APPrO comments on treatment of legacy projects - Feed-in Tariff ...

25 Adelaide St. ESuite 1602Toronto ON, M5C 3A1April 10, 2009Jason Chee AloyDirector of Generation ProcurementOntario Power AuthorityToronto, OntarioRe: Treatment of legacy projects under the FIT programDear Mr. Chee Aloy,<strong>APPrO</strong> has been impressed with the stakeholdering process used by the OPA todisseminate information on the Feed In Tariff program (FIT). We are particularly pleasedwith your invitation to comment on the treatment of legacy projects. This is an issue ofgreat importance to many of our members, as we have been involved with the full rangeof procurement processes used by the OPA since its inception.Our view on the treatment of legacy projects starts with the overall goals of the FITprogram. Although specific targets have not been set, it is clear that by positioning theFIT program as the leading initiative of its type in North America, and by setting no upperlimit on project size or total capacity contracted for under the program, a primary goal ofthe Ontario government is to encourage the maximum amount of high-quality economicrenewable power projects be developed and connected to the Ontario grid, as quickly asreasonably possible.We believe that in order to ensure that the highest quality projects are developed, and toensure that the maximum amount of economically attractive renewable generation is putinto service, it will be necessary to make FIT contracts available to a wide range ofexisting projects that are still under development. In this respect, our views are largelyconsistent with the positions being put forward by the Canadian Wind EnergyAssociation (CanWEA), the Ontario Waterpower Association (OWA) and many otherstakeholders. Our recommendations below fall into two main categories: First theinclusion of demonstrably advanced projects in the initialization period, and secondly,special efforts to ensure the FIT program does not create counterproductive impacts inthe biomass fuel market.25 Adelaide St. East, Suite 1602, Toronto, Ontario, M5C 3A1or: PO Box 1084, Station F., Toronto, Ontario, M4Y 2T7 Canada416-322-6549 fax 416-481-5785 appro@appro.org www.appro.org

1. Inclusion of demonstrably advanced projects in the initialization period<strong>APPrO</strong> recommends that, with a few exceptions, all projects that submitted a properlycompletedCIA or SIA application and received a queue position before the March 122009 announcement of the FIT program be eligible as legacy projects for theinitialization period. This could include for example, unsuccessful projects submittedunder the RES I, II, or III programs, and projects with executed RESOP contracts thathave not yet gone into operation. We do not advocate inclusion of projects that havereached commercial operation, or those which have not progressed substantially interms of permitting since their previous application. CanWEA has developed somereasonable measures for distinguishing projects which are “significantly advanced”which we think bear careful consideration. And of course, we agree that in order to beincluded in the initialization period, any legacy project must also meet the standardeligibility requirements for a FIT contract.Because FIT was designed in the aftermath of the credit crisis and the economicdownturn of 2008 its basic economic assumptions are far more appropriate to currentconditions than those of previous procurement programs. Our recommendedclassification of legacy projects would ensure that otherwise viable projects which weremade unworkable by the dramatic changes in economic conditions of late 2008 couldqualify for FIT and continue to move forward based on their merits, rather than beingassessed on outdated assumptions. On the other hand, those projects which haveachieved commercial operation in the past year, clearly have found some means to dealwith the current economic conditions. It is not a perfect definition, but it would have theadvantage of:a) Preserving the highly attractive opportunities and considerable investmentrepresented by the mature but uncompleted projectsb) Putting on a level playing field those proponents who developed projects earlyin response to previous OPA solicitations, with those who are only now coming tothe table.Without such a provision, it is likely that a large number of high quality projects will bestalled, put on hold or abandoned, compromising the ability of the province to achievethe maximum amount of new renewable energy capacity under the FIT program. Inaddition, the early developers who invested in these projects in good faith could feelpenalized purely because they started earlier, by comparison with those eligible toreceive FIT contracts. As others have noted, participants in previous procurementprocesses were not advised that they would be considered ineligible for futureprocurement processes.In order to attract high quality projects, investment capital, and jobs to the renewableenergy sector in Ontario, it is important to clearly propagate the message thatunsuccessful participation in a given procurement process does not in and of itselfdisqualify projects from trying again in a later process. In fact, such re-application shouldbe sought out, as it will encourage successive improvement in project proposals and25 Adelaide St. East, Suite 1602, Toronto, Ontario, M5C 3A1or: PO Box 1084, Station F., Toronto, Ontario, M4Y 2T7 Canada416-322-6549 fax 416-481-5785 appro@appro.org www.appro.org

