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Renewable Sources Augment Power Supply Fixed Rates Provide Market Footing for Small Projects
November, 2007
By Barbara Carss
Dozens of small-scale electricity generating facilities are now in development and approximately 23.4 megawatts (MW) of capacity has already come on-line through the Ontario government's pledge to purchase renewable energy at a fixed rate for a 20-year period. The Province aims to add 1,000 MW of power to Ontario's electricity system by 2017 via its Renewable Energy Standard Offer Program (RESOP), which first began accepting applications in the fall of 2006.
Projects with a maximum generating capacity of 10 MW are eligible for the program. Producers of wind, water or bio-energy (including landfill gas, biomass and biofuel) power will be paid at least 11 cents per kilowatt-hour (kWh) for electricity going to the grid, with an extra 3.52 cents/kWh premium for power delivered during the peak demand hours from 11 a.m. to 7 p.m. Contracts for solar photovoltaic (PV) power are set at 42 cents/kWh to recognize that technology's much higher production costs.
The program, which the Ontario Sustainable Energy Association has actively promoted, mimics a successful European model for facilitating small renewable energy projects. The contract provides stable, predictable returns and helps prospective energy developers who cannot compete on the same scale as large corporate players to overcome barriers to market entry.
"We're giving Ontarians, whether they be farmers, cooperatives or small businesses the opportunity to help strengthen our energy system, reduce our reliance on coal and clean up our air," the then Energy Minister, Dwight Duncan, said as the first 22 RESOP contracts were unveiled in February 2007.
Other observers are more skeptical. "At the end of the day, all power production cost is recovered from the consumers," cautions Tom Adams, an independent energy analyst who has most recently been studying the output of the four larger scale (20+ MW) wind farms now operating in Ontario. "Exempting producers from having to compete with each other is going to bring a lot of inefficient operations into service."
Nor are small players necessarily the only beneficiaries of the RESOP rate. Notably, Ventus Energy Lakehead Windpower LP has contracts for 10 separate projects in Thunder Bay with a total capacity of 99 MW. In contrast, the Ontario Power
Authority's (OPA) earlier competitive request for proposals for larger scale renewable energy projects yielded wind power contracts of 8 cents and 8.6 cents/kWh.
"The optimal economic size for wind farms is not 10 MW," Adams says. "What they are doing is corporately dividing wind projects into several different numbered companies."
As of October 31, 2007, the Ontario Power Authority reports a total of 204 RESOP contracts representing 114 solar photovoltaic (PV) installations, 62 wind projects, 14 water power projects and 14 bio-energy projects. This equates to 811,411 kilowatts (kW) or about 811 MW of potential generating capacity.
Prospective proponents must have secured approval from the relevant local distribution company (LDC) for connections to the electricity grid and have the environmental assessment process at least underway before they can submit an application to the RESOP. Most proponents will have three years from the date the contract with the OPA is signed in which to begin producing electricity. Water power producers are given extra leeway due to potentially more onerous construction requirements, but proponents must have at least obtained provincial approval and a federal permit for the project within the same three-year period.
Of the 46 facilities already in commercial operation, 31 solar PV installations account for the greatest number of projects, but produce just 280 kilowatts (kW), whereas the five landfill gas projects have a collective output of 15,036 kW, or slightly more than 15 MW. There are also five water power projects with a capacity of 5 MW, four wind projects with a capacity of 2.8 MW, and one biogas project with a capacity of 180 kW currently generating electricity.
LANDFILL PROJECTS OFF THE BACKBURNER
The RESOP's price points provide an attractive payback for all types of projects, but the program seems particularly well suited for landfill gas generation. "Most of these sites have been sitting waiting for a program that works," observes Lou Colangelo, General Manager of Toromont Energy Limited, which owns and operates a 4.6-MW landfill gas generating facility in Waterloo and has a contract to operate Greater Sudbury Utilities Inc.'s 1.6-MW landfill gas generating facility.
