The OPA Never Learns: Pending Price Changes for FIT and MicroFIT

[Rob Beckers]

The people working at the OPA on the FIT and MicroFIT programs are likely for the most part intelligent, and well-intentioned. The few I have met at OPA presentations certainly were. Yet, collectively the OPA seems prone to piss-poor decision making, and an inability to learn from past mistakes (anyone remember the MicroFIT ground mount price change debacle?).

Yesterday the OPA announced that they are reviewing FIT and MicroFIT prices. No surprise there, that was announced two years ago with the introduction of the program. What was surprising is that they placed an arbitrary, retro-active, cut-off date of August 31st on MicroFIT (http://microfit.powerauthority.on.ca/microfit-program-review-underway); anyone after that date will be subject to the new prices (and we don't know yet what they will be). For FIT it's even worse (http://fit.powerauthority.on.ca/fit-program-review-underway); anyone without a contract is going to be subject to the new prices (the mechanism for FIT is different from MicroFIT; it normally only takes a few weeks for a contract offer if there is capacity, followed by years to complete all the other requirements before the contract can be implemented). Since we have a pending FIT application that was submitted early September I know for a fact that they have not been extending contracts from at least that date onward.

On top of it all, the new feed-in rates will not be available until at least December 14th, that being the date the OPA proclaimed to be the end of their 'consultation period'. Clearly their consultation did not extend to the method how rate changes will be applied...

This is going to be a Very Big Problem for many installation companies, that I know to have spent serious money and signed up customers prior to October 1st, when the changes were expected. It also violates a number of the OPA's own rules and tenets.

The OPA has claimed in the past that they desire to work towards market stability by making their process, and that applies in particular to program changes, more transparent and predictable. Arbitrary and retro-active cut-off dates for rate changes do not help accomplish that!

For the FIT side of the program their own FIT rules state "the price offered in the FIT contract is the price of the schedule in effect at the time of the Time Stamp". This is somewhat paraphrased, and excluded are those FIT projects that were in the Production Line and Reserve (basically those that were waiting for capacity to become available), you can read the full rule text for yourself in section 7.1.b for anyone interested in checking. The Time Stamp is defined in section 4.1.a, and is the date of electronic submission. This is taken from version 1.5.1-1, which was the latest version of the rules in effect before October.

Arguably those same FIT rules also apply to MicroFIT, since the FIT rules include all the exceptions for MicroFIT as well. In other words, the FIT rules were clearly written to be The Rules for both FIT and MicroFIT.

Why does the OPA feel they are above their own rules?!

Many have pointed to the German FIT program as a model for others to follow. The German program has announced rate changes well ahead of time, giving those that wished to participate under the old rules a chance to do so. This provides clarity, and stability to the renewable energy market. Why is it so hard for the OPA to learn from this, and follow the German example?

The OPA is soliciting feedback regarding the pending changes through a survey (http://www.energy.gov.on.ca/en/fit-and-microfit-program/2-year-fit-review/). I would encourage everyone to participate, and let them know what you think of their handling of program changes!

With many unhappy with the OPA's lack of decency and common sense, and some financially hurt, clearly the last word has not yet been spoken regarding these pending rate rate changes.

-RoB-

P.S. Please spread the link to this post, so this gets as wide a distribution as possible. This would also be a good time to let you Member of Provincial Parliament know how you feel about the OPA.

Please copy & paste the direct link to this message below, for sending to others in E-mail, or posting in blogs etc:
http://www.greenpowertalk.org/showthread.php?t=15301

[Michel de Breyne]

That's the first thing I thought of when I saw their survey; they talk about what needs to be done to put stability in the program for developers. STOP WITH RETROACTIVE PRICE DROPS !!! What's wrong with issuing a statement beforehand (e.g. June 2011) saying something like 'As we approach the 2 year anniversary of the program, as previously mentioned, we will be doing a pricing review. As such, applications received prior to XX date will be considered under the old rules and applications under the new date will be considered under the new rules ...' Also on the same token, why do they insist on making it effective on some date prior to the new rate announcement. Why not simply do it like 'As of Dec 14th 2011, the rate paid will be X. Any applications received on or after Dec 14th 2011, will be considered under the new rate ...'

