Renewable Energy Regimes in Canada
Dec 08, 2011 QuickCounsel Download PDF
By Glenn Zacher and Kurtis Reed, Stikeman Elliott LLP
There has been a great deal of interest in renewable energy in North America. Due to Canada’s large landmass and diversified geography, Canada has substantial renewable resources that can be used to produce energy. These resources include moving water, biomass, wind, solar, geothermal and ocean energy. Renewable energy sources currently provide about 16% of Canada's total primary energy supply. Hydroelectricity is the most important form of renewable energy produced in Canada. Bioenergy also makes an important contribution to Canada's energy mix. Several emerging resources, such as wind and solar power, are making much smaller contributions but are experiencing high growth rates. Within Canada, each of the provinces has its own regime with respect to renewable energy. This QuickCounsel provides an overview of the different renewable energy regimes in Canada.
British Columbia’s electricity needs are principally served by British Columbia Hydro & Power Authority (BC Hydro), a government-owned vertically integrated monopoly utility. In the past decade, however, British Columbia has introduced some generation opportunities for independent power producers, in particular, renewable development opportunities.
In 2007 British Columbia released “The BC Energy Plan: A Vision for Clean Energy Leadership”. The document serves as the British Columbia government’s strategic plan for addressing energy issues. In order to achieve the goals set out in the BC Energy Plan, the province is actively encouraging independent power producers to develop electricity generation projects utilizing renewable sources such as water, wind, biomass, geothermal and solar energy sources. Specific programs include:
Innovative Clean Energy Fund
Created in 2007, the Fund encourages the development of new sources of clean energy. The Fund supports the development of “pre-commercial” clean and renewable energy technologies or commercial renewable technologies not currently used in British Columbia in order to demonstrate the commercial viability of such new technologies. Since 2008, the Fund approved over $60 million for 41 projects.
Electricity Purchase Agreements
The electricity market in British Columbia is a closed, regulated market. BC Hydro is the main and largest long-term purchaser of electricity generated by independent power producers. Pursuant to the BC Energy Plan, BC Hydro has developed new acquisition processes designed to attract bids for electricity purchase agreements from independent renewable power producers.
Alberta has a market-driven electricity industry, characterized by deregulated generation, open access to regulated transmission and distribution, an active wholesale spot market and deregulated retail competition. Unlike a number of the other provinces, there is no comprehensive regulatory framework in Alberta with respect to the development of renewable energy resources. Alberta’s focus is on how to produce and consume fossil fuels in a cleaner manner, with significant emphasis placed on carbon capture and sequestration (which is proposed to account for approximately 60% of the reduction in Alberta’s greenhouse gas emissions).
In Alberta, the most significant opportunity for renewable energy is with respect to wind projects; most of which are located in the southern part of Alberta. The construction and operation of facilities for the generation of electricity from any source requires the approval of the Alberta Utilities Commission. The Alberta Transmission Regulation assumes a robust transmission system free of congestion and an Independent System Operator attempts to ensure that transmission is not a constraint on power generation. When the Alberta Utilities Commission is considering an application for the construction or operation of a facility for the generation of electricity, it cannot consider whether new generation is needed or the impact additional generation will have on the price of electricity.
However, in reality, remedial action schemes significantly curtail much of the existing wind generation in Alberta during many hours of the year and Alberta is not yet free of congestion issues. The Southern Alberta Transmission Reinforcement (“SATR”) project was approved some time ago, and its goal is to relieve congestion in southwestern Alberta and reduce the number of hours that wind generation is constrained. But, congestion will likely continue to be a significant drag on wind development in Alberta for some time.
The Saskatchewan government has set up the “Go Green Fund” which will invest in results-based projects that contribute to the reduction or avoidance of greenhouse gas emissions. SaskEnergy is supporting Saskatchewan’s “Go Green” initiative through its goal to become net zero in electricity consumption by 2015 as well as reducing its corporate carbon footprint to meet the Province’s GHG reduction target by 2015.
