Renewable Energy Co-Operatives - Open for Business?

On July 11th, 2012 the Minister of Energy directed the Ontario Power Authority to continue with and to make modifications to the Feed-in-Tariff ("FIT") Program.

Why is this directive so important for Renewable Energy Co-Operatives ("RE Co-Ops")?

RE Co-Ops are one of the primary beneficiaries of the directive.  The Minister directed that renewable energy projects that have a fifty percent (50%) ownership interest by a RE Co-Op where 50 or more members of the RE Co-Op are local property owners are first in line (with aboriginal groups) when allocating grid capacity.  With respect to remaining projects, a renewable energy project where fifteen (15) to fifty percent (50%) of the project is owned by a RE Co-Op and where 50 or more members of the RE Co-Op live in the municipality where the project is located get 3 priority points for grid access.  This is the most priority points for any category.  Amended FIT Rules incorporating the foregoing are expected to be issued any day. The 50 members referred to above becomes 35 for a Small FIT Project.

Why is Priority for Access to the Grid so important? 

Because it appears there is not enough capacity on the grid to connect all projects seeking connections.

What will be the result of this development?

It can be expected that many other project developers who are not RE Co-Ops will be seeking to join forces with RE Co-Ops to secure grid access. 

How will these developers be "joining forces" with RE Co-Ops?

They won't be forming a new corporation.  The RE Co-Op has to have a direct ownership interest in the project with the developer.  It can be expected that the RE Co-Op and developer will be entering into an agreement regarding how they will own and operate the project together.

Sounds great! Are there any issues?

There are several uncertainties that will have to be addressed, including: any issues arising out of the final FIT Rules and completing the projects within the time prescribed to validate FIT contracts

What's this about timing?

The FIT Rules provide that project proponents have a certain amount of time to build their projects to validate their contracts.  There are also key milestones that must be met at various points during project development.  In order for the project to proceed, the parties will have to:

enter into an agreement governing the terms and conditions of their relationship,

have the required equity and financing in place, and

have the prescribed 50 land owners from the local municipality as members of the RE Co-Op

This will take time.  The Financial Services Commission of Ontario ("FSCO") governs co-operatives.  These new FIT Rules will be new to FSCO as well.  It can be expected there will be a learning curve for them.

Where do we go from here?

Hopefully the new FIT Rules will provide further guidance.  The next several months will be both challenging and promising for the renewable energy sector.  Stay tuned for further developments.

Mr. Shewan is a partner with the law firm of Lerners LLP and the Practice Group Leader of their Business Law Group.  He may be reached at ishewan@lerners.ca or 519.640.6334.