The Province of Ontario is on track to install over 400 megawatts (MW) of solar photovoltaic this year. This figure just about doubles California's 2010 PV installation, which currently has more PV installations than any other place in North American. However, in recent weeks, Ontario's feed-in tariff (FIT) has come under international legal scrutiny due to complaints made by Mesa Power, a wind developer out of Texas, and Japan.
One area of contention relates to rule changes perceived as favorable to local companies. In addition, the policy's domestic content requirement, which obligates developers to buy and hire local, had come under fire.
Ontario established its program in 2009. The Ontario Power Authority (OPA) administers the program. The program offers premium fixed-price FIT contracts for 20-year duration to producers of solar and wind generated electricity. The caveat for producers, only those who use 60 percent of materials and labor from Ontario-based suppliers to build facilities can bid on the contracts.
The intent of the domestic content requirement provision is to increase the province's installed capacity for solar and wind projects. It will also create jobs for local residents. Some foreign manufacturers and developers have established operations in Ontario to avail themselves of the program. However, Mesa Power and Japan believe that certain aspects of the policy, and the administration of the program, is unfair and discriminate against foreign developers and manufacturers.
At the request of the Japanese government, on July 20, the World Trade Organization's (WTO) Dispute Settlement Board (DSB) organized a dispute settlement panel to consider a trade violation complaint, in September 2010, concerning Ontario's feed-in-trade program. According to Japan, the policy breaches international trade regulations by discriminating against solar and wind energy product manufacturers to the benefit of local equipment manufacturers.
In particular, the Ontario feed-in-tariff policy advocates an import substitution subsidy, which violates the World Trade Organization's requirements. The import substitution subsidy refers to financial incentives that require companies to buy domestic goods, such as solar panels, generators or other products, over products and equipment purchased outside the province. The Japanese Ministry of Economy, Trade and Industry states: “Solar panels or other equipment exported by Japanese companies to Ontario are less favorably treated than those locally produced.”
On October 25, 2010, Japanese officials held a meeting with Canadian representatives to discuss the issues, but failed to reach an accord. Canada contends provisions of its feed-in-tariff program operate the same as FIT stipulations put in place by other WTO member states, which promote solar, wind or other renewable energy initiatives. Japan and Ontario have 20 days from July 20, 2011 to pick three to five independent experts to hear the complaint and issue a ruling based on its findings.
The resolution panel takes three to six months to hear a dispute, depending on the urgency of the matter. The group must submit a report to WTO members. Members have 60 days to adopt the report, unless a majority of the Dispute Settlement Board decides not to accept the document. Either party may file an appeal.
If the dispute resolution panel rules in Japan's favor, Ontario must modify its program or provide Japan adequate compensation. Failure to comply with the findings could result in countervailing trade sanctions directed at solar and other renewable energy industries. However, Japan may instead choose to target other sectors, especially industries with a strong lobbying presence with the Canadian government.
Mesa Power's Complaint
Mesa Power filed a complaint against the Province of Ontario, accusing the government of violating the North American Free Trade Agreement (NAFTA) by changing the rules of its feed-in-tariff program. Initially, the program gave priority to “shovel-ready” projects; Mesa presented two proposals early in the application process. According to Mesa's spokesperson Jay Rosser, one of its projects rated eighth on OPA's priority list as of December 2010, which gave the company an advantage in its category for projects in the Bruce transmission area.
In June 2011, OPA modified its rules. Projects from the West London transmission area received authorization to connect to the Bruce transmission grid. With 400 MW of projects from West London, allowed to compete for contracts in the Bruce area, Mesa Power did not receive an award for either project. Despite its previous policy of selecting “shovel ready” developments, the projects from the West London area will take two or three years to develop.
Mesa Power states that Ontario favors non-NAFTA firms over North American companies, which violates the treaty. Mesa Power also points to a $6.6 billion (C) agreement OPA signed with the Korean company Samsung. Samsung will construct 500 MW of solar energy 2,000 MW of wind energy projects over the next five years.
In addition, the Mesa Power complaint objects to the clause that requires developer to purchase materials from local manufacturers. A spokesperson for the Canada Trade Department states it received a “notice of intent” to file a claim. The spokesperson went on to say the Ottawa government will "vigorously defend" Canada's interest.
Unless the parties reach a resolution, Mesa Power plans to file a formal NAFTA Notice of Arbitration by November. The action would start an international investigation into Ontario's Green Energy and Green Economy Act. Mesa power has plans to build four wind power projects totaling 565 megawatts.
According to the Ontario Ministry of Energy's representative Paul Gerard, the agreement does not violate NAFTA, he says, "The Ontario Power Authority runs an open, fair, and transparent process to award clean energy contracts under the Feed In-Tariff program. Both Ontario and internationally based companies have been awarded contracts under the program."
Both complaints will have to surmount certain legal challenges because the General Agreement on Tariffs and Trade (GATT) provides exemptions for some government procurement transactions. The exceptions may include Ontario's feed-in-tariff program.GATT and NAFTA contain exclusions for policies that guard human or animal well-being or protect limited natural resources. In addition, the Ontario Ministry of Energy may argue that Mesa Power was not “arbitrarily targeted” when OPA made changes in the rules that gave local companies an advantage in the selection process.