Standard Offer Program

The province has announced plans to implement a Standard Offer Program to buy power from small projects who build projects connected to distribution (not transmission) lines.  Such a program is essential to harnessing energy that is available from the many locations in the province where such projects can be built.

It is critical that anyone interested in building a project become familiar with the details on it.  This can be found at the OPA web site.  You will need to obtain a login and ID to fully explore the site.  You should read the joint report submitted to the Minister by the OEB and the OPA.  And read the questions and answers.

The details of the program are not yet finalized, but much of the framework is in place.  The program is expected to be finalized in the fall.

A key part of the program is that it will not require a complicated Request for Proposal (RFP) process.  In the earlier wind procurements, the government signed contracts based on the RFP process.  A 100 + page draft RFP was published, followed by a final copy.  If your bid was successful, this would lead to a 100+ page Renewable Energy Supply Agreement.  Both copies came out in draft mode, followed by final mode.  Then there is the questions and answers, which must all be read, and the addendums.  So that is over 500 pages of reading before you have even submitted a bid!  I submitted a bid on the first RFP – it weighed over 6 lbs., for a 3.3 MW project.  The bids required proof that the project could proceed by providing proof of financing.  Financiers charge to do the due diligence required to offer this assurance, and in many cases the financiers set the price of the bid.  So bid preparation was costly, and difficult.  Needless to say, this made it very difficult for small proponents to submit compliant bids.  In the first RFP, half of the bids were rejected as non compliant.  My bid was compliant, but was rejected based on price.
In the RFP process, the decision on the winning bids was based on price alone.  System benefits were given no credit, other than a small reward for producing more during peak hours.  Small projects connected to the distribution system reduce line losses, because the power is used locally.  By definition, a small project does not have to send its power as far as large centralized projects.  In addition, projects connected to distribution lines do not require additional costly transmission facilities to send the power great distances.  Line losses in rural Ontario are 9%.  So we produce 9% of our power requirements just to heat wires and transformers, with no benefit to anyone.  Rural consumers pay an uplift charge to cover this.  This system benefit is recognized in the current price proposal for the Standard Offer.
So the Standard Offer is outstanding for small projects.  Highlights are as follows:

Projects are limited in size to 10 MW.  This is about 5-6 of todays commercial scale wind turbines.  Waterpower and biomass are included.

The price is proposed at 11 cents/kWh, payable for 20 years, with inflation at 20% of the increase in CPI.  There is a bonus offered to projects that can demonstrate the ability to produce during peak hours.  This would not apply to wind, even if the project could demonstrate greater production during the day (as some sites do).
There will be some milestones, such as demonstrating site control, but financial milestones would seem to be unnecessary.  After all, if you don’t build your project, you don’t get paid, so why require proof of financial capability?  The milestones are still being reviewed.

It seems that a contract will be awarded well in advance of construction, and it is likely that the local distribution company will be the buyer of the power.  They will be backed by the Ontario Power Authority in the purchase.  Awarding the contract early makes it easier for proponents to arrange financing.  The contract would seem to be very secure, once awarded, and so should provide comfort to lenders.

The proposal currently suggests that the Federal Wind Power Production Incentive (WPPI), if available, will be turned over to the Ontario Power Authority.  This proposal seems flawed, as obtaining the Incentive (1 cent/kWh) is difficult and costly, and requires a Federal Environmental Assessment.  Proponents will not apply for the incentive if they simply have to turn it over.  In addition, some wind projects, such as those using the Canadian Renewable Conservation Expense, are not eligible.  So it cannot be made a requirement of proponents to apply for WPPI.  The same rules would apply to RPPI, which is a proposed federal incentive for other renewable technologies.  Why would the province want to turn away federal support for renewable energy projects – support that is critical to project economics?

Solar photovoltaic (PV) is offered a price of 42 cents/kWh, with no inflation adjustment.  The project must be separately metered, and because this would require an additional account with monthly service charges, and of course the extra cost of the metering, this program is more suited to large installations, of perhaps 2 KW.  The net metering program, which saves on your power bill, would be more suited for smaller home based installations.  Some have criticised the inclusion of solar in the program, as too expensive for Ontario ratepayers.  But this criticizm is ill founded.  The price offered is less than half what is offered in Germany, and it does not make solar PV projects very lucrative – you would still need a motivated investor willing to accept a low return on investment.  The power output from PV is worth more to the system, as it generates during peak hours (daytime in the summer), and the power produced is almost always used locally, with almost zero line losses.  The purpose of the program is to build a network of solar installers, who are competent and experienced.  Solar PV technology is making major improvements in cost as the business grows.  It is likely that in 10 years, it will be fully competitive with other power sources.  It seems to me that Ontario is very wise to include PV in the Standard Offer program, so we can begin to develop the local expertise to take advantage of this major new source of clean power supply in future.

The original proposal by the Ontario Sustainable Energy Association (OSEA) called for tiered pricing.  This would have paid a higher price for the first 5 years, and a lower price for subsequent 15 years based on the productivity of the asset.  This plan would allow some projects to be built in lesser wind regimes, while offering about the same to a productive wind regime over the life of the contract.  This proposal was rejected as too complicated.  I had difficulty understanding this argument, as there is only one time the price is adjusted – at year 5.  The price was to be adjusted on a curve, and it seemed fair to me.

The Standard Offer Program is loosely modelled on feed in tariffs used with great success in Denmark, Germany, and Spain.  These countries obtain 20%, 5%, and 8% of their power from wind respectively.  It is clear that such procurement methods are very successful at deploying projects, and in general are far more successful than RFP processes, or Renewable Portfolio Standards more commonly used in North America.  The proof is in the results.  In addition, such programs encourage smaller projects, by small local players, which would seem to have an easier time building public support than large intimidating projects by large corporations.  Public support is vital in the long run to building renewable energy projects.

OSEA has done outstanding work to get the proposal this far.  And we are hopeful that a good workable program is implemented, that harnesses the efforts of entrepreneurs, companies, farmers, and community groups in building a sizable renewable energy supply for Ontario.  If successful, it will make the difficult choices of our electricity planners far easier.

I say let’s take advantage of this program, and build a sizable new clean energy supply for the province.

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