Following up on the recent decision in Erickson as detailed in my partner Tamara Farber’s article, the first week of August 2011 was notable in the development of the renewable energy landscape in Ontario. However, industry views everything through the filter of the possible election defeat of the Liberal party this fall, with the Ontario Progressive Conservatives having made clear that they will end the current feed-in tariff (“FIT”) regime and reverse the Green Energy Act.
With many developers and component suppliers in the renewable energy industry, and in particular, the solar photovoltaic sub-sector, being stuck in a holding pattern until the results of this fall’s provincial election, the Minister of Energy has directed the Ontario Power Authority (“OPA”) to advise developers of FIT contract projects that they may request a waiver of the OPA’s termination rights in their agreement, provided that developers can demonstrate a completed Domestic Content Plan and a manufacturing equipment agreement. Essentially, if FIT contract holders meet certain conditions, they will now have the opportunity to reduce the financial risks associated with OPA termination rights. This effectively makes it more difficult for any future government to terminate projects that are not yet built. Now, more than ever, developers of renewable energy projects in Ontario will be using election night 2011 as a drop-dead date on completing certain components of their projects.
Another issue slowing down the development of renewable energy projects in Ontario has been the uncertainty surrounding municipal property taxes. Especially in relation to solar projects, land and building owners have been unwilling to take the risk of increased property taxes due to the development of a power project on their rooftop or lands. Similarly, developers have recognized that taking the risk on property taxes could result in the erosion of a significant portion of their profit on a project. The Ministry of Finance has proposed new rules to provide greater clarity and stability to the property tax assessment of renewable energy projects, being an amendment to Ontario Regulation 282/98. The intent is to ensure that property taxes do not act as a disincentive to building out energy generation capacity, particularly small scale generation by persons not ordinarily in the business of energy production.
While it was clear that the Municipal Property Assessment Corporation (MPAC) was not permitted to increase a property assessment due to the value of the renewable energy equipment itself, it was unclear whether the revenue associated with a project could be used on a re-assessment or if a property otherwise used for residential or farm purposes could be taxed at an industrial rate. The proposed amendments are open for public comment until August 29, 2011 and provide that rooftop projects and small microFIT projects by non-corporate power producers will face no new assessment or taxes; that projects by non-corporate power producers from 10 to 500 kiloWatts (kW) will have the land, buildings and structures used for electricity taxed at the rate of the surrounding land use (this treatment also applies to large on-farm anaerobic digesters operated by farmers); and large projects, over 500 kW, by non-corporate power producers will have the land, building and structures used for electricity generation taxed at the rate of the surrounding land use for the proportion of the assessment, up to 500 kW, and taxed at the industrial rate for the proportion over 500 kW. Land, buildings and structures related to ground-mounted projects conducted by corporate power producers will be taxed at the industrial rate.
The Ministry of Environment has also announced certain improvements to the Renewable Energy Approvals (“REA”) process, including reducing the amount of time for initial screening from 90 to 40 days. The Ministry of Natural Resources similarly introduced a number of steps and tools intended to save developers’ time, including developing clearer rules and focusing staff resources on renewable energy projects. The Ministry of Tourism and Culture will also implement a 60-day service guarantee for written comments on final assessment reports relating to cultural heritage requirements of the REA application process. All welcome announcements.
Finally, on Thursday, August 4, 2011 the provincial government advised that it had amended its agreement with the Samsung consortium on development of renewable energy projects and building of manufacturing plants in the province. This contract had previously been kept confidential and has become a significant issue for the Liberals heading into the fall election. Samsung has agreed to a reduction of the premium price paid to it on its projects over the coming decades in return for an extension of one year on the timeline to have such projects brought into commercial operation.
All of these items are clearly part of the Liberal re-election program as they seek to make the creation of green jobs a significant plank in their platform. Whether these changes assist them remains to be seen, especially in the face of public resentment over increases to hydro-electric bills over the past year. Developers of renewable energy projects and manufacturers of components will appreciate the additional certainty, though it is not necessarily sufficient to move groups forward in advance of the election.