Whatever Happened to CESOP?

November 2012

• The Ontario Power Authority’s Clean Energy Standard Offer Program (CESOP) has been seven years in the making, awarding contracts to only one counterparty.
• The OPA informally announced the program is “in limbo”.
• The CESOP story serves as a cautionary tale to any party applying to an OPA program.

Since the inception of the Ontario Power Authority, it was envisioned that the agency would implement a standard offer program for small-scale combined heat and power and waste energy recovery projects. The first directive was issued by the Ontario Government to the OPA in August 2005 and to date, only one proponent has been awarded contracts.

In June 2007, the OPA published recommendations for program structure, followed by two revised program designs in the next year.  From September 2008 to November 2010, the CESOP initiative was put on hold as the procurement function of the OPA shifted its attention toward the Feed-In Tariff program. The Ontario Government re-confirmed their interest in the CESOP program with a new directive to the OPA in November 2010. The OPA allocated 200 MW of its remaining 500 MW of combined heat and power projects needed to satisfy this directive toward CESOP. After a tumultuous six years of development, the program was finally released in May 2011 with two launch periods soon after.

Proponents responded to the program with great enthusiasm, and pretty soon well over 200 MW of applications were received by the OPA. Each applicant, many of them small businesses or public sector organizations, posted securities of $20,000/MW. Since the application window has closed, only two contracts have been awarded and the OPA and Ministry of Energy have been silent about CESOP. When faced with a question about the fate of CESOP at this year’s Association of Power Producers of Ontario conference, the OPA’s Chief Executive Officer, Colin Andersen, said that the program is “in limbo”.

Mr. Andersen elaborated saying that the OPA is looking into the economics and need for this program, echoing Minister Bentley’s talk of “bending the cost curve”. It was mentioned that the program would be subject to regional planning, information that would have been valuable at the program’s onset. These comments have left CESOP applicants and other stakeholders wondering what exactly is going on with CESOP. If the program is being suspended, an announcement from the OPA would be useful, similar to the recent one made for the suspension of negotiations with OPG to convert their coal-fired Thunder Bay generating station to burn natural gas. If the OPA is still executing the program, one would expect more than two contracts to have been awarded.

Many lessons can be learned from CESOP. There is always some level of risk when programs depend on government policy, especially when natural gas fuelled power production is involved. Properly evaluating a robust range of possible scenarios when applying to any program is an essential step in determining if the rules and application requirements make sense for an organisation.

While CESOP is being reviewed and the OPA is otherwise silent on its status, applicants have cash tied up in their securities being held by the OPA. While applicants were lured into the program by lucrative capacity payments, few thought that their security would be held onto for several years while their potential contract counterparty withholds valuable information about the fate of the program. When entering into a program based on public policy, it’s not always a sure thing and the risk of the program being cancelled – or being in limbo for several years – should be considered.

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