Going through the review survey, by the questions, it's obvious that they've already made the decision to drop the rate, the unknown now is by how much. They cite much lower costs (particularly for PV). Seems to me that although I hear of $1 and $2/W panels, when it comes to pricing out FIT-compliant equipment, it doesn't seem that the prices have really changed much since Ontario content has become available. To all the installers, are the costs really that much lower? For a typical 10k ground mount or roof mount system, has what you charge changed much?

It's bad enough that already the program seems on eggshells. When the provincial elections were announced, I gave up any thoughts of planning for any system because I was worried the PC would win and can the whole thing. That's barely behind us and I was ready to start planning again and now this happens (i.e. any plans are on hold for 6 weeks until the rates come out).

Let us know.

[Rob Beckers]

Seems to me that although I hear of $1 and $2/W panels, when it comes to pricing out FIT-compliant equipment, it doesn't seem that the prices have really changed much since Ontario content has become available. To all the installers, are the costs really that much lower? For a typical 10k ground mount or roof mount system, has what you charge changed much?


Hi Michel,

Prices have come down considerably since the FIT/MicroFIT program started. Two years ago we charged $7.26/Watt for a 10kW at the start of the program. Over the past weekend I've reviewed our prices in light of the ever lower PV module prices, and we now charge $5.10/Watt for a 10kW, and that's with quality brands (there are many outfits that will install for less, using less-known brands).

With that in mind the OPA is right to lower the feed-in rates. I have no objection to that. It is the way they are going about it that just boggles the mind.

There is a Web conference today at 10 am to discuss the pending changes with the OPA. I plan to be on it, and if I have a chance to speak I will question them about the FIT rules in particular, which they seem to be violating.

-RoB-

[Rob Beckers]

I had a chance to speak at yesterday's conference call where the OPA discussed the pending changes. My reason to speak was to point out that the OPA is violating their own FIT rules by retro-actively changing the rates for applications going back to June 2010 that have yet to be processed. My comment was brushed aside by the panel. You can listen to the whole conference call; the OPA has a link to the archive of conference calls on their Web site (http://microfit.powerauthority.on.ca/past-events-2011).

Below is an E-mail message I just sent to 2yearFITreview@ontario.ca
This is the address the OPA is inviting comments/suggestions etc. to for the review. In their words, the letters will be shared between the OPA, the Ministry of Energy, and a third entity that escapes me right now. It again points out the violation of the FIT rules, with rule section numbers and such. Have a read. I would encourage everyone to write to the OPA and submit your concerns (please don't copy my letter verbatim, that will make them dismiss the arguments, but feel free to use the points made in there for your own content).

-RoB-

************ LETTER SENT TO THE OPA 11-NOV-11 ***************

Dear OPA et. al.,

While the FIT/MicroFIT review came as no surprise, it had been announced two years ago, the method with which the OPA and Ministry of Energy have chosen to go about this raises a number of concerns and issues.

Despite that the attempt to retro-actively change rates proved a large problem in 2010 with the ground-mounted MicroFIT rate change, the OPA is doing this yet again. I would have hoped that lessons were learned from that debacle. It appears that is not the case.

Changing rates for applications that are already submitted essentially means you are undoing sales of PV installation companies, causing large frustration and anger with both customers and PV businesses. Most FIT and MicroFIT customers have already gone through a site survey with a PV installation company, talked about rates and returns, and done a financial analysis when they apply for a contract with the OPA. Some have already made expenses, especially for FIT, but in some instances for MicroFIT as well (such as engineering for a flat roof, to find out if it can carry the additional load of solar PV). Many PV installation companies accept deposits from people before they submit the FIT or MicroFIT application (and retro-active rate changes will mean many of those customers will demand their money back). It causes the opposite of the stability the OPA claims to be striving for in the industry. And for what?

