Ontario s Renewable Energy Standard Offer Program. June 2008

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1 Ontario s Renewable Energy Standard Offer Program June 2008

2 Renewable Energy for Ontario A Growing Reality It s an enticing and exciting prospect: virtually unlimited, everlasting, clean and sustainable electricity from nature, without having to burn non-renewable hydrocarbons or use other fuels with higher environmental impacts. After all, energy is all around us, in the wind, in flowing water, in sunlight and in plants and other biological matter that can be converted to yield cleanburning liquids or gases. The technologies to generate electricity by harnessing wind, water, the sun and biomass are constantly being improved. The challenge is to make them economically viable so that producers and consumers alike can gain the environmental and social benefits that renewable energy can offer without incurring excessive costs. Another challenge is to adapt the electricity grid to receive decentralized generation from renewable energy projects at widely dispersed and sometimes remote locations. In Ontario, the vision of having renewable sources meet a truly significant share of the province s total electricity needs is becoming a growing reality. Throughout the province, small-scale project developers are planning, building or operating renewable energy generating facilities and connecting them to the province s power grid while reducing some of the financial and business risks that can deter investors from undertaking such projects. This booklet describes the measures taken by the Ontario Power Authority (OPA) a not-for-profit organization with a mandate from the provincial government to ensure the long-term reliability of electricity supply in Ontario to foster and support the growth of renewable energy supply in the province. It focuses in particular on Ontario s Renewable Energy Standard Offer Program (RESOP) for projects with an installed generating capacity of no more than 10 megawatts (MW). The OPA has also designed programs to support the development of larger renewable energy projects in Ontario. Details on these and other OPA generation procurement programs, including rules, contract terms and information guides to participation, can be found on the OPA website, 1

3 Renewable Energy Sources Ontario s Natural Advantages Ontario is fortunate to be rich in the natural resources and conditions that can be used to generate electricity from renewable sources. Following are brief descriptions of each of these sources and the opportunities in Ontario. Wind Power: Wind is one of the oldest sources of renewable energy harnessed by mankind to propel sailboats and turn windmills to grind grain. Today, wind-driven turbines are used around the world to capture wind power and convert it to electricity, in both small, single-turbine operations and large, multi-turbine wind farms. Ontario currently has about 500 MW of wind power in service, with close to 1,500 additional MW expected to be in service by Because areas close to the Great Lakes or with high elevation and exposure to prevailing winds have significant potential for development, wind power can be an economic and viable contributor to Ontario s electricity supply mix. Water Power: As one of the cleanest sources of electricity, waterways provide many opportunities for renewable energy generation. In Ontario, hydroelectric power currently supplies over 25 percent of the province s electricity from more than 200 generating stations. In fact, Ontarians traditionally refer to electricity as hydro, reflecting the large part that hydroelectric generation has played in supplying their needs. Even so, with Ontario s 250,000 lakes and countless rivers and streams holding nine percent of the world s fresh water, there is a substantial opportunity for water power to play an even greater role in the future. And smaller projects, either run-of-the-river projects or facilities constructed at existing dams, can make a significant contribution. Solar Photovoltaic Power: Solar power uses energy from the sun to directly generate electricity. Today s solar photovoltaic (PV) panels are not very efficient and initial costs are high for multi-panel systems that can contribute power to the grid, but the technologies are evolving and the long-term benefits of solar power are tremendous. Through its Standard Offer Program, Ontario is the first Canadian province to actively support the development of solar electricity generation projects that will enable small, local, renewable energy producers to enter the energy market on a more economically viable basis. Biomass: Biomass energy the conversion of organic waste matter into a combustible fuel for electricity generation is a cost-effective energy source that can reduce dependence on non-renewable fuels without harming the environment and as an adjunct to other agricultural operations. Ontario has plentiful sources of biomass than can be tapped for electricity generation, especially residual material from forestry and agricultural production, as well as millions of tonnes of organic municipal waste. Bracebridge Generation Bracebridge Generation Ltd., a subsidiary of Lakeland Holding Ltd., which is wholly owned by the municipalities of Bracebridge, Huntsville, Burk s Falls, Magnetawan and Sundridge, operates a waterpower facility on the Muskoka River in Ontario that has been receiving payments under the RESOP since January A recent project added a 1.5 MW generating plant to an existing 800 kilowatt plant that has been in operation since the 1940s. At its full capacity of 2.3 MW, the plant provides power for 1,600 homes in local communities. 2 3

