Major Changes in Store for Ontario PV Market

Developments and announcements regarding changes to Ontario’s FIT program have been accelerating over the past few months. The change process began with an announcement at the end of Q1’13 that a new price review process was being launched. The last time the FITprogram underwent a review – October 2011 full program review – the FITwas essentially on hold for 10 months.

This review process, which resulted in a program re-launch as FIT 2.0, implemented several changes, including a provision that FIT contracts would be assigned a price at the time of contract approval – rather than at time of application – as well as an annual pricing review. The current pricing review then has the potential to affect 2013 project applications that are approved after the evaluation is complete. This reduces the visibility for project developers as the price offered may differ significantly from the price at which they submitted the initial application. For comparison, between FIT 1.0 and 2.0, rates for solar PV applications decreased between 10% and 32%. The uncertainty caused by the pricing review has the potential to significantly alter the PV pipeline, as project developers may have to cede approvals depending on final FIT rates.

Also, since the pricing review announcement, several other developments have occurred that will affect the Ontario PV market. One of the most important changes relates to the FIT program’s local content requirements (LCRs), which the WTO ruled on May 6th violated Canada’s trade obligations and must be removed if Canada did not want to face the prospect of retaliatory tariffs on other goods/services. Reports indicate that the Ontario Ministry of Energy acknowledges the WTO ruling and is planning to bring the program into compliance. While final details on how the program will be changed have yet to be released, it is likely that the LCRs will be removed entirely. This raises concerns about the fate of the entire program, however, as the promise of domestic manufacturing jobs was a key selling point for the FIT program.

The likelihood of LCR elimination, combined with the pricing review, means that the FIT program could be changed significantly in the coming months. Signals from the Ontario Ministry of Energy indicate that other changes to the program are coming as well, including a new process for large-scale (>500 kW) projects which could replace the current application pipeline, setting annual caps for micro (≤10 kW) and small-scale (10-500 kW) projects at approximately 50 MW and 150 MW respectively, and capping total micro/small-scale project capacity at 900 MW through 2017.

At one point Ontario had an un-risked solar PV pipeline of over 3 GW. Due to program delays, changes, and outside forces however, analysis in the latest North America PV Markets Quarterly report indicates that the un-risked pipeline has declined to only approximately 1 GW. It is likely that even this figure will fall as program changes, rate declines, and program caps are implemented. Canada, led by Ontario, was once considered a market with substantial potential for high growth. While incentive programs in Ontario have spurred hundreds of megawatts of PV development, its longer-term prospects now appear significantly dimmed compared to the initial promise.