The arguments I heard from the OPA in yesterday's conference call centered around "we processed applications up until August 31st, we promised a 60 day turn-round time (which we never actually met except for this very brief moment in time), so that seems a good date to use as a cut-off" and "we have to balance the interests of the rate payers etc.". The latter seems to say that moving the effective date to October 31st, the day the review was actually announced, would cause an undue burden on the rate payers. While the OPA is not providing any numbers to substantiate this, how many additional MicroFIT rooftops would you have if applications up to 31/10 were allowed at the current rate? What additional cost on the rate payer's monthly bill does this represent? I have a feeling it won't be very much at all, though without numbers we will never know. I realize there is FIT too, and those represent far more money. The situation there is different.

For FIT the rules version 1.5.1-1 (the latest prior to October 31st), in section 7.1.b state that the price offered in the FIT contract is the rate in effect at the time of the Time Stamp of the application, unless the application was in the FIT Reserve or FIT Production Line. Section 4.1.a defines the Time Stamp as the date of electronic submission. That means the OPA cannot change the contract rate for FIT applications that do not have connection constraints but have not yet been processed, as submitted prior to October 31st (and indeed, until the actual rate table is changed officially). There is an implied contract between the person submitting the application and the OPA, and those are the rules. Contract law dictates the OPA does not have the latitude to renege.

When I brought this up in yesterday's conference call it was (rather casually) dismissed as "you have to read all the rules", and "you cannot take just a single clause". As a matter of fact, I have read all the rules, and the way contract law work is that each clause has equal validity! There are no other clauses in the FIT rules that limit or otherwise qualify what I stated above: Those FIT applications that do not run into capacity constraints (and consequently do not end up in the FIT reserve or FIT production line) have a contractual right to get the rates that were in effect at the time of submission. If I am mistaken in my reading of those rules please be so kind to point out section and clause numbers that prove otherwise.

There was much self-congratulating how Ontario's feed-in-tariff was the best in North America. Indeed it is, though you are setting the bar very low for yourself by only including the US and Canada to compare to. Take a look at the programs in Germany, Japan, Italy, Spain etc., as they existed or exist today. The German program has always announced rate changes well ahead of time, published the new rates, and gave anyone that wanted to a generous time window (many months) to apply before changes took effect. THAT is the honest, transparent, up-front way to handle rate changes and run a stable feed-in-tariff that doesn't leave industry reeling with every change. Just say "no" to retro-active rate changes! Come on people, it is really not that hard to do this well (and still balance interests)!

In addition to the above, there are a number of other points that would help improve the FIT and MicroFIT programs (in no particular order):


Please return to the previous 12 months for conditional offers. Ontario has wicked winters, that last 4 to 6 months. We cannot install solar PV in our area when there is snow on the (sloped) roofs. When someone gets a conditional offer in October, there is a 6 weeks to 2 months process to get through engineering and permitting, and schedule a slot for installation. By then the snow makes work impossible. It makes the current 6 month window for conditional offers problematic.
Please get a handle on the LDCs: We have HydroOttawa requiring a $1,500 payment for the connection up-front, before they will inform the OPA that the rate payer will get connected for MicroFIT (and theirs is a 6-month offer, meaning it expires just about as we get the OPA's conditional offer and get through engineering/permitting). We have Hydro-One frequently refusing MicroFIT connections for no apparent reason, while they have no problem connection a 200A or 400A residential service on the same feeder when someone requests it. I am an electrical engineer and I am not following their logic, where they see solar PV as an additional load, instead of a power source that partially offsets the existing loads.
Please get MicroFIT processing times under control. Despite your announcement that you are now at the 60-day processing time, the reality over the past two years is that the average application took 3 to 4 months. Getting this down to a (realistic) 45 or 60 days would greatly help.
It makes no sense to me that commercial entities cannot participate in MicroFIT. I have had to tell many small businesses with great roofs that they cannot do MicroFIT (the building is typically in the name of the company, and for good reasons).
If the cost to the rate payers is as much of a concern as I keep hearing, limit the very large solar farms. A single 10MW solar PV plant costs the rate payers a whopping $125M over 20 years! Even more if trackers are used. On top of that, the vast majority of them is owned by non-Canadian entities (mostly Sun Edison), that bring in very little to the Ontario economy once the plant is built. One 10MW plant equals around 1000 average MicroFIT rooftops in rate payer money at current rates! Those rooftop installs will bring in far more business, employ more people, and generate more future business vs. that single 10MW plant.


