Home » About Feed-in Tariffs

About Feed-in Tariffs

Overview

Ontario’s Feed-in Tariff (FIT) Program for power generation from renewable energy sources is 4 years old. The Program is part of a long-term strategy under the Government of Ontario’s Green Energy Act to develop a renewable power industry in the Province, encourage investment in clean renewable power, and drive down the cost of renewable power systems.

The FIT initiative actually consists of two programs, both run by the Ontario Power Authority (OPA) – a MicroFIT program for small solar systems 10kW or less, and a FIT program for solar, wind, hydro, biomass, and biogas power systems up to 10 MW. The two programs have so far resulted in the contracting of almost 9,000 MW of new renewable power systems and lowered the price of these systems by up to 50%. New industries and new jobs have been created and the costs continue to fall.

In May 2013, Ontario Energy Minister Bob Chiarelli confirmed the Governments on-going support for the FIT program with a particular emphasis on small and mid-size community-owned systems.  There will be FIT contract application windows for systems up to 500 kW each year until 2018. The first of these – a FIT 3.0 window – opened November 4, 2013. Projects that have greater than 50% community, municipal, or first nation ownership will be given priority.

But what is a Feed-in Tariff and how do they work? We have put together a series of FAQs to help explain this. If you have a question that isn’t listed here, please contact us.

What is a Feed-in Tariff?

A feed-in tariff is the price paid to generators of electric power from renewable energy sources when they feed this power into the Ontario grid. This price, in cents per kWh, is based on what it costs today to generate power from a new power plant using renewable energy sources. The price is guaranteed for 20 years under a Feed-in Tariff (FIT) contract between the generator and Ontario Power Authority (OPA). The cost of paying the feed-in tariffs – like all new power acquisitions by the OPA – is shared among all ratepayers.

How is this different from how we pay for power from other energy sources?

With a feed-in tariff, generators are paid only when they deliver electricity to the grid. This is called “Pay for Performance” pricing. Generators must build the power plant with their own funds, get connected to the grid, and commission their power plant before being paid – and then only for each kWh delivered. With most conventional power plants like hydro, coal or nuclear, generators are paid up front during construction before they start producing power.

What do Feed-in Tariffs achieve?

Right now, power from most renewable power sources costs more than power from new conventional power plants. The objective of feed-in tariffs is to encourage investment in renewable energy power plants in Ontario by paying what it costs now to generate power from different renewable energy technologies. This has the effect of developing a manufacturing and installation industry while driving down the cost of renewable energy technology through economies of scale.

Every two years the tariffs for new FIT contracts are reduced until renewable power technologies cost no more than conventional technologies and no premiums are needed. In the latest (second) round of tariffs, the rates for solar power were reduced by 20-30% and wind power by 15% to reflect the lower costs of the these technologies. Proof that the FIT Program is working the way it should. Tariffs for round 3 will be even lower. 

Since the costs of conventional power plants and their fuels are going up, renewable power sources could be competitive or cheaper than conventional power sources within a decade – particularly during periods of peak demand when the cost of power from conventional sources is the highest.

Are there different Feed-in Tariffs for different renewable energy technologies?

Yes, feed-in tariffs are set so that individuals, community enterprises, and renewable energy companies can make a reasonable return (around 7%) on an investment in the technology and the project size of their choice. Any price less than these tariffs would mean that no-one would invest in renewable power. Smaller systems also cost more that larger ones so that tariffs for small systems are higher. The feed-in tariffs set for power supply contracts signed in 2013/2014 are as follows:

Solar Ground: 28.8 – 44.29.1 cents/kWh
Solar Roof: 32.9 – 39.6 cents/kWh
Landfill Gas: 7.7 cents/kWh
Biogas: 16.4– 26.5 cents/kWh
Wind: 11.5 cents/kWh
Biomass: 15.6 cents/kWh
Hydro: 14.8 cents/kWh

These feed-in tariffs still seem really high compared with current power prices – especially for solar. How can this be sustainable?

The cost of solar panels has come down significantly over past 20 years. A small residential 10 kW roof top solar systems in 2009 when the FIT program started cost over $72,000. Today the same system costs between $35,000 and $40,000. So the FIT tariff paid for power from these systems contracted in 2013 is half what it was in 2009. Costs are still coming down as countries around the World encourage development through policies like feed-in tariffs and large manufacturing plants come on line. In 2014 FIT tariffs will therefore be lower still. This is the way feed-in tariffs are supposed to work.

