Wind farm contracts can be cancelled: legal opinion
Companies without a Notice To Proceed or who have not reached key milestones “have reason to be concerned”
July 6, 2018
In a just released review of the energy landscape in Ontario under the new Ford government, Mike Richmond, wind power contract specialist with law firm McMillan LLP, says the contracts between government and wind power developers can be cancelled in certain situations.
Wind Concerns Ontario has long maintained this to be true, even recommending to the Wynne government that an effective way to reduce electricity bills for Ontario consumers — or at least, not have them go higher — was to cancel the $1.3B of new wind power contracts and to cancel any others where significant milestones have not been met.
Mr. Richmond’s legal opinion and review is here.
The government will be directing IESO to exercise termination rights
Developers, lenders, construction firms, installers, landlords and other clients with interests in contracts for projects which have not yet been granted Notice to Proceed (NTP) by the Independent Electricity System Operator (IESO) (or acceptance of Key Development Milestones for Large Renewable Procurement (LRP I) projects) have reason to be concerned.
While the [PC election] platform was not long on detail, it was absolutely clear that where pre-construction contracts contain provisions allowing the IESO to terminate at or prior to NTP or other equivalent milestones, before expensive capital equipment has been delivered and installed, the Government will be directing the IESO to exercise those termination rights.
Anticipating such a directive, the IESO had already begun holding back on the issuance of NTP approvals for Feed-In Tariff (FIT) projects prior to the June 29 swearing-in, instead electing to issue NTP Deferral Notices. By doing so, the IESO is able to limit its liability for the eventual termination of those projects to the “Pre-Construction Liability Limit”, which is set at:
- $400,000 plus $2.00/kW for wind, biogas or biomass facilities;
- $250,000 plus $10.00/kW for solar facilities; or
- $500,000 plus $20.00/kW for waterpower facilities.
These figures only represent liability caps. To be eligible even for these amounts, developers will have to be able to demonstrate that they incurred, after being awarded a FIT Contract, “soft” costs up to these amount for items such as environmental approvals, EPC and financing contract negotiations, land rights, resource assessments, connection cost deposits, equipment deposits and permitting. Costs spent on generating equipment (other than reasonable non-refundable deposits), and amounts representing lost profits, are not eligible.
Some questions remain:
Given the stated election platform, and the fact these contracts were a key campaign issue, why then did the Wynne government issue a Renewable Energy Approval to Portugal-based EDPR for its unneeded 100-MW “Nation Rise” wind project just days before the writ was drawn up for the June election, and why did the IESO toss its termination rights overboard on the WPD “White Pines” project, during the active election campaign?
What pressures were brought to bear on the former government by the power developers?
And why are taxpayers now being forced to pay for the new government’s defence of a bad decision made by the Wynne government, in the Nation Rise appeal?