Please do not hesitate to contact me if you have any questions or require any clarification! I sincerely hope you will reconsider the way rate changes are currently handled, and stop making them retro-active.

Best regards,

Rob

[Ralph Day]

Great response and email Rob. I have to ask though, do you wear the big hat in your avatar to cover up the lumps and bumps you get from hitting your head against the proverbial wall? The rest of us appreciate your efforts.

Ralph

[Rob Beckers]

Great response and email Rob. I have to ask though, do you wear the big hat in your avatar to cover up the lumps and bumps you get from hitting your head against the proverbial wall? The rest of us appreciate your efforts.

Yup, you got it! Between the OPA and the receding hairline, what's a guy to do...

-RoB-

[Rob Beckers]

I have been talking to a number of my customers that have FIT contracts in the pipeline. Needless to say, nobody is happy with the OPA reneging on the contract price. My hope is that my talks provided people with the legal ammunition to force the OPA to change their tune. The OPA does not have the legal option to change rates for FIT contracts that did not have capacity contstraints (ie. not on the FIT Reserve or FIT Production Line). Their own FIT rules say so. Some of the parties involved have deep pockets, are well connected, and stand to loose quite a bit of money. Let's hope this helps ratchet up the pressure on the OPA.

Please do not forget to submit your thought to the OPA through their feedback form, and their E-mail address (as listed earlier in this thread). The OPA wants to hear from you!

-RoB-

[Rob Beckers]

I have been teasing apart all the FIT rules as per version 1.5.1 (the version in effect at the time the program review was announced). My comments as previously posted stand; that is the summary of the rules. The OPA should pay FIT projects that were never in the FIT production line or FIT reserve, and that were submitted prior to any rule and/or price changes, according to the rate table in effect at the time of submission. What I would like to do though is provide a little more (legal) background for those interested in taking the OPA to task:

To start with the rule that the OPA will most likely call upon to push-through price changes, even for projects submitted prior to the changes: Section 12.2.g says "The OPA may at any time make changes to the FIT rules, the form of the FIT contract, the price schedule or the FIT program ...". While at first glance it would seem to give the OPA the right to do whatever-the-heck they want, that is not how contract law works. At the time someone submitted an application to the OPA an implicit contract was entered into with the OPA, that gives both parties rights and obligations. The rules governing this implicit contract are those outlined by the OPA at the time of application, those are the only rules both parties are aware off at that time. The OPA certainly has the right (and should have that right) to make changes to the FIT rules and price schedule, and that is what section 12.2.g serves to allow, but a legal opinion is not likely to extend this to the right to retro-actively apply those changes to applications already submitted. Other rules (below) serve to strengthen this position.

The linchpin of my argument is section 7.1.b of the rules, it says "The price incorporated in the FIT contract that will be offered to applicants whose applications have been accepted without having been in the FIT production line or the FIT reserve will be the price as set out in the price schedule at the time of the time stamp ...". We'll discuss in a moment what applications would fall in this category. First let's look at the definition of the time stamp.

Section 4.1.a says "... Applicants are required to submit applications electronically, at which point they will be issued a time stamp and a reference number ...". Note that it's the time of electronic submission that counts for the time stamp, and therefore the price schedule according to section 7.1.b. Section 13.5 deals with time stamp modifications for applications submitted at the time of the program launch. That period has long since passed and no longer affects time stamps.

So what applications would not be subject to the FIT production line and/or FIT reserve? Both of those are mechanisms to deal with projects that run into capacity restrictions. The first broad category that falls outside of those two mechanisms are Capacity Allocation Exempt projects. This term is not defined in the FIT rules, it is defined by the Ontario Energy Board's Distribution System Code. CAE projects are those 250kW or less, when connecting to to the distribution network at less than 15kV, and 500kW or less for projects connecting at 15kV or more. The FIT Program Overview explains this.

