News & Updates

Domestic Content Requirement Audits by The Ontario Power Authority

September 11, 2012

Under the Ontario Power Authority’s (OPA) FIT Program, once a solar photovoltaic (PV) power generating facility has reached commercial operation, the Supplier to the OPA will receive payments for its electricity production in accordance with the metering and settlement requirements contained in the FIT Contract. The Supplier may still, however, undergo a random audit by the OPA for the purpose of reviewing whether the solar power generation facility was developed in compliance with the domestic content requirements. The purpose of this article is to provide a high level overview of the OPA’s audit process and requirements for solar power generation projects with an installed nameplate capacity in excess of 10 kW that use crystalline silicon PV technology.

Domestic Content Requirements

The domestic content requirements were designed to stimulate job creation in Ontario’s renewable energy sector. Suppliers to the OPA are therefore required to ensure that a minimum of 60% of the goods used and services performed in respect of each solar PV project originate from Ontario. The percentage of qualifying domestic content is calculated based on a prescribed list of designated activities set out in Exhibit D of the FIT Contract.

Audit for FIT Contract Compliance with Domestic Content Requirements

According to an annual audit schedule developed for OPA Contract Management, the OPA conducts audits of FIT Contracts for compliance with the minimum required domestic content level (MRDCL) for the solar power generation facility. For the purpose of this audit the Finance Audit Service Team (FAST) of the Ministry of Finance acts as the OPA’s representative in reviewing the required documents.

The scope of the audit may involve any aspect and/or requirement defined in the FIT contract and is conducted according to the FIT Contract Section 14.2 and 2.11 (d). Section 2.11 (d) states:

Notwithstanding, Section 2.11 (c), the OPA may, in accordance with Section 14.2 request any additional information or documentation relating to any Designated Activity as having been performed. Where the Supplier fails to provide such information or documentation to the satisfaction of the OPA, acting reasonably, the Domestic Content Level shall be recalculated excluding the applicable Designated Activity.

After receiving an audit notification the Supplier is required to submit to the OPA, usually within 30 business days, all documentation required to demonstrate compliance with the MRDCL. Failing to do so may result in the recalculation of the applicable domestic content level to exclude the applicable designated activity and may put the Supplier at risk for a Supplier Event of Default under the FIT Contract.

Documentation required to demonstrate compliance with your MRDCL

All relevant documentation should be submitted to demonstrate domestic content compliance. The list of documents below represents the kinds of material to be submitted:

