The dust is beginning to settle on the Doug Ford Government’s July 5, 2018 order to cancel 758 renewable energy projects in Ontario. What is emerging is clear: the hardest hit by this decision are First Nations and local communities
By way of background, Ontario rolled out the Green Energy Act in 2009 in an effort to phase out coal production and decrease reliance on auto-manufacturing after the 2008 “great recession” by rapidly introducing a renewable energy economy to the province. Above market, fixed price contracts for renewable proponents were issued by way of a Feed-in-Tariff Program (“FIT”) to induce otherwise reluctant proponents into the market by delivering certainty regarding the return on investment. Domestic content requirements mandated a percentage of the projects be built in Ontario, and Ontario implemented policies to proactively incentivize Indigenous ownership to minimize project interference.
Over the years the prices awarded for these FIT contracts dropped as the price of the renewable technology fell, marked by successive regimes of the FIT Program. By 2014, FIT contracts for large projects were replaced by competitively bid contracts under the Large Renewable Procurement Program (“LRP”); the FIT program only continuing for projects 500kW or less in capacity scale.
The concern over electricity prices arises from the fact that the earlier FIT contracts constituted a significant jump from the prices Ontario had previously been paying for coal.
Few of the contracts cancelled by the July 5 order would have resulted in projects generating electricity at pre-2014 prices. Rather, of the projects cancelled, only those falling into the FIT5 (small community projects) and LRP1 (competitively bid, market priced contracts) contract groups showed any promise of reaching commercial operation on a significant scale.
Both of these recent IESO regimes issued contracts that were so competitively priced that the process completely weeded out developers in the bidding round hoping for a windfall. In both FIT5 and LRP1, margins were excruciatingly tight, projects needed to be bundled into portfolios in order to aggregate costs, and only projects in areas with existing need were approved.
In addition, projects with poor performance forecasts wouldn’t justify revenues sufficient to withstand a lender’s scrutiny and obtain required financing, let alone repay project expenses. What this downward pressure on price meant is that only the strongest developers stuck around to submit applications, and of that group, those that availed themselves of the extra points for partnering with municipalities and First Nations were the most likely to be approved. Hence, not only did Ontario finally reach market competitiveness in the renewable contracts being let, it found a way to do so that prioritized community ownership. Bottomline: It wasn’t the FIT5 and LRP1 contracts that were making electricity prices painful, and cancelling them won’t provide relief.
Many First Nation and municipal communities in Ontario waited to hear positive anecdotal accounts from their peers before getting involved in the renewable energy sector. As a result, projects with Aboriginal ownership were more frequently seen in the LRP and later FIT stages, and accordingly, they are disproportionately impacted by the cancellation. Why a government dependent on the rural vote and governing on the slogan “for the people” thinks cancelling these projects is a good idea is beyond me: it looks more like a gas plant scandal in sheep’s clothing.
Understand, the more expensive FIT 1, 2, and 3 contracts that could’ve been built, were built. Several years ago. The handful of contracts applying to these earlier regimes that Ontario has cancelled applied to projects that had by 2018 little likelihood of being built. A “drop dead” date in the standard IESO contract meant that if a developer couldn’t figure out how to get their project built within a set time frame following the milestone commercial operation date, Ontario was entitled to cancel the contract.
Accordingly, claiming any savings from any of these decisions is just creative accounting. More accurate would be an admission that, with the overly hasty stroke of a pen, the local investment associated with the development of 443MW of projects (representing approximately $850 million) has just gone up in smoke:
- No leasehold payments to farmers;
- No investment revenue generated for First Nations and other communities;
- No engineering and design work for local firms;
- No site clearing contracts employing local unskilled labour;
- No local construction work to have facilities built;
- No interest earned by local banks and credit unions to finance construction;
- No development of snow clearing technology to keep snow off solar panels;
- No local maintenance contracts to upkeep projects during operation;
- No skilled electricians to improve reliability and fix outages;
- No upgrades to existing transmission capacity to improve electricity reliability in remote townships;
- No use of the money generated from these activities in the local businesses surrounding these developments.
These cancellations hurt local communities. They will discourage future investment in the province. And they also simply miss the policy mark of making electricity cheaper. The policy inducements that welcomed-in early developers to the renewable sector in Ontario, and which led to higher electricity costs to Ontarians, are long gone. The cancellation of recently approved contracts will not now reduce electricity prices, and the cancellation of corresponding programs to help bring down the cost of energy consumption will mean customers have to pay more to permanently reduce their consumption. Targeting these later FIT5 and LRP1 contracts is like disciplining a 10- year-old on the honour roll for bad behaviour carried out when they were a toddler: the renewable industry in Ontario has outgrown its infancy, and the only contracts cancelled were issued at competitive rates, with a high proportion of local ownership.
If your First Nation had an ownership share in a cancelled project and is unhappy with this decision of the Doug Ford Government, you can email Premier Ford at Premier@ontario.ca, phone him at 416-325-1941, send website correspondence to him by clicking here, or write to him personally at:
Premier of Ontario, Doug Ford
Legislative Building, Queen’s Park
Toronto, ON M7A 1A1
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