4 The Need for Renewable Energy and Ontario s Response Over the next 20 years, about 80 percent of Ontario s existing electricity supply capacity will need to be replaced with a combination of conservation and new supply facilities. This outlook reflects some clear realities: projected population and economic growth; the decisions required for Ontario s nuclear-power generating facilities, which today account for about one-half of total supply; and the need to eliminate environmentally harmful coal-fired generation, which today accounts for about 20 percent of supply. Renewable sources, primarily hydroelectric power, currently supply about 27 percent of total electricity consumption. The Government of Ontario is committed to making the maximum practical use of renewable sources to help close the supply gap. Specifically, a 20-year Integrated Power System Plan (IPSP) for the province prepared by the OPA calls for renewable energy supply in the province to double to almost 16,000 MW by The provincial government has set an additional target of having 2,700 MW of electricity generated by new renewable sources by The IPSP recognizes that both large and small renewable energy projects will need to contribute to meeting these targets. Procurement processes implemented by the Ministry of Energy (in 2004 and 2005) and the OPA (from 2005 on) have led to a number of large project proposals and plans to expand existing facilities that, when implemented, will result in substantial progress toward the 2025 target. Some forms of renewable energy are ideally suited to smaller, decentralized projects in diverse locations. However, the complexity, costs and administrative burden of developing project proposals under procurement processes intended for larger projects can be serious barriers for prospective smaller project developers. Accordingly, after extensive research and consultation, the OPA designed a Renewable Energy Standard Offer Program (RESOP) for small projects that provides a standard pricing regime and simplified eligibility, contracting and other rules. The program makes it easier for the operators of small renewable energy generating facilities to help meet Ontario s electricity supply needs by supplying power through their local distribution company and being paid a fair and stable price for the power they provide. Ontario s RESOP was launched in November 2006 and was the first initiative of its kind in North America. Exceeding Renewable Energy Targets New Renewable Generation in Ontario 4 5

5 What is the Standard Offer Program? Ontario s standard offer program for small renewable energy projects is designed to strike a balance between the energy available from such projects, the province s renewable energy generation targets and the value of electricity to Ontario ratepayers. A fixed price paid to the generator for power supplied provides stability and certainty against future energy prices, protecting ratepayers from fossil-fuel and other fuel price increases while allowing developers to plan projects with confidence. Eligibility To be eligible, projects must generate electricity from wind, solar PV, renewable biomass, biogas, biofuel, landfill gas or water power. Projects must be located in Ontario with an installed capacity of not more than 10 MW and connected to an eligible electricity distribution system in Ontario at a voltage of 50 kilovolts or less. Other contractual requirements Generators must enter into a contract with the OPA for a term of 20 years. Applicants must also meet certain requirements, including a connection impact assessment, environmental assessment and demonstrated site access, as well as other contractual terms. Full details of contract terms are available on the OPA website, Sub-zone restrictions Certain areas of the provincial transmission grid are limited in their ability to accept new generation. For this reason, in some areas of the province, the OPA will impose limits on eligible projects because of transmission connection constraints until transmission is expanded or reinforced. Project ownership In general, the program rules do not impose restrictions on who can own eligible generating facilities, or on where facilities can be located other than those subject to sub-zone restrictions. The program will impose project capacity limits on developers to allow broader participation in the program. In-service requirements The OPA will require developers to demonstrate progress after receiving a RESOP contract by meeting project development milestones. The program requires projects to reach commercial operation by the third anniversary of the contract date. Payments under the contract The pricing system under the RESOP is designed to be simple and to minimize administrative costs for both generators and the OPA. For projects other than solar PV projects, it provides a fixed price to be paid to generators per unit of energy produced, subject to annual indexed adjustment for inflation. The program also provides a performance incentive for generators (other than solar PV generators) who can control output to meet peak demand requirements reliably. Solar PV projects are paid at a higher rate in recognition of the higher costs of solar PV technologies, but this rate is not indexed for inflation and solar PV generators are not eligible for the peak-period performance incentive. Payments are made by the OPA through settlement between the generator and the local distribution company, and according to the regulatory requirements applying to the local distribution company. 6 7

6 Progress to June 2008 Ahead of Expectations When the program was introduced in November 2006, the base payment for nonsolar PV generators was 11.0 cents per kilowatt-hour (c/kwh) for electricity delivered to the local distribution company. As of May 1, 2008, this base rate was c/kwh. The additional payment for projects delivering power reliably during peak hours is 3.52 c/kwh for electricity delivered during peak hours. Solar PV generators are paid a fixed price of 42.0 c/kwh for the full 20-year term of the contract. Pricing under the RESOP will be reviewed periodically and may be modified by the OPA according to changing technological or market conditions. However, modifications will apply only to future contracts, not to contracts already executed. This broad program review is scheduled for fall Windshare/Exhibition Place A landmark along the shore of Lake Ontario just west of downtown Toronto is the 30-storeys tall wind turbine located at Exhibition Place. Jointly owned by Windshare, a community-owned cooperative, and Toronto Hydro, the project operates under a RESOP contract with the OPA. With a generating capacity of 750 kilowatts, it is the first and largest urban-based wind turbine in North America and the first community-owned wind power project in Ontario. Operational since January 2003, the turbine generates an average of 1,450 megawatt-hours of power per year, enough to meet the electricity needs of 250 homes, and displaces some 380 tonnes of carbon dioxide emissions. At the time that Ontario s RESOP was launched in November 2006, it was estimated that about 1,000 MW of eligible projects might be developed within 10 years. As of May 31, 2008, the OPA had entered into contracts for more than 1,300 MW of generating capacity. This means that the estimated 10-year participation level was exceeded within 18 months of the RESOP s inception a remarkable and encouraging early achievement for an innovative and untried program in the North American energy marketplace. A total of 326 contracts had been executed under the program, with a further 60 applications for contracts under consideration. A total of 93 projects had achieved commercial operation and were receiving payments under the program, representing more than 34 MW of new renewable generation. Including planned larger projects, executed renewable generation contracts representing more than 2,500 MW were in place as of June 2008, with contracts for an additional 1,500 MW of generation expected to be executed by the end of 2008, for a total of more than 4,000 MW since the inception of the OPA in With this combination of planned and executed contracts for both small and large renewable projects, Ontario is on target to double its installed renewable energy supply capacity by 2025, as called for in the province s 20-year Integrated Power System Plan. 8 9