Requested Documents (As per Audit Notification) Domestic Content Report-Solar (PV) Power Projects Greater than 10 kW Utilizing Crystalline Silicon PV Technology Designated Activity (DA)
Designated Activities (DA)	Requested Documents
Designated Activity 1	List of Module model, make, serial numbers (if not already provided) and manufacturing capacity rating(s). Purchase Orders, invoices, and/or delivery/shipment orders between all companies listed in the supply chain of the solar photovoltaic modules used for the Contract Facility. Production orders with ID/batch number and traceability documentation for each step in the manufacturing/supply chain that should include the date/time the product was manufactured Supporting documents not only from the silicon manufacturing facility itself, but also for each step of the supply chain, that outlines how 100 % Ontario refined silicon was maintained throughout the process. Examples of these documentation includes: Service Provider (OEM) reference package documents refer to as “DC Traveler” documents (these travel with purchased modules) Domestic Content Certificates for each company involved in this Supply chain as supplemental supporting documentation (if not already provided).
Designated Activity 2 & 3	List of Module model, make, serial numbers (if not already provided) and manufacturing capacity rating(s). Purchase Orders/invoices with serial numbers, OEM spec sheets Shipping records and traceability documents for every step in the supply chain of the solar photovoltaic modules used for the Contract Facility.
Designated Activity 4	List of Module model, make, serial numbers (if not already provided) and manufacturing capacity rating(s). Purchase Orders/invoices with serial/material ID numbers, OEM spec sheets Documents that confirm that electrical connections between solar cells and encapsulation of the solar photovoltaic module were performed in Ontario. Examples of other documentation that may be made available include: Production orders with material ID/batch numbers Machine reports from the manufacturer that include the date/time the product was manufactured Invoices, delivery and shipping order records Technical drawings indicating the details of the making of the connections between solar cells and the encapsulation of the panels in Ontario.
Designated Activity 5	Inverter-Purchase Orders/invoices with serial numbers, OEM spec sheets Model, Make, Manufacturer’s Capacity rating and serial numbers of all the inverter(s) used in the Contract Facility. Documents ensuring that inverter has been assembled, finally wired and tested in Ontario. Documentation ensuring that the mounting system has been manufactured in compliance with the October 04, 2011 mounting system interpretations posted on the FIT website. Examples of other documentation that may be made available include: Production orders with material ID/batch numbers Reports from the manufacturer that include the date/time the inverter was manufactured Purchase orders, ideally with inverter serial numbers recorded thereon Delivery and shipping order records A list or documentation of the materials that are imported versus those made in Ontario, cross-referenced to the relevant interpretation. For example, what products are imported, what products are pre-assembled outside of Ontario, what assembly takes place in Ontario, etc. UL (i.e., UL 1741) or CSA certificates that outline inverter testing compliance in Ontario.
Designated Activity 6	Invoices for all components (Make/Model, as applicable) of the mounting system Documents ensuring that the mounting system has been entirely machined or formed or cast in Ontario. If standard bolts, clamps and screws were used (e.g., ISO, ASME), they may be listed generically. Documentation that evidences applicable bolts, screws, nuts, washers or clamps are standard components Documentation ensuring that the mounting system has been manufactured in compliance with the April 26, 2011 mounting system interpretations posted on the FIT website. Examples of other documentation that should made available include: Production orders with material serial numbers, as applicable Machine reports from the manufacturer that include the date/time the product was manufactured Purchase orders with reference material ID numbers Invoices, delivery and shipping order records Technical drawings describing the mounting system manufacturing and assembly in Ontario.
Designated Activity 7	Invoices/purchase orders, delivery/shipping records for all wiring and electrical hardware with the name and registered address of the Ontario Supplier clearly indicated Certificate of Articles of Incorporation listing the registered office and/or head office in Ontario If the Ontario Supplier is an individual, the Supplier may include a photocopy of the utility bills sent to the Ontario Supplier’s home address or a photocopy of the individual’s driver license, as proof of Ontario residency. If the Ontario Supplier is a partnership with at least one partner who is an Ontario Supplier, the Supplier must include proof that a partner is an Ontario Supplier as per the above. Corporate Profile Reports. Wiring and electrical hardware items include but are not limited to: Array DC disconnects AC breaker panel Combiner/switcher boxes Transformers, as applicable Wiring (e.g. PV connection cables) Various electronic fittings Etc.
Designated Activity 8	Labour records, on-site construction time sheets, officer’s certificates Documents demonstrating the job categories that were included in the hour count. (e.g. this can be as broad as “craft construction labour” or as specific as a individual job responsibility such as lead construction engineer, electrical/mechanical installation, etc). Examples of other documentation that should made available include: Service purchase orders & on-site labour invoices clearly stating job category and applicable construction hours Purchase agreements stating onsite labour hours, as applicable. Survey results of the Construction Company where each employee must indicate whether they are Ontario Residents Photocopies of the utility bills sent to an individual’s home address or a photocopy of the individual driver’s license, as proof of Ontario Residency
Designated Activity 9	Consulting hour records, time sheets, officer’s certificates Documents that outline all the companies involved in consulting (from start of FIT Application) and that demonstrates the job categories that were included in the hour count. (e.g., environmental studies, design, etc). Examples of other documentation that should made available include: Service purchase orders, consulting hour invoices clearly stating job category and applicable construction hours Purchase agreements stating consulting hours, as applicable Survey results of the Consulting Company where each employee must indicate whether they are Ontario Residents Photocopies of the utility bills sent to an individual’s home address or a photocopy of the individual driver’s license, as proof of Ontario Residency

Further Instructions

The supporting documents, including attachments, should be organized by the designated activities performed in order to separate each designated activity from the rest. The OPA has reserved the right to request further documents not included in this list.

Conclusion

As noted above, the OPA has the right to terminate the FIT Contract if the MRDCL is not met. Although not all Suppliers will be subjected to the OPA’s random domestic content compliance audits, prudent Suppliers to the OPA are strongly advised to ensure that the above requirements will be met before commencing the actual development of the solar PV power generating facility. Any agreements with suppliers and other partners should be carefully drafted with a view to ensuring that equipment suppliers and other partners will also comply with the above requirements. Doing so will afford the Supplier with appropriate legal recourse and remedies in the event of a breach.

There has been considerable foreign investment and job creation in Ontario as a result of the introduction of the domestic content requirements. Nevertheless, the question remains how long these protectionist measures will survive to maintain these jobs and investments. The domestic content requirements are currently being challenged at the World Trade Organization ("WTO") by the US, Japan and the European Union on the basis that they are contrary to Canada's free trade obligations under the General Agreement on Tariffs and Trade, 1994. The WTO is expected to rule on this matter in November of 2012 and it is possible that the OPA will be forced to eliminate the domestic content requirements from the FIT Contract in the future. In addition, Mesa Power Group LLC (“Mesa”), a Texas-based wind energy company owned by famous American financier T. Boone Pickens, commenced a similar challenge under the North American Free Trade Agreement ("NAFTA") in July of 2011. Mesa is currently pursing four wind projects in Ontario with the total potential installed capacity of 465 megawatts. Mesa claims that Ontario’s FIT Program violates Canada’s NAFTA obligations under Article 1106 by giving preferential treatment to certain businesses and requiring Suppliers to buy materials locally.

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Sven Walker is a Partner at Dale & Lessmann LLP, a Toronto, Ontario, Canada-based full service law firm with specific focus on renewable energy law and in particular solar, wind and biogas energy law. Sven is the legal counsel to a number of industry equipment and technology manufacturers, suppliers and installers, as well as investors, developers, purchasers, contractors, consultants and financing entities. To speak with Sven, please call 416-369-7848 or email him at swalker@dalelessmann.com.

Tags: Renewable Energy