2. Terms and Conditions of the ecoENERGY RP

2.1 Basic Eligibility Criteria

Payment of an incentive will be made only to eligible recipients who have signed a contribution agreement with Natural Resources Canada.

Natural Resources Canada will consider signing contribution agreements with prospective recipients for projects that meet the terms and conditions contained in this document.

2.2 Eligible Recipients

An Eligible Recipient is a business, institution or organization (e.g. an independent power producer, a provincial Crown corporation, an electrical utility or energy co-operative) that owns a qualifying project to produce electricity for sale in Canada, for use by its co-op members or for its own consumption, as defined below.

2.3 Qualifying Projects

A Qualifying Project is defined as a new or refurbished low-impact renewable-generating facility, or the clearly delineated expansion of an existing low-impact renewable-generating facility that is located in Canada and meets the terms and conditions of the ecoENERGY RP in this document.

New

The full capacity of a project may qualify under the program if it is a refurbishment of an existing facility that had been decommissioned before April 1, 2007 or if the existing facility has passed its normal operating service life. For the purpose of the program, the normal operating service will be deemed to be the following:

• For wind projects - 20 years.
• For hydro project - 50 years.
• For biomass projects - 30 years.
• All other technologies will be evaluated on a case-by-case basis.

The incremental capacity of a facility may qualify as a project if its capacity expansion can be clearly delineated and if the production from the incremental portion of the facility can be clearly identified (i.e. an increase in production not associated with an increase in rated capacity will not be eligible).

All components of a new facility or all components added to an existing facility, whether they are refurbished or incremental, must be new generating equipment.

New

For the purpose of this program, the replacement of a thermal boiler with a new biomass boiler will be considered as "new generating equipment" provided the electricity produced comes from a "low-impact renewable-generating facility" as defined below.

"Low-impact renewable-generating facility" means a generating facility that uses low-impact renewable sources, such as wind energy, hydro-electricity, biomass energy or solar photovoltaics that produce electricity generated in a manner that is described under Environment Canada's Environmental Choice^M Program Criteria Document CCD-003 (available at: http://www.ul.com) or as described in future revisions of the Criteria Document relating to low-impact renewable electricity. Low-impact renewable technologies, such as geothermal, tidal and wave energy that are not yet described under the Environmental Choice^M Program will be added when the Criteria Document is reviewed and will be assessed on a case-by-case basis.

2.4 Environmental Choice^M Program Certification

All biomass and hydro projects must be certified as EcoLogo^M projects under Environmental Choice^M Program's Criteria Document CCD-003 and must maintain certification throughout the period in which they receive the incentive.

Proponents will bear the costs involved in obtaining and maintaining certification under the Environmental Choice^M Program.

Other low-impact renewable energy projects are exempt from this requirement, but may be required to be certified as EcoLogo^M projects in the future. Any changes to this requirement will be based on program experience and done in consultations with industry. Natural Resources Canada encourages all prospective proponents to obtain certification for their project under Environmental Choice^M Program.

2.5 Qualifying Period

Qualifying Projects that apply to the program must be commissioned as follows:

• Wind farms must be commissioned between April 1, 2006, and March 31, 2011. Projects that were commissioned after March 31, 2006, and before April 1, 2007, will begin to receive payment of the incentive on electricity produced from April 1, 2007, for 10 years, provided a contribution agreement has been signed by March 31, 2007. Otherwise, payment of the incentive for these projects will begin on the first day of the fiscal year in which the contribution agreement is signed.
• Other low-impact renewable power-generating technologies must be commissioned between April 1, 2007, and March 31, 2011 inclusive.

Commissioning of a Qualifying Project is set as the day when the full capacity of the Qualifying Project is on-line and has been approved to operate by a professional engineer who is registered in Canada.

Natural Resources Canada reserves the right to modify the commissioning date of the project for the purpose of the program when a contribution agreement is signed during a fiscal year which is different from the one when the project is commissioned.

2.6 Minimum Qualifying Capacity

The Qualifying Project must be of a total rated capacity of 1 megawatt (MW) or greater, with the exception of wind energy projects that were commissioned after March 31, 2006, and before April 1, 2007, which must have a total capacity of at least 500 kilowatts (kW), consistent with the final year of the Wind Power Production Incentive program. Rated capacity is defined as the sum of the nameplate capacity of all the electrical generators that are a part of the Qualifying Project. Clusters of individual generators that are connected at the same point of interconnection and are metered at that point are considered as one project.

2.7 Eligible Production

Eligible production of a Qualifying Project is defined as the gross electricity produced from a low-impact renewable energy resource, less electricity consumed by the operation of the Qualifying Project and less electric losses to the point of interconnection, up to the maximum annual eligible production, as defined in the Terms of the Incentive section below.