Landfill operators must find a way to dispel the methane gas that emanates from decomposing organic material, and historically the gas has simply been flared out into the atmosphere, spewing pollutants, including greenhouse gases, as well as wasting a potential resource. Since the piping to collect the gas is frequently already in place, it is relatively simple from an engineering perspective to add the infrastructure for generating electricity provided there is an adequate return to cover the capital and operating costs.
For example, Greater Sudbury Utilities used $400,000 from its own funds for conservation and demand management initiatives to underwrite its new landfill gas project, but the remainder of the $3.2 million capital cost is covered through a bank loan. Both the utility and its financiers needed assurances there would be adequate revenue to justify the investment.
"To have the incentive of 11 cents per kWh generated is excellent. To do this for less than 11 cents isn't really viable," says Paula Tarini, Supervisor, Conservation, with Greater Sudbury Utilities Inc. The utility has plans to add a second 1.6-MW generator at its plant in about five years when the landfill, which is a relatively new site, will be producing enough methane to fuel more production.
Unlike wind turbines that can only produce electricity when the wind is blowing, landfill gas provides the constancy to ensure producers can earn the premium 14.52 cents/kWh rate during peak demand hours. Connecting to the grid may be simpler since landfills are generally already connected, while wind projects may be in remote, unserviced areas. Landfill sites tend to be municipally owned and municipalities are the shareholders in LDCs so there may also be a synergy of purposes that could help a project more easily clear administrative hurdles.
Three other landfill gas projects tallying approximately 5.9 MW of generating capacity have RESOP contracts and are now in development. Yet, although they've been some of the earliest projects to deliver electricity, landfill gas represents a small portion of renewable supply thus far committed.
WIND ROARS INTO TRANSMISSION OBSTACLES
Nearly 67% of the capacity currently contracted under the RESOP is to be derived from wind. Transmissions constraints may be delaying some of the project starts, however.
Wind loads that can feasibly drive a turbine are found in a few areas of the province, one of which overlaps with the transmission system carrying power out of the Bruce nuclear generating station. That 500-kilovolt grid limits the east-west movement of power across an extensive swath of territory east of Lake Huron and south of Georgian Bay.
Throughout Ontario, proposed wind projects tend to be concentrated within a few areas, further exacerbating constraints within those locales. "The market for wind generation is primarily on the Huron shore, the Georgian Bay east shore from Blue Mountain and south into the highland areas, and the coastal areas at the east end of Lake Ontario," Adams notes. "
The rural distribution system was designed to provide one-way flow - power flowing off the high voltage grid and out to the consumer. The overall effect of these multiple wind proposals would be to reverse the flow, at some times, of the local distribution grid, and the reversal of flow requires reengineering."
The adequacy and timing of wind loads are also causing concern. Adams' recent study of Ontario's four existing larger wind farms reveals consistently low output.
"For the poorest producer, in the first year of production, the average capacity factor was 27.7%," he reports. "The production is coming close to forecast, but we're seeing a lot of difficulty in coincidence factors. Wind speeds are very low in the summer when we have our peak in electricity demand. The peak of production is at midnight; the basement is 8 a.m. so the wind is declining in the morning when the [demand] load is picking up. Irrespective of the size of the wind farm, if it is located in one of these zones, production patterns will be similar."
CONSTRUCTION TIMING CONSTRAINTS
Supply chain issues are also causing delays. For example, Rankin Renewable Power Inc. - the proponent partnering with the Regional Municipality of Niagara to develop a 10-MW wind power project near Lake Erie in the community of Wainfleet - will have to wait until June 2009 for delivery of its wind turbines. "There is huge world demand for wind turbines," says Tom Rankin, the company's President.
Just four companies currently manufacture the predominant share of turbines for the world market. The largest manufacturer is based in Denmark, which creates still more logistical complications and costs for North American customers.
Rankin, whose company is also building some of the few water power projects thus far contracted in the RESOP, anticipates a faster completion for three turbines/power stations slated for locks on the Welland Canal. That's largely due to his strategic decision to order the necessary infrastructure before he had signed the RESOP contract. "I gave the manufacturer an order to build them a year ago and they are 80% built," he reports.