Feed-in Tariffs are not government subsidies as they are not paid for from tax payers dollars. Instead all electricity customers share the costs as part of the overall cost of electricity along with the costs of power from other power suppliers.

I read that the price paid to nuclear power generators is only 6 cents/kWh. Why are the feed-in tariffs for renewable energy so much higher?

The feed-in tariffs listed above are for power from new renewable energy projects built today, so they should not be compared with price of power from existing conventional power plants built thirty years ago. The reason for this is that these existing power plants were built when the costs of labour, materials, and fuels were much lower. They also have been fully paid for already.

In the case of existing nuclear power plants, over the past thirty years their construction, operations and refurbishment costs have been supported by huge tax payer subsidies to cover cost overruns and unexpected repairs. The price currently paid for power from nuclear plants is the price after the provincial debt from these cost overruns has been paid by Ontario tax payers and ratepayers. That is what the “debt retirement charge” on your power bill is for. In Ontario, we have also not properly dealt with any of our nuclear waste, or the end-of-life disposal of nuclear generating stations, so these are not included in the price either.

In 2009, the Ontario Government received quotations for a new nuclear power plant. The prices came in between $7500 and $10,000 per kW. At this price a new 2400 MW plant would cost over $20 billion and charge over 25 cents/kWh for power – much higher than many of the feed-in tariffs paid for renewable power. The plant would also take up to 10 years to build. Since then, costs have risen due to increased insurance and new safety requirements as a result of the Japanese Fukashima melt down.

But won’t Feed-in Tariffs still have a big impact on my electricity bills?

Right now the amount of renewable power being fed into the grid is small, so that the impact of the feed-in tariffs is low. As the amount of renewable power we use grows, the feed-in tariffs will come down, so the impact will remain small. Power from any new conventional power plant will cost much more than we pay now, so the feed-in tariffs for renewable power sources will not contribute to future electricity rates any more than other new power sources will. In fact the addition of renewable power to the mix will actually temper these increases as the grid will rely less on increasingly expensive fossil and nuclear fuels. Behind the Switch, a 2011 report by the Pembina Institute shows that adding large amounts of solar and other renewable energy systems to the grid over the next 15 years will have little impact on future prices — in fact, by 2025, prices will be lower than they would have been without renewables.

So Why have my power bills gone up so much in the last 2 years?

Most of the recent increases in electricity bills have resulted from major investments by the Province in upgrading Ontario’s aging grid infrastructure – some built more than a century ago. The OPA also has some long term power purchase and power plant refurbishment contracts with conventional power producers that have to be honoured. Finally HST was added to electricity bills in 2010 and time of use rates were put in place in 2011.

A new report by Ontario’s Independent Electricity System Operator (IESO) – the agency that runs Ontario’s wholesale electricity market – says that purchases from nuclear and gas-fired generating plants, not from renewable energy suppliers, are the biggest component of your hydro bill. Only 17% is made up of payments to renewable suppliers disproving critics assertions that electricity prices have gone “through the roof” because of Feed-in Tariffs.

Solar and wind cannot be relied upon to provide power whenever we need it. How can we base our future grid on these variable power sources?

Ontario’s hydro resources are the perfect complement to wind and solar.  As demand for power varies their power output can be controlled and matched to solar and wind generation. When the solar and wind generation is producing excess power, the hydro-electric dams can be regulated so as to save water for a later period when the sun is not shining or the wind is not blowing. This is an extremely efficient way of storing energy. New power storage technologies like pumped water storage, large scale batteries, and compressed air and water systems are starting to be used with solar and wind plants to provide on-demand power at any time. Finally the so called “smart grid” will manage and co-ordinate demand and supply.

Solar and wind outputs also match Ontario’s peak demand very well – in summer solar output coincides with the air conditioning peak while winter peaks are higher on windy days. At peak periods when demand is the highest, local power distribution utilities must pay the spot price for electricity generated by natural gas fired plants that only run at peak times. These prices are often actually higher than the feed-in tariffs paid for solar power – sometimes as high as $2.00 per kWh.

What happens if our local grid does not have the capacity to absorb more FIT projects?