The 2010 throne speech demonstrates the government’s commitment to sustainability through support of expanded wind power capacity. That capacity will double between now and 2015 to a total of up to 400 megawatts of clean, green wind power. SaskPower is implementing its plan to expand the use of wind power in the province by an additional 200 megawatts by 2013. Through SaskPower’s “Green Options Plan”, up to an additional 175 MW of wind power is to be procured through a competitive solicitation process currently underway. Due to the landmass and wind resources possessed by the province, considerable growth in wind power will help to increase renewable energy generation in the province.
Manitoba Hydro is a provincially owned vertically integrated monopoly that supplies almost all of Manitoba’s power needs. Manitoba Hydro owns and operates Manitoba’s generation, transmission and distribution systems. About 95% of the electricity generated in Manitoba is from renewable water energy. The Manitoba Public Utilities Board regulates electricity rates pursuant to the Public Utilities Board Act.
In 2005, the Manitoba government released Green and Growing, Manitoba’s green strategic framework. Green and Growing provides an aggressive goal of developing 1,000 megawatts of wind power in Manitoba over the next decade. The Department of Science, Technology, Energy and Mines has a mandate to further develop Manitoba’s energy sector, including through involvement in emerging energy technologies such as solar power, geothermal energy, and wind generation. The Manitoba Government has undertaken a range of efforts in conjunction with businesses, Manitoba Hydro and Manitoba communities to reduce greenhouse gas emissions, including investing in knowledge, promoting technology development and innovation, and encouraging action in all sectors of the Manitoba economy.
Ontario has a partly deregulated market. Separate entities operate generation, transmission and distribution. Ontario also has a competitive wholesale spot market; however, over the past decade, the majority of new generation has been procured through government contracts and the spot market principally functions as balancing market and for the purpose of dispatching resources.
Ontario has been the most ambitious Canadian province in developing renewable energy. In 2004, the Ontario government created the Ontario Power Authority (OPA) to conduct independent electricity system planning and to procure electricity resources. Since 2004, pursuant to numerous government directives, the OPA has contracted to procure thousands of MWs of renewable energy supply. Between 2004 and 2008, the OPA conducted three requests for proposal (RFP) processes (RES I, II and III), which resulted in the procurement of over 1,600 MW of renewable energy resources (wind, solar, biomass). In 2006, the OPA introduced the renewable energy standard offer program (RESOP) for the purpose of procuring supply from smaller renewable projects (10 MW or less). This program, which provided for 20-year fix price contracts (0.11¢ per MWh for all renewable energy sources except solar PV, which was priced at 0.42¢ per MWh), resulted in the procurement of over 1,000 MW of new renewable energy supply.
In 2009, the Ontario government enacted the Green Energy and Green Economy Act (GEA), the centerpiece of which is a European-style feed-in-tariff (FIT) program. In 2010, the government followed this with the issuance of its Long Term Energy Plan (LTEP). The LTEP, along with associated directives to the OPA, established system capacity targets of 10,700 MW for non-hydro renewable generation and 9,000 MW of hydro generation by 2018. Similar to RESOP contracts, FIT contracts have a 20-year term, but in most instances there is no generation capacity limit (solar PV projects are restricted to 10 MW or less) and solar and wind FIT facilities must meet prescribed domestic content requirements (based on equipment and labour used in development/construction of the applicable facilities). Contract prices under the FIT program vary based on renewable energy source, project size and project participants (e.g., on-shore wind, 0.13.5¢ kWh; ground mounted solar PV ≤ 10 MW, 0.44.3¢ kWh; hydro ≤ 10 MW, 0.13.1¢ kWh). As of November 2011, the OPA had executed more than 1,900 FIT contracts representing more than 4,600 MW of contracted renewable supply. The FIT Program also includes a program aimed at small-scale generation of 10 kW or less (the microFIT Program). It too has been a success. As of November 2011, the OPA has executed more than 8,600 microFIT contracts representing 75 MW of renewable supply.
When the FIT Program launched in 2009, it included a commitment by the government to review the FIT Program every two years. On October 31, 2011, the government announced that it is proceeding with a review that will consider, among other things, FIT price reductions, new technologies and fuel sources and local consultations and renewable approval processes. The results of the review are likely to be announced early in 2012.