The Point of Interconnection is defined as the point where the transfer of ownership of electricity is made, or if not sold, where the Qualifying Project is connected to the electrical load. This Point of Interconnection must be in Canada. The eligible production must be sold in Canada, or if not sold, used in Canada.

Qualifying Projects that are powered by dual or multiple sources of energy must record the energy content (in petajoules) of each energy resource and calculate the corresponding net eligible production for the Qualifying Project produced from the low-impact renewable energy resource only.

Measurements of energy content of the resource must be approved by Natural Resources Canada. Records of energy resources measurements and calculations of energy content used for each energy resource must be kept for the duration of the contribution agreement for audit purposes.

2.8 Sale of Electricity

For projects in which electricity is sold, the eligible production is the net eligible electricity production of the Qualifying Project measured at the Point of Interconnection, as defined above.

There must be a meter that will measure the production of the Qualifying Project at the Point of Interconnection of the electricity. This meter must measure electricity production from the Qualifying Project, as well as electricity consumed by the Qualifying Project. The meter must either be controlled by the buyer of the electricity (e.g. an electrical utility, a transmission company, an electricity exchange pool or an energy service provider) that operates at arm's length from the project proponent, or it must use the services of an auditable metering service provider. Records of energy production and consumption from the Qualifying Project must be kept for the duration of the contract for audit purposes.

2.9 Own Consumption

Facilities that use, in whole or in part, the eligible electricity production from a Qualifying Project must have an electricity meter that can measure the electricity produced and consumed by the facility. The meter must be installed at the Point of Interconnection of the Qualifying Project and must be accessible to auditors at all time.

For these projects, metering information and net eligible production of the Qualifying Project must be reported by a professional engineer or a person of vested liability or by an auditable metering service provider. Records of energy production and consumption from the Qualifying Project must be kept for the duration of the contribution agreement for audit purposes.

2.10 Test Wind Turbines

The electricity generated from a test wind turbine installed under the Canadian Renewable and Conservation Expense (CRCE) provision of the federal Income Tax Act will not be eligible for the incentive. Under the CRCE provision, the cost of acquisition and installation of a test wind turbine is 100 percent deductible and can be financed through flow-through shares.

If a wind project has capacity that is over and above that which is eligible under the CRCE, the additional capacity may be eligible under the ecoENERGY RP, provided that the eligible production can be metered independently or derived from quality-revenue meters. The proponent must provide the metering methodology to Natural Resources Canada for review and approval.

2.11 Class 43.1/Class 43.2 of the federal Income Tax Act Regulations

Renewable power generating projects may be eligible for capital cost allowance deductions under Class 43.1/Class 43.2 of the federal Income Tax Regulations. For information on the applicability of these classes of deductions to your project, please contact the Class 43.1/43.2 Secretariat at (613) 996-0890.

2.12 Reductions in Emissions of Greenhouse Gases (GHGs) and Air Pollutants

Non-combustion renewable energy projects emit neither GHGs nor other air pollutants. These projects will likely displace incremental fossil fuel-based power production that would emit a number of air pollutants, including GHG emissions. By displacing emitting sources of power, these renewable technologies will contribute to avoiding future increases in emissions.

Biomass-based energy systems are generally characterized as being carbon-neutral, because all of the CO₂ emitted in the air during electricity production is removed from the air over time as the replacement crop (plants/trees) grows back. Biomass-based energy is considered carbon- neutral if the feedstock is harvested in a sustainable manner, i.e. the feedstock regenerates and grows back to its initial state.

However, during combustion, other air pollutants, such as NO_x, SO_x, particulate matters and volatile organic compounds may be produced and released. To be eligible under the program, biomass combustion systems must be certified under Environment Canada's Environmental Choice^M Program and must validate that certification throughout the period in which they receive the incentive. Natural Resources Canada does not guarantee that all certified projects will be eligible for an incentive.

Complete definition of the certification criteria can be found in the Environmental Choice^M Program Criteria Document CCD-003 at: http://www.ul.com

All projects must report on GHG and air emission reductions after one year of operation (see Project Reporting section below).

2.13 Maximum Contributions

The maximum contribution payable per Qualifying Project will be $80 million over 10 years.

The maximum contribution to an Eligible Recipient over the life of the ecoENERGY RP will be $256 million.

2.14 Production Estimates

Expected production levels

To reduce the possibility of lapsing funds and to maximize the number of projects that is supported under the ecoENERGY RP, Natural Resources Canada:

1. has set a capacity factor limit for eligible production per technology; and
2. will adjust the estimated production level to the actual performance after a given period of time.

