The Ontario Court of Appeal has released its highly anticipated decision interpreting the Independent Electricity System Operator’s (“IESO”) standard-form commercial “Feed-in Tariff” (“FIT”) contract. The main issue was whether suppliers holding certain FIT 1 Contracts can “optimize” their solar facilities—that is increase the number of solar panels used at their facilities and/or replace outdated panels with technologically-improved panels—without the IESO’s consent.

This week, the Court of Appeal answered this question unequivocally in the suppliers’ favour.

Background

Facing the 2008 global economic crisis, the Government of Ontario embarked on a fast-track initiative to stimulate the Provincial economy, reduce greenhouse gas emissions, and jump-start a domestic renewable energy industry. To advance its bold agenda, the Ontario Government directed the Ontario Power Authority—IESO’s predecessor—to develop and administer a made-in-Ontario FIT program that called on successful applicants to design, build, operate, and maintain renewable energy facilities in Ontario for decades.

In exchange for taking on the risk of developing and operating renewable energy infrastructure in Ontario, solar suppliers were guaranteed attractive prices for the renewable energy they generated and fed into Ontario’s electrical grid over the entire 20-year term of their FIT 1 Contracts.

In 2019, some suppliers began optimizing their rooftop solar facilities by implementing improved technology. Some had no choice—in one instance, an entire solar facility was destroyed in a fire. Others sought to increase their revenue by taking advantage of newer and more efficient solar panels.

In response, the IESO threatened to terminate suppliers’ FIT 1 Contracts, alleging the FIT 1 Contracts prohibited suppliers from optimizing their solar facilities.

Several suppliers explicitly rejected the IESO’s unilateral interpretation of the contract, noting that there was no agreed provision in their FIT 1 Contracts that prohibited optimization. The contested issue eventually led to litigation between the IESO and several suppliers, including those successfully represented by Gowling WLG.

Courts reject IESO’s interpretation

The Courts have twice rejected the IESO’s claims. In April this year, the Ontario Superior Court of Justice dismissed the IESO’s arguments, finding that the suppliers “were in the right; they had properly interpreted the FIT 1 Contracts.” The IESO appealed. In the decision released yesterday, the Ontario Court of Appeal resoundingly agreed with suppliers and dismissed the appeal.

This significant decision paves the way for rooftop solar suppliers with certain FIT 1 Contracts to optimize their facilities, and potentially increase revenues for the remainder of their FIT 1 Contracts.

Gowling WLG was pleased to successfully represent solar energy suppliers both before the Ontario Superior Court of Justice (Commercial List) and the Court of Appeal for Ontario. Our Energy Sector Group would be happy to address questions from interested readers. If you hold FIT contracts and would like to understand the implications of these recent decisions for your current or planned renewable energy projects, then please feel free to reach out to our team.