7 Looking Ahead Challenges and Opportunities Diversity of Projects Reflects Strong Response Following is a summary of contracted projects under the RESOP as of May 31, 2008: Source No. of Projects Generation Capacity (MW) Wind Solar PV Water Bio-energy ,361 The number and diversity of renewable energy projects covered by executed contracts and those under consideration reflect a strong and enthusiastic response to the RESOP by Ontarians in all areas of the province, from commercial energy suppliers and municipalities to individual homeowners installing solar PV panels and farmers using agricultural waste to generate bio-energy. Wind-power projects accounted for more than 60 percent of the planned generating capacity of contracts executed before May 2008, solar PV projects accounted for more than 30 percent, and waterpower and biomass projects each accounted for about five percent. Some 93 operating projects were receiving payments as of June 2008, and biomass projects accounted for about half of the total of about 34 MW of power being generated, wind projects about 30 percent, water projects slightly less than 20 percent and solar PV installations about one percent. The Lovell home in Port Credit Former Canadian Olympic cyclist Jocelyn Lovell and his wife, Neil, are strong supporters of renewable energy and believe in leading by example. The couple installed solar photovoltaic panels that generate six kilowatts of electricity on their four-year-old home in Port Credit, Ontario, and are contracted generators under the RESOP. All the power generated is sold to the local utility and more than covers the Lovells total energy costs, Lovell says. Ontario s RESOP was designed to achieve several goals. These include easing the strain on the province s electricity system; avoiding future costly investment in conventional generating infrastructure; making it easier for small, community-based renewable-source generators to sell their electricity to the provincial grid and help build a sustainable and reliable electricity system; and minimizing the environmental impacts of electricity generation development and operation. Early experience with and results from the program indicate that strong progress has been made on all these fronts. In fact, interest in the program has been so strong that the number and potential generating capacity of projects for which program applications have been received exceed the capability of the province s transmission system to accommodate all of them. This applies particularly in areas of the province with good wind resources, where demand for the RESOP far exceeds the capabilities of local distribution systems. Also, in some areas proposed smaller projects under the RESOP are conflicting with proposed larger generating projects procured under other OPA initiatives. From its inception, the RESOP was intended to operate within the context of transmission capability. In a sense, the greaterthan-expected success of the program has presented challenges that were expected to arise later rather than sooner. In some communities, large-scale generators have secured access to distribution and transmission systems and effectively prevented some smaller, community-based projects from moving forward. 11

8 Revising Program Rules To meet these and other challenges, revised RESOP program rules were announced on May 13, These changes include: To ensure fair and efficient allocation of access to local distribution and transmission facilities, prospective generators will be restricted to no more than 10 MW of generating projects per transformer station. In addition, at any one time a generator can have no more than 50 MW of projects per resource type (wind, water, solar PV, biomass) under development at one time. To ensure that limited connection capacity is being used efficiently, progress milestones will be established for new contracted projects.. In addition to these contract changes, the OPA will better coordinate RESOP initiatives with other generation procurement activities in terms of limited transmission capacity. RESOP developers will also be required to focus on areas where distribution and transmission capacity is available. In Summary Overall, within a short period since its inception, Ontario s Renewable Energy Standard Offer Program for smaller generation projects has been outstandingly successful in spurring the development of projects that will harness electricity from wind, water, the sun and biomass. Both existing renewable energy supply companies and new entrants, such as homeowners, small businesspeople, farmers and local communities, have planned and initiated self-standing and cooperative projects to save costs, generate revenue, contribute to ensuring reliable electricity supply in Ontario and help the environment. As the first program of its kind in North America, the RESOP should provide encouragement for other jurisdictions to implement similar initiatives with confidence. It should also give all Ontarians confidence that the objective of ensuring reliable electricity supply in the future can and will be met. Fepro Farms Dairy farmers Paul and Fritz Klaesi operate a 50 kw biomass generation facility at Fepro Farms in Cobden, Ontario, and are contracted RESOP generators. Manure from the dairy operation, along with grease obtained from grease traps in local restaurants and pasteurized, is processed through an anaerobic digester to produce combustible methane gas. The gas is burned to produce steam that drives a turbine to generate electricity. Plans are in place to expand the facility to a 75 kw operation this year

9 For Further Information Ontario Power Authority 120 Adelaide Street West Suite 1600 Toronto, ON M5H 1T1 Phone: (416) Fax: (416) OM OPA and Ontario Power Authority are each official marks of the Ontario Power Authority.