What Standard Offer Contracts (Advanced Renewable Tariffs) Mean to Ontario's Rural Landowners

March 9, 2006

Ver. 03

Ontario's Standard Offer Contracts permit farmers, first nations, and other rural landowners to install solar panels, small hydro plants, on-site biomass and biogas plants, and wind turbines where it is economically feasible.

The contracts are designed to encourage development of Ontario's renewable resources by providing a payment for each kilowatt-hour of electricity generated for a period of 20 years. This assured market for the electricity from small renewable generators (those less than 10 MW in size) eliminates the price risk in such long-lived, capital-intensive investments.

The contracts also provide a new way for farmers and first nations to develop wind energy. There are several ways rural landowners can benefit from wind energy: by leasing their land to a wind developer, by doing it themselves, or by doing it in cooperation with their neighbors.

Leasing land to a wind developer is often the least risky approach, but it also offers the least reward to the landowner.

In countries such as Denmark, Germany, France, and the Netherlands, farmers and cooperatives install wind turbines, solar systems, and biomass plants themselves. This is the riskiest method but it also offers the greatest rewards to landowners.

Ontario's Standard Offer Contracts will encourage development of wind energy in areas of strong winds, such as near the shores of the Great Lakes and in certain other locations. OSEA estimates that an average annual wind speed of 6.5 m/s at hub height will be required for a site to be profitable.

Even with Standard Offer Contracts, wind energy is a high-risk venture and is not for the faint of heart.

There are three types of risk in renewable energy projects: technical risk, weather risk, and contract risk. Standard Offer Contracts only eliminate contract or price risk. There will always be technical risk (that the equipment doesn't work as expected) and weather risk (that there isn't as much sun or wind as expected).

Standard Offer Contracts provide the financial security necessary for farmers, first nations, and other rural landowners to invest in renewable energy. This was not possible before the advent of Ontario's Standard Offer program.

While wind turbines cost millions of dollars, they also can earn hundreds of thousands of dollars per year of revenue in Ontario. Once the wind turbine has been paid for, the revenue from the sale of electricity goes into the pocket of Ontario owners.

Standard Offer Contracts also enable farmers to build biomass digesters and generate electricity with the resulting methane.

Homeowners and businesses will also be able to install solar panels and sell their electricity to the grid.

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