Timing is delicate in the initial stages of construction that must occur when the canal is closed to ship traffic in the few weeks between the beginning of January and mid to late March. Rankin expects to complete necessary work at two weirs in the winter of 2008 then switch work crews to the power station portion of the project once shipping resumes.
Construction at the third weir would begin in January 2009.
Approximately 20 cubic metres of water per second pass over the 36-foot drop at the locks, which should generate about 2 MW at each lock. "Over the years, people have looked at it and it wasn't necessarily viable. It was borderline until the OPA came up with a 20-year contract," Rankin says.
ENVIRONMENTAL APPROVALS UNPREDICTABLE
Rankin reports good fortune in what can sometimes be a contentious environmental approvals process. "For the wind project, about 125 residents showed up for the public meeting and basically no one was opposed to it. For the water power projects, there weren't really any objections either," he recalls. "The public today seems to be big on renewable energy."
Other RESOP projects have encountered more obstacles. A proposed 5.7-MW biomass project in Hamilton is now going through an environmental screening for the second time - ironically due to a new Regulation under the Environmental Assessment Act that is meant to streamline the process for projects that convert waste into alternative fuels.
Waste Management Regulation 101/07, which was enacted in March 2007, establishes an environmental screening process for certain types of projects. This would be less onerous and time consuming than a full Environmental Assessment, although the Ministry of the Environment still has authority to order a full EA at the end of the screening process.
Liberty Energy Inc.'s proposal to generate electricity from a mixture of sewage sludge and biomass had been progressing through the environmental assessment process under the auspices of an earlier Regulation (116/01) when the new Regulation 101/07 was introduced. Project proponents were then instructed to begin the environmental screening process anew.
"One of the big problems with environmental assessment is the predictability issue," muses Barry Spiegel, Director of Research & Professional Development with Willms and Shier Environmental Lawyers. "There's really a range. If you are successfully screened and it's a small project, maybe you can do it in six to eight months. But a screening could take 18 months. If you get to the end of your screening and it's controversial - if there's something involved where the Director [of MOE's Environmental Assessment and Approvals branch] decides to make you go back to terms of reference and start an Environmental Assessment all over again - then it could be touch-and-go to get it in under that three-year time limit."
SOLAR MORE SYMBOLIC THAN ECONOMIC
Meanwhile, the majority of solar projects are too small to necessitate an Environment Assessment. The City of Mississauga's 25-kilowatt (0.025-MW) installation on the roof of an ice arena complex known as the Hershey Centre is actually somewhat larger than the preponderance of RESOP contracted solar projects, which are 10 kW or less.
The site was chosen for its expansive roof area and orientation to the sun, which allows for south facing photovoltaic panels, and its profile as a significant civic building. The City of Mississauga and Enersource Hydro Mississauga, the LDC serving the city, have split the $300,000 capital cost, which they expect to recoup in about 20 years.
The solar PV panels are forecasted to produce electricity for about 1,000 hours per year, although not at full capacity for all those hours. That will yield approximately $12,500 annually, while maintenance costs are pegged at $1,000 per year.
"The life of the equipment is at least 25 years so there's a payback and we make a little bit of money as well. It's being done more as a demonstration of leadership for the environment because it's still not very economically attractive to do it," says Rajan Balchandani, Manager of Energy Management for the City of Mississauga. "The standard offer program was a factor because it does improve the economics of the project. Otherwise, the payback would be much, much longer."
Mississauga has been a municipal leader in corporate energy management. It was one of the earliest implementers of energy management software and has had an on-going retrofit and conservation program in its portfolio of municipally owned building for several years. The RESOP solar project is in keeping with the City's energy conservation and greenhouse gas reduction targets.
City officials are also assessing the practicality of switching to solar thermal heating for some of the City's pools since funds are now available through the federal ecoEnergy for Renewable Heat program and the Ontario government's $14.4-million grant fund for industrial/commercial/institutional solar thermal heating applications. "Without incentives, I don't think it can happen," Balchandani adds.
Monthly progress reports on the Renewable Energy Standard Offer Program can be found on the Ontario Power Authority's web site at www.powerauthority.on.ca/SOP. For related articles about renewable energy in this issue of Canadian Property Management, see pages 14, 28 and 30.
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