Ontario green energy policy triggers record-breaking private investment

Ontario's Stone Mills solar farm

Rarely has there been such a direct connection between a game-changing public policy initiative and a series of record-breaking corporate investments in wind and solar energy.

The policy change? The passage of Ontario’s Green Energy Act (GEA).

The investments?

First, Samsung C&T’s $7 billion decision in January to build 2,500 MW of wind and solar generating capacity and four manufacturing plants in Ontario, Canada.

Second, the April announcement of 184 new private-sector green energy projects – including a 300 MW off-shore wind project in Lake Ontario – with a total value of approximately $9 billion.

What is even more remarkable is how quickly all this happened.

In May 2009, the Ontario legislature passed the GEA. Regulations were published in September. Within six months, proposals were submitted and negotiations were completed for the largest green energy investments in Canadian history.

The landmark policy that changed everything

Designed specifically to accelerate the growth of wind, solar and other renewable energies, Ontario’s GEA includes North America’s first comprehensive Feed-In Tariff (FIT) program, a streamlined province-wide approvals process for new projects, domestic content requirements, conservation measures and smart grid investments.

The GEA is a core element of the Ontario government’s broader vision to create a sustainable, low carbon cluster in Ontario that can supply growing North American and global markets with green energy and innovative energy technologies.

The passage of Ontario’s GEA won rave reviews around the world from green energy advocates.

Stefan Gsänger, the World Wind Energy Association’s Secretary General, described it as “an historic international milestone” and “the most advanced piece of renewable energy legislation in North America.”

Michael Eckhart, President of the American Council on Renewable Energy (ACORE) said, “Ontario’s Green Energy Act and supporting initiatives are the most comprehensive renewable energy policy entered anywhere in the world. Most importantly, it builds on worldwide experience to date on ‘what works’.”

Energy developers moved quickly

Green energy companies across the spectrum began examining the opportunities offered by the GEA, particularly in combination with Ontario’s strategic advantages as a North American centre for advanced manufacturing.

Throughout October and November, developers were putting together proposals. There was a December submission deadline for the first round of contracts to be awarded under the FIT program.

By December 1, 2009, the Ontario Power Authority (OPA) received more than 1,000 applications and began reviewing them to see which were “shovel-ready.”

On April 8, 2010, the OPA awarded the first contracts under the FIT program for large-scale projects (those exceeding 500 kilowatts.) In total they will generate almost 2,500 MW of green energy. Seventy-six of the projects are ground-mounted solar photovoltaic, 47 are on-shore wind and 46 are waterpower projects. The remainder include biogas, biomass, landfill gas, rooftop solar projects and one off-shore wind project.

A month earlier, on March 10, OPA announced 510 projects for mid-scale FIT projects (10kW to 500kW) with a total generating capacity of 112 MW.

Samsung recognizes the opportunity

Meanwhile, Samsung C&T was also moving quickly. Negotiations with the province began in late 2009. In January 2010, Samsung C&T and a Korean consortium announced they would make the largest renewable energy investment of its kind in the world, and they would make it in Ontario.

The agreement with Ontario commits Samsung and its consortium partners to constructing 2,500 MW of renewable energy generation – 2,000 MW of wind power and 500 MW of solar power.
It also commits them to establishing four manufacturing plants in Ontario: towers, blades, solar inverters and solar module assembly.

In return, the province guarantees the consortium will receive FIT rates for 20 years plus additional incentives contingent on the plants meeting operational schedules starting in 2013.

“Through some of the most progressive legislation in North America, Ontario has sent a powerful message that it wants renewable energy – and it wants it now,” said Hagen Lee, Manager of Business Development and Government Relations, Samsung Renewable Energy. “Samsung C&T is proud to be part of an endeavour that will bring not just clean energy to Ontario households but an estimated 16,000 new jobs.”

What brought Samsung to Ontario

Ontario’s renewable energy sector has expanded rapidly in the past few years, driven in part by the province’s commitment to eliminate coal-fired power by 2014 – the single largest climate change initiative in Canada.

The number of wind turbines in Ontario has grown from 10 in 2003 to more than 670 by the time the GEA regulations were announced in 2009. Wind output from Ontario’s commercial wind farms reached 2.3 TWh in 2009, a 60% increase over the previous year.

The GEA was specifically designed to accelerate renewable energy production by offering generous FIT rates.

FIT payments for wind power, for example, are 13.5 cents per kilowatt-hour (c/kWh) for on-shore and 19.0 c/kWh for off-shore projects. The FIT also includes both a price escalation clause linked to inflation over the 20-year contract and a "price adder" to encourage the development of Aboriginal and community projects.

Domestic content requirements were incorporated to fuel the growth of green energy component manufacturing and service sector in Ontario.

Wind developers, for example, will be required to have a percentage of their costs come from Ontario goods and labour by the time the projects become operational. The requirement starts at 25% and increases to 50% on January 1, 2012.

With Samsung’s worldwide expertise in both manufacturing and renewable energy development, Ontario proved to be a good match.

What’s next?

The investments by Samsung and other companies are expected to significantly expand market opportunities all along the green energy supply chain.

Ontario is the manufacturing heartland of Canada. These new investments will encourage major manufacturers to begin tooling up for a sustained commitment to supplying the growing sector with parts and technologies.

Manufacturers in Ontario can also bring to the renewable energy sector a wealth of expertise in advanced manufacturing drawn from the aerospace, automotive and electronics industries.

They also have experience in market-focused R&D. Across the province, there are publicly funded R&D labs specializing in advanced materials, engineering and other fields related to renewable energy. World leading companies from Magna International to Goodrich to Research In Motion (RIM) conduct R&D in Ontario, in part because of the research talent pool and in part because the R&D tax credits available in the province are among the most generous in the world.

Tax reform for energy companies and suppliers

To further stimulate business investment, Ontario has launched a comprehensive, multi-year tax reform program that covers corporate, personal and sales taxes. As a result, the marginal effective tax rate on new investment has plummeted from 32.8% in 2009 to 18.6% in 2010 and will continue to drop to 16.2% by 2018. These tax cuts are making Ontario one of the most tax competitive jurisdictions in the world for new investment.

Through tax reform, the GEA and massive investments in education and infrastructure, the government of Ontario is determined to leverage the economic winds of climate change, innovative energy technologies and globalization to fuel long-term, sustainable job creation and growth.

The strategy hinged on winning the support of global investors. It’s clearly working.

Clare Barnett, Senior Economic Officer (London), Ontario Ministry of Economic Development and Trade

01 June 2010