Section 4.2.e says "Where an application in respect to of a Capacity Allocation Exempt facility has been accepted as having met the requirements set out in section 2 and section 3, the OPA will offer a FIT contract in accordance with section 6.1.a". Now, section 2 deals with eligibility requirements and section 3 deals with the application process. No issues there. Section 6.1.a says "Following the acceptance of an application as having met the requirements set out in section 2 and section 3, where the OPA has determined that there are available connection resources for a project or where the project is otherwise in respect of a Capacity Allocation Exempt facility ... in which the OPA shall offer a FIT contract ... The contract price shall be established in accordance with section 7.1.b". And so we have come full circle, since section 7.1.b (as explained above) says that the rate comes from the table in effect at the time of submission.

For non-CAE projects, it starts with section 4.2.d, which states that section 5 will be used to determine if there is sufficient capacity. By the way, section 5.1.b says that the OPA gives themselves a 'target' of 60 days to process applications. We all know how well that has been working... The next step for non-CAE projects is section 5.2.a, which looks at resources in the transmission system (that's 115kV and 230kV). If insufficient resources are available the project is put in the queue for the next Economic Connection Test. Section 5.2.c deals with projects that do have sufficient resources, and says "... if the analysis set out in section 5.2.a determines that there are sufficient transmission system resources to accommodate the connection of the project, the OPA will offer a FIT contract in accordance with section 6.1.a". In other words, non-CAE projects that have sufficient capacity also get the benefit of their time stamp, and therefore pricing according to section 7.1.b, ie. the rate in effect of the time of the time stamp.

Section 5.3 mirrors section 5.2, but now for the distribution system (for connections below 115kV). Section 5.3.b says "If the analysis in section 5.3.a determines that there are, or will be prior to the milestone date for commercial operation that would be applicable to a project, sufficient distribution system resources necessary to accommodate the connection of the project, the OPA will offer a FIT contract in accordance with section 6.1.a". Once again, these non-CAE projects that have capacity at the time of application will get the price in effect at the time of submission according the FIT rules.

Section 5.4 deals with the Economic Connection Test. Section 5.4.a says that the Economic Connection Test will run at least once every 6 months, and it looks at the cost to the rate payers to upgrade the network to accommodate projects. Section 5.4.b determines that projects that now find sufficient capacity (or will have at the time they are implemented) proceed to contact according to section 6.1.a. Alas, section 5.4.c states that even if a project was not in the FIT production line prior to the ECT, it now has to sign a 'production line confirmation', making it part of the FIT production line. All projects subjected to the Economic Connection Test will be notified of the results, so you will know if your project is subject to the FIT production line. These projects get a rate in effect at the time of the contract offer, not the rate at the time of the project time stamp! No luck there.

Section 5.4.c also states that projects that do not qualify for the FIT production line (no capacity on the horizon) will be placed in the FIT reserve. There you have it. The two queue mechanisms of the OPA described in the rules: The FIT production line and FIT reserve.

Section 5.5 deals with the FIT production line in more detail. This is of no concern to the discussion of contract rates. What is worth noting is that applications can stay in the FIT reserve and FIT production line for up to 10 years! After that you can get your security money back.

Section 5.6 is about the FIT reserve. This is a queue for projects that do not have sufficient resources in place to connect, and there is nothing on the horizon that would get those resources in place before the project is supposed to come online. With each periodic run of the Economic Connection Test the projects on the FIT reserve will be re-evaluated, moving them to the FIT production line if resources have become available. Same clause here as for the FIT production line; after 10 years in the FIT reserve you can get your security money back.

These are all the clauses in the FIT rules that deal with the process of moving a project from submission to contract, and the contract price. The short of it is that many projects should, according to the rules, get a contract rate as it was in effect at the time of the project submission to the OPA: CAE projects, and any larger FIT project that had the resources to connect at the time of submission (so they were never in the FIT production line or FIT reserve). Claiming otherwise means the OPA is breaking their own rules, and we should not let them get away with that!

-RoB-

[Michel de Breyne]

Has anything been announced as far as rate adjustment?

[Rob Beckers]

Nothing yet...

[Michel de Breyne]

Wow, talk about putting the industry in a bind !!! That's terrible for you guys as I'm guessing this is the time of year you'd try to line up and plan installations for the spring.

[Dave Schwartz]

Who knew that when the MOE called it the "2-year review" that it meant that was how long it would take them to finish?

[Rob Beckers]

Who knew that when the MOE called it the "2-year review" that it meant that was how long it would take them to finish?

