The right incentives: how Ontario’s clean energy plan works

The industrial energy transfer certificate (CoVID) is a key piece of the Ontario clean energy plan that the government announced today (June 13). Unlike other subsidies, it’s conditional and pays nothing up front for…

The right incentives: how Ontario's clean energy plan works

The industrial energy transfer certificate (CoVID) is a key piece of the Ontario clean energy plan that the government announced today (June 13). Unlike other subsidies, it’s conditional and pays nothing up front for the clean energy resources it’s proposing. Energy companies agree to transition to cleaner energy sources, and companies must show they’re in line to receive the subsidies if they don’t meet their obligations to transition.

Here’s how it works:

• electricity producers agree to buy a prescribed amount of clean energy for a specified period of time. If the companies don’t meet the commitment, the province increases the amount of subsidies they receive.

• To qualify for funding, Ontario Energy Board certifies the final energy production plan (TPP) must be a “cost-effective” TEP. Cost-effective is based on a number of benchmarks, including the amount of electricity the plan would reduce by.

• Power producers have to meet the requirements for the TEP on time, or they face a penalty.

Ontario is already facing a large supply of renewable energy. Alberta’s IBERIABANK Saskatchewan Power recently announced it is retiring 1,260 megawatts of coal, which means it will retire 678 MW, and that 174 MW of that surplus power will come from the Ontario.

Under the Ontario CoVID plan, a combined total of at least 147 MW of low carbon electricity (coal, hydro and gas) will be up for auction. The government will select the lowest-cost producers, which it expects will include some large natural gas plants. The lowest bid will be eligible for the grant.

Also part of the Ontario CoVID plan is a performance bond requirement for gas plants that must be paid back in full if they don’t hit the mark. The bond requires a performance measurement date of 15 years, which is intended to insure there will be enough financial support from the province to meet the deadline, and to give business and industry the time to transition.

A little counter-intuitively, this means that the government is simply borrowing funds from big electricity producers that they say are now able to repay them with renewed market access. A Reuters report notes that the deadline for the performance bond to be paid back is “imminent,” and the government cannot retroactively change that.

Reducing Alberta’s coal ‘shadow fleet’ It was a disappointing speech, to put it mildly.

Alberta is transitioning to wind and solar at a different pace, but Alberta might still meet its COVID participation targets: a combined total of at least 1,640 MW (wind, solar and hydro) by 2030.

Today’s announcement was a tremendous step forward for Ontario’s clean energy policy, and it’s a big step forward for the province’s economic prospects.

The government is working with the Canadian Association of Physicians for the Environment to make sure the certificate will provide benefits that are durable, strong, quantifiable and effective, which will make it even more appealing.

The government expects large-scale solar and wind will capture up to 40% of all green energy generation in Ontario, because of new lower-cost credits that are expected to compete favourably against fossil fuel generation.

That’s fantastic. If true, that’s really groundbreaking stuff. However, to achieve that will require more tools that don’t exist today. For example, the program needs to adapt to scale and don’t depend on larger and larger purchasers.

In the energy sector, context is more important than previous economic downturns because of massive technological change. The program needs to be flexible enough to move with the growth of renewable energy supply.

On the value side, payments under this program should be based on the total costs (not just the net present value), which means that projects should be subject to the same financial pressures as capital projects in any other business. Also, there should be greater equity participation in projects rather than depending on governments.

These are all important points that are not covered by the Ontario CoVIDs program. Getting them right will be key to its success.

Energy commissioner Frank Glowacki’s latest report on Ontario’s energy cost and carbon pricing plan called for incentives to be better tailored to energy sector players. Today’s announcement shows those ideas have been embraced. Ontarians can now look forward to seeing how they fare.

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