developer could connect to a single Transmission Station. The maximum per developers is now 10 MW. This is very problematic. In many cases, an extension line must be built, and the only way to cover the cost of the extension line is the spread its cost over 2 or 3 projects. The new policy will force developers to try to work together. But this will be very hard. Will both be able to raise the funds for the feeder extension? What if one can’t raise the funds after committing to do so? What if Hydro One imposes different operating rules – how will these penalties be shared? This restriction will raise the cost of delivering many Standard Offer Projects. And with today’s turbine prices, every nickel counts.

The concept of trying to keep the Standard Offer for small players is laudable. The method to get there is questionable.

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