Article Index
MicroFIT: An introduction
Organizing your project
Eligibility
Process for obtaining a contract
Payment and other issues
All Pages

Payment Mechanism
The LDC will pay for the electricity you produce on behalf of the OPA according to its regular billing schedule of your LDCs (normally either monthly, bimonthly, or quarterly). You remain responsible for paying for all the electricity your home or business consumes, including the various non-commodity charges including transmission and distribution, regardless of whether the electricity was provided by the MicroFIT generator or the LDC.

Other Issues

Taxes
In assessing the tax impact of developing a MicroFIT project, you must consider three taxes:
•    GST/PST/Harmonized sales taxes, on both the sale of the electricity and the purchase of the generation equipment;
•    Income tax or income received on the revenue the project generates, as well as any income tax deduction of the operating expenditures and capital cost allowances for the installed equipment; and
•    Property tax on your building. As with any home improvement, a renewable generation facility may increase the assessed value of your property.

GST
So long as the contract value of the electricity sold to the OPA (together with any other "taxable supplies" made) in any 12 month consecutive period is less than $30,000, and the vendor is not GST registered, the sale of electricity would not be subject to GST, due to the "small supplier" exemption. However, the sale of electricity constitutes a "taxable supply" and is normally subject to GST at 5%, so if the value of the electricity sold (together with any other "taxable supplies" made) exceeds $30,000 annually, then the vendor is required to be GST registered, and would have to collect GST. Second, the purchase of solar panels, invertors, other hardware and costs of installation would be subject to GST. However, if the person who acquires solar panels, equipment and installation services is registered for GST purposes, such person could claim an input tax credit against the GST that such person collects on the sale of electricity. An individual not registered for GST purposes is not able to claim an input tax credit.

PST
There is an exemption from PST on the sale of "electricity for all purposes", so the owner would not charge PST on the sale of electricity to OPA.

Solar panels, invertors and other related equipment could possibly be purchased by a property owner on a PST-exempt basis using the exemption for "manufacturing and processing equipment". However, manufacturers or producers of electricity (other than utilities) are excluded from being eligible for the "manufacturing and processing equipment" PST exemption. There is, however, an exception for certain "small" manufacturers and producers of electricity who may be able to purchase such equipment on a PST-exempt basis if the total fair value of tangible personal property (e.g electricity) sold by such person in a fiscal year is less than $5,000 or where the fair value of tangible personal property manufactured for such person's own use is less than $50,000 in a fiscal year.

Where the solar panels, invertors and other equipment become fixtures when installed on a person's real property and where such equipment is acquired from a contractor who installs such equipment as a fixture, it is the contractor who is subject to and who would pay PST on the equipment, not the customer. Presumably the PST incurred by the contractor on acquiring such equipment would be priced into and passed along to the property owner as part of the total contract price for the equipment and installation.

HST
Commencing July 1, 2010, PST will be eliminated and instead will be "harmonized" with the GST as part of a combined federal/Ontario sales tax at the rate of 13% (i.e. 5% GST, plus 8% Ontario sales tax). It is expected that the HST consequences will be the same as the analysis above concerning GST except that the rate will be 13% instead of 5%.

Income Tax
The homeowner or the small business would both be considered to be in the business of generating power, and the revenue received under the FIT Contract will be taxable income. The operating and interest costs of the facility should be deductible and the capital cost allowance can be taken, on the accelerated basis provided under the Income Tax Act (Canada) for renewable energy assets.

Conversion from "Net Metering Project"
Net Metered Projects that are under the 10 kw threshold may be converted into MicroFIT projects.

Environmental Attributes
All environmental attributes, such as renewable energy certificates, carbon credits, or the like generated by the MicroFIT Contract belong to the OPA.

Environmental Approvals
Solar PV rooftop projects of 10 kw or less do not require a Renewable Project Approval. Wind projects do, if they are larger than 3 kw.

Assignment
The project owner can assign its rights and obligations under the MicroFIT Contract (for example, if the owner sells its house) with the OPA's consent, and such consent cannot be unreasonably withheld.

Amendments
Future price changes, other program amendments, or the elimination of the program do not affect the status and rights of parties that have already received a conditional offer to enter into a MicroFIT Contract. Price changes and other changes will not be retroactive.

Final Comments
While MicroFIT Projects are not large relative to FIT Projects, they can represent substantial sums of money for homeowners, small business owners, institutions or communities. These parties should retain independent legal and accounting advice to assist them with the installer's contract, (and FIT Contract), regulatory requirements, insurance and tax. Some LDCs may still use connection agreements that differ from the Board approved form. Installers/Suppliers will tend to have a "standard form" contract, but it may need to be adjusted to reflect the buyer's particular circumstances and interests, and perhaps to more evenly balance the risks.

Thomas Brett (tbrett@foglers.com) is a partner at Fogler, Rubinoff LLP.

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