FIT 2.0: A New Paradigm for the Community Power Sector – and especially for Renewable Energy Co-operatives in Ontario
Mümtaz Derya Tarhan
The draft of the new FIT rules for Ontario are now published at http://fit.powerauthority.on.ca/comments-welcome-draft-fit-program-rules-and-contract, and is available for comments.
The recommendations published two weeks ago were very welcomed by the community power sector -especially co-operatives, but left numerous questions unanswered. The draft of the new FIT rules answers most of these questions:
The New FIT Rules and Community Power
Firstly, let’s start with perhaps the most drastic changes in FIT rules for community projects; the point system and the 10% carve-out of FIT contracts for community projects:
Project approvals will be prioritized according to this point system. Along with the 10% carve-out of FIT contacts for community and aboriginal projects, this point system promises to be very supportive of the proliferation of community ownership of renewable energy in Ontario. Here’s a great article from Shane Mulligan of Radicle Consulting that explains how the point system will play out for community groups and their potential project partners in obtaining a FIT contract.
But what is meant by a local community project? Here it is:
(a) in respect of a Large FIT Project or a Large FIT Facility, a Co-op with at least 50 Co-op Members that are Property Owners; or
(b) in respect of a Small FIT Project or a Small FIT Facility, a Co-op with at least 35 Co-op Members that are Property Owners.
Perhaps the most debated and controversial concept in this definition is that of a ‘Property Owner’. The new FIT rules describes a Property Owner as ‘a natural person that, as of the date two years prior to the date of an Application, and at the date of such Application still is, the registered owner of real property in a Municipality in which a Project described in such Application is (in whole or in part) located’.
What we see here is the establishment of ‘municipality’ as the main determinant of what constitutes a ‘community’.
Another introduced concept is that of a ‘property owner’. The definition posted above raises numerous questions: What about people who do not own land or property and willing to invest in the co-operative? As long as a co-operative recruits a minimum of 30 or 50 members according to its size, can it recruit non-property owners? Or is this group entirely discriminated against? Let’s see how this plays out in practice.
Another great shift is happening in the prioritization of co-operatives, along with aboriginal groups, and education and medical facilities over individual farmers and other not-for-profit organizations. These rules may also encourage farmers/landowners to pool in resources rather than undertaking individual projects, and all types of organizations (businesses, municipalities, etc.) to partner up with co-operatives to increase their chances in obtaining a contract.
The Co-operative Sector and Options for FSCO exemption
As explained above, there is great room for growth for co-ops in Ontario. 1500 MW (out of the total 6900MW) of the FIT pipeline today are community projects, but only 50 MW of this pipeline is taken up by co-operative projects. There currently are 20 active renewable energy co-operatives in the province, but very few have operating facilities. With the implementation of the new FIT rules, the co-operative energy sector in the province is poised for great growth.
Notwithstanding, it is known that a major obstacle faced by co-operatives in Ontario is getting their Offering Statements receipted by the Financial Services Commission of Ontario (FSCO). Co-operatives do have the opportunity to be exempt from preparing an Offering Statement if;
a.There are fewer than 35 security holders (members and non-members);
b.A member is only buying up to $1,000 in securities in any year; or
c.The co-op has less than $200,000 in capital and the securities are being sold to members.
So, let’s briefly combine the new points system and the FSCO rules and see options for co-ops;
(a) If willing to take advantage of the point system, co-operatives can no longer pursue exemption through recruiting ‘fewer than 35 security holders’. So they will have to look for exemption through options (b) or (c) below.
(b) Depending on the project’s size and debt/equity ratio, or partnership with other organizations in developing the project, co-operatives can attempt at limiting member investment at $1,000 per year. If developing a $500,000 project with a 50% equity from members, this means that the co-operative needs to recruit AT LEAST 250 members if raising capital only within one year.
(c) The co-operative can develop a project through raising a maximum of $200,000 in equity, and can remain exempt from the Offering Statement process. However, this may mean the increasing of the debt to equity ratio especially for larger projects. Here, again, co-operative can look for partnering with other organizations in developing projects to limit their financial input and thereby enjoy the FSCO exemption.
Notwithstanding, the best scenario for co-operatives would definitely be for FSCO to increase its knowledge of the community power sector and be more supportive of renewable energy co-operative development in Ontario.
Overall, a new era is beginning for renewable energy co-operatives in Ontario. Through co-operation among co-operatives and other potential project partners, and the support of CCA, On-Coop and community power organizations such as OSEA and the CEPP, this new are will lead to more projects being developed and therefore more examples set for future projects; a stronger renewable energy co-operative sector; a more responsive FSCO; and ultimately, a resilient power system owned and controlled by the people.