Friday, November 18, 2011

Is the credit worthy test for renewable energy procurement in Ontario, worthy? Why the OPA should look to Saskatchewan for guidance

I attended the APPrO 2011, annual Canadian power conference this week in Toronto put on by the Association of Power Producers of Ontario. I particularly enjoyed the presentation by Stephen Somerville of Competitive Power Ventures entitled “Analysis of the rated criteria used for project assessment in procurement”. Mr. Somerville raised an interesting point about the Ontario procurement process versus the Saskatchewan procurement process. In Ontario, power procurement RFP’s use a credit worthy test which requires additional commitment letters and other documentation from proponents using private equity to finance the project. This has the unintended effect of discriminating against IPPs which are primarily funded through private equity. On the other hand, the current SaskPower RFP for 175 MW of wind does not include a credit worthy test which discriminates against IPPs using private equity. Mr. Somerville went on to state that the credit worthy test used in Ontario is not a good indicator of near term future performance as no one knows what the economic position of the corporate entity will be three years in the future. The SaskPower RFP for 175 MW for the most part avoids forecasting into the future to establish credit-worthiness and instead requires existing financial data. Mr. Somerville concluded that project level security should be enough – which, in some procurement processes, I would agree with. The US will qualify respondents based on demonstrated funding experience and don’t even include a specific credit worthy test in many renewable energy RFPs. Maybe it would be beneficial for the Ontario Power Authority (OPA) to take a few notes from other jurisdictions like Saskatchewan in regard to the credit worthiness provisions of competitive renewable energy procurement RFPs?

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