All prospective FIT projects must show that they meet the technical and safety standards of the grid. All projects other than small MicroFIT projects must also undergo a connection test to see if there is sufficient local grid capacity. If the projects meet these conditions, the local utility must connect them to the grid. If there is insufficient capacity, like in some parts of Eastern Ontario, then utilities upgrade the grid so that these projects can be connected in the future. This is the situation in Ottawa with the Hawthorne sub-station which is being upgraded in 2014.

Won’t lowering tariffs every year discourage investors and defeat the purpose of the FIT program?

Feed-in tariff contracts signed each year are not affected new lower tariffs set in subsequent years – only new contracts. Lower FIT rates each year are matched to lower production costs so the return for investors remains the same. Ratepayers will benefit as well by getting a higher proportion of renewable power at lower electricity prices.

Has the Feed-in Tariff policy worked anywhere else?

Studies have found that feed-in tariff policies achieve larger deployment of renewable power at lower cost than other policies such as quotas, direct incentives or voluntary goals — making feed-in tariffs the most efficient and cost effective policy to procure renewable energy.

Germany has had feed-in tariffs for the past 15 years and is now the World leader in solar and wind power. The German tariffs have brought down the cost of renewable power significantly to the point where the country is planning to make the transition away from nuclear power to renewable sources in the wake of the Japanese Fukoshima nuclear disaster. Germany made its most recent reduction in its tariffs in January 2012, lowering the cost of solar by another 15% to match the latest reductions in solar panel costs.

Over 50 other countries around the World also use feed-in tariffs – including France, Spain, the UK, and Italy, as well as smaller countries like Sri Lanka and Malaysia.

What benefits have we seen in Ontario so far?

As of May 2013, since the launch of the Green Energy Act and Feed-in Tariff (FIT) Program in 2009, the Program has:

  • Offered contracts of over 9000 MW representing over 1700 medium and large renewable FIT power projects and over 15,000 smaller “MicroFIT” projects. This represents enough electricity to power almost 1.2 million homes.
    • Created more than 20,000 jobs in 40 new manufacturing plants for solar and wind power systems – over 8,000 jobs in solar alone. Renewable energy development produces three times the number of jobs per kWh than conventional power plants.
    • Helped Ontario shut down eight of 19 coal units with the remaining units to close by the end of 2014.
    • Stabilized the grid and made it more secure by having more points of power generation in all parts of the Province.

Why was there so much controversy about wind farms in the 2012 Ontario election?

Wind turbines are large machines and therefore elicit quite varied responses from those who live near them. Unfortunately, some wind farms were built without enough community input and built closer to homes than many people wanted. Many wind farms are also privately owned by outside companies – without the local ownership that characterizes wind farms in countries like Denmark and Germany.

Health and aesthetic concerns associated with wind energy are not an issue if sufficient set backs are used. In Germany, which leads the World in wind energy deployment, local ownership of wind and solar farms has provided profit for rural residents along with strong support.

Can OREC help me install solar panels on my home?

OREC does not do residential installations but there are a few things to consider when choosing between installing solar panels on your own home vs. investing in OREC.

Installing solar panels on your home:
Advantages:
– On site power generation is visible and under your management
– Higher returns on investment because you are managing the equipment

Disadvantages:
– Needs a sunny, large, and south-facing roof
– Larger investment required
– Paybacks are only after year 8-10 so it is best suited to people who plan to stay in the house for the longterm
– Uncertainty remains of the resale value of houses with solar panels
– More time and knowledge needed for management of the project
– Investment is based on only one project which can translate into higher risk

Investing in OREC:
Advantages:
– Investment can be anywhere between $2,500-$100,000
– Investments are RRSP eligible
– Returns based on portfolio of 13 projects (to date)
– Larger systems achieve greater economies of scale and act as demonstrations in the community; including schools
– Dividends are favorably treated compared to income generated from your own solar system
– Risk is shared across OREC’s 13 projects in the portfolio
– Opportunity to actively participate in the coop’s decision making process.

Disadvantages:
– Lower return on investment
– Less hands-on (can be good or bad depending on your technical know-how and interest)

In general, we encourage doing both! Many of our members have in fact.
To find installers in Ottawa, browse through this list from CanSIA’s website.

Last Updated: January 2015

Do NOT follow this link or you will be banned from the site!