New Ontario Government cancels renewable energy contracts

The official news release includes:

TORONTO — Ontario ratepayers will benefit from $790 million in savings thanks to the Government of Ontario’s decision to cancel and wind down 758 renewable energy contracts, Minister of Energy, Northern Development and Mines Greg Rickford announced today…

All of the cancelled projects have not reached project development milestones. Terminating the projects at this early stage will maximize benefits for ratepayers.

Rickford also confirmed that the government intends to introduce a legislative amendment that, if passed, will protect hydro consumers from any costs incurred from the cancellation. Even after all costs are accounted for, ratepayers can expect to benefit from $790 million in savings from this one decision.

I thought a short post is in order as the incoming mainstream media reports are not informative or in any way helpful.

My assumption is noting, “cancelled projects have not reached project development milestones,” means the projects have not received a “Notice-to-Proceed” or I’ve just realized, for the large Renewable Procurement (LRP) contracts, a “Key Development Milestone”.

The system operator issues a contract list periodically, and today the file has been updated. It  shows 22 contracts with a “UD” status (Under Development), 761 contracts in the Pre-NTP status (Preceding Notice-To-Proceed) and 10 Pre-KDM (Key Development Milestone).  Of those 744 contracts are for wind or solar – I assume the announce refers to all of those and I’ll only speak to them, but it is possible some waterpower sites are being cancelled (as there are 758 reported in the news release).

NOTE: the government has posted a list of the cancelled contracts. Waterpower projects awarded LRP contracts (4) are cancelled, as are 11 contracts from the FIT procurement. A quick count:

  • 15 waterpower
  • 16 Biogas (On-Farm)
  • 1 Landfill gas
  • 5 wind (the 3 LRP sites noted below and single turbine contracts)
  • 4 Renewable biomass
  • 717 solar

A recent McMillan Energy Law Bulletin  from Mike Richmond had noted this possibility:

What this may mean for Pre-NTP Projects

Developers, lenders, construction firms, installers, landlords and other clients with interests in contracts for projects which have not yet been granted Notice to Proceed (NTP) by the Independent Electricity System Operator (IESO) (or acceptance of Key Development Milestones for Large Renewable Procurement (LRP I) projects) have reason to be concerned.

While the platform was not long on detail, it was absolutely clear that where pre-construction contracts contain provisions allowing the IESO to terminate at or prior to NTP or other equivalent milestones, before expensive capital equipment has been delivered and installed, the Government will be directing the IESO to exercise those termination rights.

Anticipating such a directive, the IESO had already begun holding back on the issuance of NTP approvals for Feed-In Tariff (FIT) projects prior to the June 29 swearing-in, instead electing to issue NTP Deferral Notices. By doing so, the IESO is able to limit its liability for the eventual termination of those projects to the “Pre-Construction Liability Limit”, which is set at:

  • $400,000 plus $2.00/kW for wind, biogas or biomass facilities;
  • $250,000 plus $10.00/kW for solar facilities; or
  • $500,000 plus $20.00/kW for waterpower facilities.

These figures only represent liability caps. To be eligible even for these amounts, developers will have to be able to demonstrate that they incurred, after being awarded a FIT Contract, “soft” costs up to these amount for items such as environmental approvals, EPC and financing contract negotiations, land rights, resource assessments, connection cost deposits, equipment deposits and permitting. Costs spent on generating equipment (other than reasonable non-refundable deposits), and amounts representing lost profits, are not eligible.

So the costs for cancelling these contracts seem relatively modest.

I estimate the savings at $120 million a year. These are 20-year contracts but not fully indexed to inflation so the net present value would not be $2.4 billion, but it would be above the apparently modest claim of $790 million in the press release.

contracts

I argued on a couple of occasions, including recently on Twitter, that these contracts needed to be cancelled to avoid a legal challenge over cancelling a very expensive legacy contract for 300 megawatts of offshore wind at $190/MWh. That is the most expensive of all renewable contracts signed by the province (likely nearing $200 million per year if modern industrial wind turbine were used), but shortly after awarding it the province placed a moratorium on off-shore wind.

My hope is 757 renewable contracts were sacrificed to ensure the big one is forever dead. If that’s true, the savings will potentially be much larger than $790 million. However the Wolfe Island Shoals project does not appear in the posted list of cancelled contracts.

_____

Note:

Some people will be very curious to know which wind projects were cancelled. Until today I’d assume most of the Large Renewable Procurement (LRP) would have been culled, but Romney and Nation Rise both reached the Key Development Milestone (KDM) stage. Those 2 sites are the majority of the wind capacity in the LRP. 86% of the the solar contracted in the LRP has reached KDM stage.

Wind contracts that were still in the pre-KM stage, and would now presumably be cancelled, are: Strong Breeze, Estern Fields, and Otter Creek.

___

I have updated my Power BI reporting of Ontario generators with information from today’s IESO contract summary workbook. It can be used to filter sites to view only the UD, Pre-NTP and Pre-KDM that are likely to be cancelled after today’s announcement.

 

Addendums:

So I did my best to link up the cancelled list with the contract list to pull the capacity numbers. I had to bluff 30 records of solar but fortunately I could calculate the only unknown quantity because Shawn McCarthy’s report in the Globe (for subscribers) stated the projects would have added “443 megawatts of capacity to the system.”

CancelledMW

All of the cancelled contracts are relatively recent. Strangely, old contracts yet to reach the Notice-To-Proceed status, at least in the listing posting to the IESO site, have escaped cancellation. These are the enormous Wolfe Island Shoals off-shore wind contract noted above, and several hydro projects – with most hydro capacity located in the IESO’s heavily oversupplied Northwest zone. My suspicion is an unwillingness to act on cancelling these contracts is presenting the cancellation of all pre-NTP status contracts – the only other one of which is Wolfe Island Shoals. However it’s also probable the earlier FIT contracts didn’t allow for the government/IESO to revoke the contract prior to a milestone point. For whatever reason older contracts are not impacted by the bulk cancellation.

hydroPreNTP1

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3 thoughts on “New Ontario Government cancels renewable energy contracts

  1. Finally some sense is being brought to the energy sector. As for electric vehicles, Ontario consumes over 30 trillion litres of transportation fuel per year roughly split between gasoline and diesel. If one does the math. even if Southern Ontario was covered with wind turbines it wouldn’t come close to providing the energy supplied by petroleum.

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  2. Don’t forget about feed back. When the climate warms more clouds form thus reflected solar radiation and preventing the earth from overheating.

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