:pound: Very good observation Dave!

-RoB-

[Jag Gagnon]

Hi,

I currently have a producing Micro-Fit project rated at 5.75Kw. As we all know, you will never attain the rated output. Can I add another 1Kw to my existing system, without changing my contract? I will still be under the 10Kw limit and my output will never be greater than what I'm rated for, or will I have to reapply? The extra 4 panels will just be plugged into an existing 4 panel array using matching enphase inverters.

Thanx!

[Ralph Day]

Jag
I don't think you can add to your system without the OPA's ok. You're in a contract with them, in your initial application you outline your system components and ratings. Any changes would be a change to the contract.

As far as meeting your rated output, if the conditions are just right I regularly reach 10kw (and a smidge more), sometimes for 4 hours in the day. Cold clear days are the best. The Enphase inverters clip production so the power production curve looks like a flat topped mountain.

The best people to ask would be at the OPA.

Ral;ph

[Dave Schwartz]

http://www.energy.gov.on.ca/docs/en/FIT-Review-Report.pdf

I guess the biggest news is a big cut (decimation?) in the microFIT feed-in rates (from 80.2 to 54.9 for rooftop and 64.2 to 44.5 for groundmount).

Is that going to effectively kill the program?

[Ralph Day]

I think the program would have been much smaller in scale if the "one microFIT per person/farmer" had been an initial consideration. How many of us know farmers who, with easy access to credit and land have mulitiple installs because of multiple pieces of property? Would the program have been better served? Who know.

Some quick math shows the return could be better under the proposed payouts...

Total install cost in 2010 $80K, total payout over 20 yrs $240K ... 160K "profit"

Total install now $40K (?), total payout 35% less than above $156K...116K "profit"

As a percentage profit of payout 2010...66%
2012...74%

Dang, I should have waited!

Rob, what are 10kw installed prices actually like now? Is my math as bad as it was in high school?:amazed:

Ralph

[Rob Beckers]

I'm on the road these days, driving around North Carolina.

Jag, it depends a little in what changes you want to make. The OPA defines the PV 'capacity' as the smaller of either the PV modules rated capacity, or the inverter(s). So, if currently your inverter is the limiting factor I'd say you can add panels all you want. If you want to add inverter(s), for example in case of micro-inverters, while adding panels, that's a different story. You get the idea.

The OPA has a mechanism to deal with increments in your installation. You'll get paid the new rate over the fraction that you added (if the 'capacity' as defined above changed due to your added panels).

Ralph, a 10kW sloped roof mounted PV installation currently goes for $51,500K at our shop. Soup-to-nuts. 10kW in our area, if south facing and at a decent angle, will produce around 11,400 kWh/year. So, with the new rates that makes $6,260 a year. From that, the simple payback time works out to 8.2 years. Simple profit at the end of the 20 years is around $73,700, and return-on-investment is about 7.2%.

Of course, most roofs are not perfectly south facing, shade free, and with the best pitch. So your mileage may vary...

Ralph, agreed that some had a really sweet deal going. Such as farmers with many properties (and PINs), allowing for many 10kW ground mounts. In terms of money nothing comes close to the 10MW plants that are in the pipeline for FIT. Those eat up $100M+ of FIT money over 20 years (if my quick math adds up). That would have been a heck of lot of MicroFITs!

-RoB-

[Rob Beckers]

Now that the new rates are in essence in (they are currently a proposal to the minister, and have yet to be approved), the battle for the retro-active changes is heating up. This is about the OPA's wish to have all MicroFIT applications between September 1st, 2011 and October 31st, 2011 (when the rate review was announced) to fall under the new rules. For FIT it's worse, they want the new rules to apply to all applications from June 2010 (!!) onward, thereby violating the FIT rules in effect at the time of those applications.

Derryk Fleming pointed out to me that a similar event had happened in the UK, where the government was taken to court, and lost (http://www.bbc.co.uk/news/business-17490096), when they tried to change rates with too little notice.

Please contact everyone you believe can make a difference: Your CanSIA contacts, your MPP etc, and point out to them how unreasonable the retro-active rate change is. This is the time to do it!

-RoB-