November 25, 2019
The Ontario PC government’s July 2018 cancellation of 750+ green energy contracts across the province has recently resurfaced in the media.
Last year, the Doug Ford government attested that the contract cancellations were facilitated at no cost to electricity ratepayers. However, it was recently discovered that the Ford government had spent $231M (so far) on the cancellations.
We at Skyline Energy want to take this opportunity to discuss the differences between the contracts that were cancelled, versus those within the Skyline Clean Energy Fund (SCEF), and measures that would be taken if the government chose to pursue the cancellation of the fully operational contracts within the Fund.
Ford Government Exclusively Cancelled Contracts in Pre-Development Status
Each of the green energy contracts cancelled by the Ontario PC government in July 2018 was under one of two renewable energy project programs: the Feed-in-Tariff (FIT) program and the Large Renewable Procurement (LRP) program.
All of the cancelled projects were in early stages of development, and not yet operational:
- None of the cancelled FIT projects had been issued a Notice to Proceed (NTP) status by the Independent Electricity System Operator (IESO).
- In the case of the LRP projects, the IESO had not yet notified the proponents that all Key Development Milestones had been met.
The contracts included termination and compensation provisions for cancellation, at relatively low cost, prior to the projects reaching these statuses.
The cancellation had no impact on the 30,000+ existing green energy projects in Ontario that were already fully operational.
All of the clean energy assets currently within the SCEF portfolio have received NTP or Commercial Operation (COD) status. Additionally, as SCEF seeks additional accretive projects for its portfolio that are under government contracts, it looks exclusively at the 30,000+ fully operational projects across Ontario that are already producing cash flow.
What if the Ontario Government Targets These Fully Operational Green Energy Projects?
Targeting fully operational green energy projects for cancellation would come with a host of consequences for the Ontario government. Contract termination for these projects would be prohibitively expensive, and would include compensation to lenders and other stakeholders, in addition to power producers. The cancellations would also have a significant negative impact on the government’s credit rating, and on Ontario’s investment climate.
If the government did decide to target these types of projects, we believe it is much more likely that they will approach the contract owners to request a contract re-negotiation that would extend the project’s years of operation in exchange for a lower rate. The contract owner can choose to accept or decline a re-negotiation request.
In the event of an approach to re-negotiate, SCEF would determine a solution that prioritizes its investors and stakeholders, but, wherever possible, also works for the government by benefiting ratepayers.
President, Skyline Energy
http://www.ieso.ca/-/media/files/ieso/document-library/ministerial-directives/2018/directive-20180713-wind-down-fit-and-lrp.pdf?la=en (clicking this link will download a PDF document to your device)
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