For those of us who care about climate and clean energy in Ontario, the big question is what happens next? Doug Ford is Ontario’s new premier and his work to dismantle government programs supporting climate action and the growth of the province’s clean energy industry is already underway.
Even before taking office, Ford moved to cancel the Green Ontario Fund which provided rebates on electric vehicles, energy efficient windows, solar and geo-exchange systems. His first official act as Premier was to begin dismantling the province’s cap and trade program saying "we are getting Ontario out of the carbon tax business." (Ironically, cap and trade is not a carbon tax, and killing the program means the federal government will now impose one on the province.) And just last week, his government announced the cancellation of 758 renewable energy contracts worth $790 million -- mostly projects affecting First Nations, municipalities and schools.
“Reckless,” “short-sighted”, and “bad for business” are just a few words that have been used to describe these decisions in the media. For a detailed analysis of the consequences, we recommend checking out this analysis by Thomas Timmons, one of Canada’s most respected renewable energy lawyers and Chair of the Canadian Solar Industry Association (CanSIA).
What this means for CoPower
Over the past weeks, we’ve heard from many of you wondering about the impact the new government may have on your investments with CoPower.
While we’re deeply disappointed by the events of the past month and our new government’s attitude toward clean energy and climate change, fortunately, our existing investments and immediate project investment pipeline are not directly impacted.
All of the 758 renewable energy contracts cancelled last week were at an early stage of development and had not yet reached the “Notice-to-Proceed” milestone. CoPower does not finance projects at this early stage of development, so none of our Green Bond or Green Infrastructure Fund portfolio projects or projects in due diligence are affected by the cancellation.
Intentionally, all of the loans currently backing our Green Bonds are to projects that have already achieved commercial operation. They are built and operating, and selling power to the IESO under Power Purchase Agreements. These contracts are strong and enforceable, with robust compensation clauses. Termination would be extremely costly for the IESO, as project owners (and by extension, lenders) would be entitled to compensation for current and future loss of revenue. Any unilateral or arbitrary action by the government could be expected to impact Ontario's credit rating and reputation as a great place to do business.
Evaluating regulatory risk is a key part of CoPower’s due diligence process, and this change in government and policy wasn’t wholly unexpected. It’s one of the reasons we have diversified our investment portfolio and growth strategy across technologies and geographies. Currently, the majority of projects in our Green Bond portfolio, including the geo-exchange projects and many of the LED lighting retrofits, are outside of Ontario. Further, most of these projects have little to no support from government incentives or contracts. We continue to look for investment opportunities to lend to projects that stand on economics alone.
That said, we believe strongly that government policies can be an effective way to enable market development. we have been pleased to participate as a lender in the Ontario solar market, where projects we finance rely on Feed-in-Tariff (FIT) contracts with the Independent Electricity System Operator, an arms-length government agency. The FIT program was already being sunset by the previous government, and therefore was not key to our long-term growth strategy; however, the accelerated wind-down of the program does, unfortunately, wipe out a portion of our potential investment pipeline for 2019 and beyond. It's a setback. But we are ready and well-positioned to double our efforts in other existing and emerging project finance markets.
For example, we foresee great potential stemming from Ontario’s recently introduced net metering framework, which, as the cost of solar falls, will allow homeowners and businesses to both reduce their energy bills and sell excess power to the grid -- a scheme that at least seems to align with Doug Ford’s goal of helping Ontarians save money.
With all that’s happening in Ontario, we feel that our work to provide accessible clean energy project financing and keep the clean energy transition moving forward here and across Canada is more important than ever. Rest assured that we are paying close attention and approaching that task with vigilance!
Photo Credit: Benson Kua, Creative Commons