Canada’s Renewable Power Landscape 2016 – Energy Market Analysis
Policies and Incentives for Renewables
Multiple strategies have been used to support renewable power and raise the competitiveness of renewable sources versus other fuels.
Regulatory Targets or Renewable Portfolio Standards (RPS), being adopted by many Canadian jurisdictions, mandate that a certain portion of electricity should be generated from renewable sources by a certain date.
Revenue support policies increase the revenue of renewables projects or provide revenue certainty, often through long-term contracts or Power Purchase Agreements (PPAs). These underpin the construction of most renewable projects in Canada. Contracts can be awarded through different mechanisms which vary in terms of objectives, level of support and overall design:
- Requests for Proposals (RFPs) specifically for renewables power projects, solicit competitive proposals, typically up to specified capacity targets. RFPs often favour mature projects and experienced developers who can meet stringent requirements.
- Feed-In Tariffs (FITs) usually offer standardized long-term contracts and administratively set payments, often specific to a particular technology. Standard terms make it easier for small projects and new entrants to qualify.
- Standing Offer Programs (SOPs) for renewable projects allow entrants to apply at any time the program is in effect and provide guaranteed payments which, in contrast to FITs, are typically the same for all renewable energy technologies.
- Contracts for differences are types of contract in which the sellers and buyers agree to a fixed price, but the producer sells electricity in an open market and receives whatever price the market is offering. Subsequently, payment is made by either party to the contract to compensate for differences between the fixed price and the market price.
Other mechanisms to support renewables:
- Net-metering programs allow end-users to generate their own electricity and either sell their excess production to the grid or use it to offset purchased power. Net-metering programs exist in most Canadian jurisdictions, but typically do not offer enough return to encourage significant investment.
- Renewable Energy Credits or Certificates (RECs) are tradable energy commodities which represent the environmental attributes of renewable power. RECs are issued by a certifying agency for each megawatt-hour (MW.h) of energy produced from qualifying renewable sources and given a unique number that allows them to be tracked. RECs can be traded separate from the physical electricity with which they are associated. This flexibility removes geographical constraints and RECs can be generated and sold across different electricity grids that are not physically interconnected. RECs are often used to meet local renewable portfolio standards.
Cost Reduction Policies include tax breaks and government loan guarantees which reduce lender risk and lower project finance costs.
Policies that impact electricity prices may also enhance the competitiveness of renewable power.
- Carbon pricing is a means of attaching cost to carbon emissions. When the price of generation from fossil fuels is increased to include societal costs like environmental impact, emitters are encouraged to limit their emissions and renewables are better able to compete. There are two main types of carbon pricing: a carbon tax applied to the carbon content of fossil fuels, and a cap and trade system that caps the total level of GHG emissions and allocates emissions allowances. Low emitters can trade surplus allowances with high emitters in the carbon market. This creates an incentive for companies to reduce their emissions.
Time-of-use pricing introduces different prices depending on time of use. These policies generally favour solar projects which produce electricity during daytime peak demand hours when prices are higher.
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