Features
Recent developments in Ontario’s clean energy procurement strategy – July 2011

The newly proposed CESOP differs in material respects from the program that was under development previously, which was limited to projects with a nameplate capacity of 10MW or less (it’s now 20 MW) and did not have upfront locational eligibility requirements. CESOP encourages both new projects and “Eligible Existing” projects that generated electricity on or before November 23, 2010, but not prior to August 18, 2005.

The proposed CESOP has two distinct streams, the Combined Heat and Power Standard Offer Program (CHPSOP) and Energy Recovery Standard Offer Program (ERSOP).

The CHPSOP is intended to support efficient use of natural gas-fired electricity generating facilities that use CHP technology up to a maximum capacity of 20 MW, connected to a distribution system in an “eligible area” of the Province. To be eligible to participate in CHPSOP, a proposed generating facility must, among other criteria, constitute a CHP Facility that utilizes natural gas for the production of 95% or more of the electricity generated by the Facility as averaged over a Contract Year, and may only supplement natural gas with “Eligible Alternative Fuels”, being Renewable Biomass, Biogas, and any “Eligible Primary Energy Source”. The ERSOP is intended to support efficient generation of electricity from recovery of otherwise wasted energy sources, such as unutilized by-products that can be used as fuels, up to a maximum capacity of 20MW, connected to a distribution system in an “eligible area” of the Province.

To be eligible to participate in ERSOP, a proposed generating facility must utilize an “Eligible Primary Energy Source” for the Production of Electricity, and only supplement it with natural gas. An “Eligible Primary Energy Source” means either: (i) “By-Product Fuel”, which is derived from an industrial, commercial or manufacturing activity (excluding mining); or (ii) “Under-Utilized Energy”, which is a source of thermal or mechanical energy that is the by-product of some other industrial, commercial or institutional activity or process that would not, but for its use in the Project, be utilized to generate electricity. An “Eligible Primary Energy Source” must be approved by the OPA in its sole discretion, and it does not include any Renewable Fuel, Municipal Solid Waste, Fossil Fuel, peat or peat-derived products, or hazardous waste.

New CESOP Applicants must (i) pay a $1000 non-refundable Application Fee, (ii) provide Application Security in the amount of $20,000 per MW of Annual Average Contract Capacity, and (iii) include evidence that the Applicant has the Access Rights sufficient to build, operate and maintain the Project, enforceable by contract for the term of the Contract.

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The new CESOP also includes up-front, locational eligibility requirements, which exclude projects located in certain areas of the province from applying to the program. To be eligible to participate in CESOP, a proposed generating facility must be located in an area of the Province that has been designated on the OPA’s website as eligible for CESOP Projects. However, CESOP requires, as part of the application review process and regardless of locational eligibility, that applications are subjected to connection availability screening tests to assess whether the project can be accommodated by the distribution and transmission systems. Assessment of the total 200 MW connection availability will take into account: (i) all prior CESOP Applications, (ii) prior applications under Feed-in Tariff (FIT) Program, and (iii) any other generation that is existing, committed or subject to ministerial directive. The prioritization of prior applications under the FIT Program may be problematic for CESOP applicants, since the FIT Program has been accepting applications since October 2009 and has received nearly 5,299 FIT and 26,989 microFIT applications received as of March 2011.

Stakeholder consultations in relation to the proposed CESOP Program Rules as well as provisions of the CHPSOP and ERSOP Contracts are expected to continue until March 31, 2011. The OPA is expecting to formally launch the program in Q2 2011.

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This is an article written by Borden Ladner Gervais LLP (BLG), a Canadian law firm that focuses on business law, commercial litigation and intellectual property solutions. Authors for this article are:

• John A.D. Vellone is an associate in the Toronto office and member of the Electricity Markets and IT Focus Groups.  John can be reached at 416.367.6730 or jvellone@blg.com.
• Saba Zadeh is an associate with the Electricity Markets Group at the Toronto office of BLG LLP, and can be reached at 416-367-6582 or szadeh@blg.com.