Hydro Quebec, a vertically integrated monopoly utility, principally serves Quebec’s electricity needs. Quebec has vast developed and undeveloped stores of hydropower and hydro power supplies more than 92% of the province’s electricity needs (most of Quebec’s hydro power is “large hydro”). Quebec considers large hydropower “renewable” and a major policy goal of Hydro Quebec (and the Quebec Government) is to export hydro power to the US northeast to supply general power needs and to satisfy renewable portfolio requirements (Vermont is the first northeastern state to have recognized large Quebec hydro generation as renewable).
Quebec has little incentive to develop other forms of renewable power due to the relative abundance of inexpensive hydropower (the average generation cost of Hydro Quebec’s hydroelectricity is a little more than 0.02¢ per kWh). That said, the stated policy of the Quebec Government is that 10% of its generation should be wind generated. Hydro Quebec has issued three calls for tender for wind power for an aggregate of 3,500 MW. As a result of cancelled projects, it is expected that Hydro Quebec will issue a call for further tenders for up to 700 MW of wind power in the next one to two years.
In 2004, New Brunswick enacted legislation to pave the way for deregulation. The province, however, never implemented deregulation and the government recently indicated that it intends to maintain a vertically integrated utility structure. New Brunswick instituted a renewable portfolio standard in 2006 requiring a minimum of 10% of the province’s electricity to come from renewable sources by 2016. The province is well ahead of this target, and it projects that 32% of the province’s energy will come from renewables by 2016. Power purchase agreements from third parties and industrial customers with self-generation capabilities supplying energy back to the grid will largely fill this increased demand for renewables . Power purchase agreements are currently in place for 330 MW of wind energy, as well as for a 38 MW biomass energy project.
Nova Scotia Power is a monopoly utility that supplies virtually all of the province’s generation. It was privatized in the 1990s and is now owned by Emera Inc. Nova Scotia Power has over the past decade issued tenders to procure power, in particular renewable energy, from independent power producers. Nova Scotia recently introduced a renewable portfolio standard to source 25% of its electricity from renewable sources by 2015 (an increase from an earlier target of 10% by 2013). At present, the province is in the midst of initiating a competitive process to procure approximately 300 MW of renewable energy from independent power producers.
Prince Edward Island
Maritime Electric Company, a vertically integrated utility wholly-owned by Fortis Inc., serves PEI. In 2004, the province introduced legislation to acquire 15% of its electricity supply from renewable sources by 2010. This requirement has been satisfied through the procurement of 52 MW of wind power from two wind farms. In 2009, a third 99 MW wind farm connected to the grid with most of its output currently exported to neighbouring provinces. In conjunction with private developers, Maritime Electric Company intends to develop a further 40 MW of wind generation beginning in 2013.
Newfoundland and Labrador
Newfoundland and Labrador Hydro (NL Hydro) owns and operates most of the province’s generation facilities. Labrador has significant untapped hydro resources and the province’s principal initiative is to develop the Lower Churchill Falls (approximately 3,074 MW generated by two installations) and to construct infrastructure to transmit hydropower from Labrador to Newfoundland and from Newfoundland to the other Atlantic provinces and the US northeast. Though the province has not enacted renewable portfolio standards like those of other Atlantic provinces, over 80% of the province’s electricity comes from hydroelectric sources. The completion of the Lower Churchill Falls installations would provide the capacity for up to 98% of the province’s electricity to be produced from renewable sources.
Hydropower is and will continue to be an integral part of Canada’s energy portfolio. Increasingly, however, wind, solar, biomass and other renewable fuels are making substantial contributions to the resource mix in a number of Canadian jurisdictions. Each province has a differently evolving mix of energy sources and there are varying regulatory structures that govern producers. Consequentially, in-house counsel should be aware of the markets and legal frameworks that govern these emerging renewable resources. This QuickCounsel provides a brief overview of how Canadian provinces govern renewable energy.
Published on December 8, 2011
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Risk and the Role of Counsel: Strategic Decision-Making in the Rapidly Changing Renewable Energy Industry
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