adaptation to the evolving expectations of the province as expressed in its procurementsystem.2. Special efforts not to de-stabilize the biomass fuel marketAn immediate issue of direct concern relates to biomass-fired power generation, in whichOntario power producers took the lead at the beginning of the 1990s. As you have heardfrom <strong>APPrO</strong> and others already, there are several significant existing operators ofbiomass-fired power generation in the province whose fuel supply could be endangeredif the FIT program doesn’t address the issue of biomass supply and prices for theselegacy biomass facilities. Biomass supplies are already under intense pressure due tothe current state of the forest products industry.Clearly it would make no sense to contract for new biomass-fired power generationunder the FIT program if such action were to cause the curtailment or even shutdown ofexisting reasonably priced biomass-fired power generation in Ontario. Given thepressures on fuel supply and the challenging economics for renewable projects in thiscategory, there is strong evidence that existing biomass-fired power generation facilitiesat several locations in the province could either lose their fuel supply, or be forced tocease operation because fuel costs become uneconomic, if current FIT programproposals for biomass go ahead without additional measures.It is essential to ensure that the existing operations be able to continue. This we believewill not only protect existing jobs and investments, but it will save money for ratepayersby ensuring that the additional cost of new FIT contracts are not incurred needlessly tobuild one set of plants while idling another that do essentially the same thing.We would encourage you to work closely with existing biomass generators to determinewhat is required to allow them to continue operation. As you know most of them arecurrently under contract to the OEFC, under long term agreements that expire over thenext few years. It is vitally important that they not be disadvantaged in any way by theFIT program. While we understand that some of the relevant issues are not currentlywithin the ambit of the OPA, this underscores the importance of resolving the NUGcontract follow-on issue. It is a virtual certainty that it will be much less expensive toensure continued operation of existing biomass-fired power generation than it would beto build new.It would be helpful to underline that there are less than 60 MW of biomass generatingfacilities that are IESO market participants and are operating under long term PPA’s.These particular power plants are important to the system and the costs of ensuring theircontinuation would be modest. These projects have been in operation for many years,and are integrated with forestry operations. Biomass power generation is notintermittent and can respond to system needs for maneuvering in many cases.Environmentally, its benefits are unique in that biomass generation, when driven bywaste fuel, actually has negative net emissions, because it removes a source ofdecaying material that would otherwise release powerful GHGs into the atmosphere.25 Adelaide St. East, Suite 1602, Toronto, Ontario, M5C 3A1or: PO Box 1084, Station F., Toronto, Ontario, M4Y 2T7 Canada416-322-6549 fax 416-481-5785 appro@appro.org www.appro.org

It is our view that the FIT program can not proceed to contract for new biomass-firedpower generation without paying careful attention to the fuel supply issues. There is alimited amount of this resource, it is already under pressure, and given the currentilliquidity of the market, consideration must be given to the existing generators, potentialnew generators, and of course, OPG’s proposed re-firing of certain coal fired powerstations. In addition, there is an international market for biomass fuel from Ontario, andas you probably know, significant quantities are already being shipped offshore.Finally, I would like to note that the tight time lines for input on this question have notallowed for a complete review by <strong>APPrO</strong> members. However, we will continue to consulton the issue and will bring any further <strong>comments</strong> to the OPA's attention.We appreciate the opportunity to provide this advice and look forward to working withyou to resolve the issues identified.Sincerely,Jake BrooksExecutive Director25 Adelaide St. East, Suite 1602, Toronto, Ontario, M5C 3A1or: PO Box 1084, Station F., Toronto, Ontario, M4Y 2T7 Canada416-322-6549 fax 416-481-5785 appro@appro.org www.appro.org