The Ontario government's recent decision to end the province's feed-in tariff (FIT) program for large-scale renewable energy projects – in favor of a competitive-procurement mechanism – has introduced a jolt of uncertainty for provincial wind turbine component suppliers and manufacturers.
On May 30, Energy Minister Bob Chiarelli announced the province and the Ontario Power Authority (OPA) will develop a competitive-procurement process for renewable projects exceeding 500 kW while also making 900 MW of new capacity available for the Small FIT and microFIT programs. The change is immediate and effective for all projects going forward.
The government's decision to end the nearly four-year-old program could not have come at worse time for some manufacturers and suppliers.
In fact, some suppliers have invested heavily to retrofit or build new production facilities in the province. For example, Suzlon Group's REpower Systems expects to open a blade production facility in Welland this fall. And Siemens Canada tells NAW it is ramping up wind blade production at its Tillsonburg-based facility and anticipates the delivery of the first blade later this month.
Pattern Energy – which along with Siemens, is helping Samsung Renewable Energy fulfill a C$7 billion agreement it struck with the provincial government following the Green Energy Act in 2009 – believes the end of the FIT program may hinder Ontario's wind energy market.
"Replacing the FIT program with competitive bidding could result in lower-cost power, but it will likely slow down the amount of renewable resources being built in Ontario,’ says Pattern Energy CEO Mike Garland. ‘It may increase the risk of performance of the projects that do go forward if the projects are not owned and operated by reliable wind companies.’
‘We understand these market conditions can be driven by policy decisions,’ says a Siemens spokesperson. ‘However, our focus is to provide renewable energy solutions to meet Canada's energy demands.’
To comply with the Ontario FIT program's domestic-content requirements, which mandates that for wind projects exceeding 10 kW, 50% of the cost of a project must be derived from Ontario goods and labor, Siemens maintains it is securing components, such as towers, from local manufacturers.
However, in May, the World Trade Organization (WTO) ruled that Ontario's domestic-content requirements are illegal. The ruling comes after the European Union (EU) and Japan claimed that rules discriminated against foreign companies and unfairly pressured Ontario renewable energy developers to purchase locally sourced materials.
A spokesperson for the Ministry of Energy says Ontario intends to comply with the WTO ruling and is working with the federal government on next steps. Further, the spokesperson explains the Ministry will be in a better position to communicate details for large-scale wind later this year after the province reviews its Long-Term Energy Plan, which considers all aspects of Ontario's electricity system – conservation, generation, transmission, distribution and emerging technologies such as energy storage.
While the OPA has signed contracts for an additional 3.7 GW of wind energy capacity still remaining from the large-scale FIT, the pipeline for future large-scale wind projects will slow.
Nonetheless, some manufacturers remain undeterred. For its part, Siemens continues to view Ontario as an attractive market for wind power and later this year will open a wind power service facility in Chatham, Ontario, which Siemens characterizes as the first of its kind in Canada.
Vestas, which maintains a Toronto sales and several service centers in and around local wind farms, says although it is ‘disappointed’ by the government's decision, Canada remains an important market. By the end of this year, Vestas will have supplied 178 turbines to six new Ontario wind farms.
‘The challenge now after the cancellation of the FIT program and acceptance of the World Trade Organization's ruling is keeping these facilities in the province,’ explains Luke Lewandowski, MAKE Consulting's lead regional analyst for North America. ‘An industry-wide effort to consolidate manufacturing assets and reduce overhead may trump maintaining small-scale facilities in the province, especially with independent sourcing options nearby.’
He explains that market prospects for manufacturers in the province without a strong order book become dubious as manufacturers in neighboring Quebec and in the U.S. with underutilized capacity can now serve Canada's largest market.
‘Existing non-firm orders may now be re-evaluated to secure cost savings in an industry confronted with shrinking margins," Lewandowski continues. "The change in policy is a boon for independent suppliers with facilities in proximity to Ontario, such as LM Wind Power, Marmen, Ventower and Energetx."
He notes that one potential benefit for local manufacturers from this policy review is the stronger emphasis on municipal participation. Projects that use locally made equipment may receive higher local approval, he says, ‘but this isn't a strong enough argument to maintain a facility in the province.’