Termination Provisions in Power Purchase Agreements: How will Ontario Impact Saskatchewan and Alberta

September 13, 2018 | Chad Eggerman, Aaron Atcheson, Grant D. Sprague

Power Purchase Agreements (PPAs) provide for the purchase of electricity, usually by a utility or corporation, from an independent power producer (IPP). How will recent cancellations of PPAs in Ontario impact future PPAs anticipated in Saskatchewan and Alberta?

On July 13, 2018, Ontario’s new Progressive Conservative government followed up on its campaign promises and announced the termination of 758 renewable energy projects for which the Independent Electricity System Operator (IESO) contracts had not yet been finalized. Additionally, the 18.5-megawatt White Pines Wind Project (the White Pines Project), which had been undergoing development over the past 10 years and recently received final approval for construction from IESO in May, was cancelled. In response to this announcement, the developer indicated that it may seek to recover the estimated $100 million that it has sunk into the White Pines Project to date. In order to cancel the White Pines Project contract, the Ontario Government relied on the Urgent Priorities Act, 2018. This new legislation states that the developer must cover the cost of decommissioning the project and restoring land to “clean and safe condition”. The legislation also makes it very difficult for the developer to pursue a claim against the Crown.

In Saskatchewan, approximately 20% of power generation is supplied by IPPs through PPAs, made up largely of natural gas and wind generation. The Power Corporation Act gives the vertically integrated Crown utility SaskPower the ability to contract with IPPs on any terms and conditions it considers advisable. SaskPower’s broad legislative power to impose terms on IPPs is in accordance with the historical role of SaskPower in Saskatchewan as a Crown corporation provided with a monopoly on power generation, distribution and transmission primarily to benefit the people of Saskatchewan. There is no public standard form PPA for use between SaskPower and IPPs. However, PPAs are often appended to Requests for Proposals (RFPs) issued by SaskPower. SaskPower has preferred, and appears positioned to continue to prefer, competitive public procurement of energy from IPPs as opposed to the feed-in-tariff contracts which were used in Ontario. It is difficult to conceive of a rationale why SaskPower would further tighten up termination clauses in PPAs but IPPs should still be aware of any variations from past PPAs. Given that SaskPower prefers RFPs and has always wielded very significant legislative power over IPPs in Saskatchewan, it is not expected developments in Ontario will have much of an effect in Saskatchewan.

Alberta has a deregulated or merchant market unlike Saskatchewan and is currently in the process of transforming itself into a capacity market.  As a result, all generators in Alberta are exposed to the risks of price fluctuation and the need to attract investment without the  certainty of return. While there are several historic PPAs which were designed to create the merchant market in 2000, new generators have no such arrangements. The development of certain renewable energy projects, under the various phases of the Renewable Electricity Program, do result in contracts for differences between the generator and the Alberta Electric Systems Operator.  With the prospect of a provincial election in Alberta next year, it will be interesting to see whether further changes to the electricity market in Alberta will follow.

Time will tell how this evolves. Do not hesitate to contact Chad Eggerman in Saskatchewan, Aaron Atcheson in Ontario or Grant Sprague in Alberta to learn more about how this may affect your business or project.

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