Maximum capacity factor levels

The maximum capacity factors per technology will be as follows:

• biomass energy: 80 percent
• hydro energy: 60 percent
• wind energy (offshore): 42 percent
• wind energy (onshore): 35 percent
• photovoltaic energy: 20 percent

For all other low-impact renewable energy technologies, such as ocean energy and geothermal, Natural Resources Canada will set the capacity factor on a case-by-case basis.

Expected annual production

Proponents must provide a report describing the steps followed in determining the resource assessment and show how the expected net annual production was calculated. This report must show assumptions and calculations used, and how electrical losses (such as line and transformer losses) and operational losses (due to down time from maintenance or weather constraints) are accounted for.

Adjusting expected annual production level

To reduce overestimation of expected production under the program, Natural Resources Canada will automatically adjust the expected annual production level in contribution agreements with Eligible Recipients after eight complete quarter-years of production.

The adjusted expected annual production will be calculated by measuring the production from the best four continuous quarter-periods of the Qualifying Project during the first eight quarter-years of operation and calculating the annual (365 days) production for that period. If this production is equal or greater than 90 percent of the expected annual production provided in the contribution agreement, the expected annual production level will be confirmed for the remaining years of the contribution agreement. If it is less than 90 percent of the expected annual production, the expected annual production level in the contribution agreement will be automatically revised to 95 percent of the annual production calculated from the best four continuous quarters.

New

2.15 Stacking Limits

The Treasury Board Policy on Transfer Payments requires potential recipients to provide a statement about other sources of funding for a project prior to approving a contribution in excess of $100 000. Programs are expected to take into account other sources of funds, which includes private sector contributions, including the expectation that the recipient must contribute its own funds towards eligible cost of the project. The Policy on Transfer Payments also requires that specific limits be set when considering total government assistance. Thus, if a proponent has secured significant support for the Qualifying Project from other government sources, including federal, provincial and/or municipal, the proposed Qualifying Project may be disqualified from receiving the ecoENERGY RP incentive, or its maximum eligible contribution over ten years may be reduced.

Under Step 2, Technical Project Information, Section A8, proponents are required to declare other sources of government funding for their projects, whether it is a capital grant or a production subsidy that is over and above the purchase of electricity by a utility or a power pool.

To ensure compliance with the Policy on Transfer Payments, the total assistance from all government sources will not exceed 75 percent of the total capital costs of the project.

If a project receives or will receive a capital grant or contribution from other levels of government, including where another federal agency provides a capital grant or contribution, the net present value of the ecoENERGY RP contribution will be calculated so that the total government contribution does not exceed 75 percent of capital costs. Likewise, if a project is receiving a production incentive from another level of government, the net present value of this incentive will be calculated and the maximum ecoENERGY RP contribution will be calculated so that the total contributions do not exceed 75 percent of capital costs.

The following formulas are used to determine the Maximum Eligible Contribution (MEC) under the program:

ExpERP is the program's expected eligible payment for the project and is equal to one cent/kWh times the Expected Annual Production (EAP) times ten years, or :

ExpERP = 1 cent/kWh x EAP x 10 years.

It is calculated in net present value to compare it against capital grant and annual subsidies:

NPV(ExpERP) = ∑MAEP/(1+r) ^ (nb)

• MAEP: Maximum Annual Eligible Payment as provided by the program
• r: Discount rate. The net present value of recurring payments is calculated using a 10 percent discount rate.
• nb: Year of payment

And

AllowERP is the allowable maximum contribution from other governmental sources and is equal to 75 percent of the total project cost (TPC) minus any other source of governmental contribution (OGC) apart from the purchase of electricity. TPC is already a net present value, thus:

AllowERP = (75% x TPC) - OGC

• OGC must be calculated in net present value when yearly contributions are provided to the project. It is equal to the subsidy if a capital subsidy is provided.

The lesser amount between NPV(ExpERP) and AllowERP is then determined.

• If NPV(ExpERP) is the lesser amount, then MEC equals ExpERP.
   
  MEC = ExpERP
• If AllowERP is the lesser amount, then MEC equals the sum of constant annual payments over ten years to arrive at this value and is calculated using the formula:
   
  MEC =∑AllowERP x r / (1-(1/(1+r) ^10 years))

And where r is the discount rate used for annual payments. For the purpose of the ecoERP program, 10 percent discount rate is used.

For the purpose of determining eligible capital costs, Class 43.1/Class 43.2 definitions of Canada's Income Tax Regulations for renewable energy generating equipment will be used. Other benefits received by a proponent under a government's taxation system, whether federal, provincial or municipal, would not be considered as a government contribution.