1. RFSQ Process and Considerations
On July 17, 2023, SaskPower issued a Request for Supplier Qualifications (“RFSQ”) for two, 200 MW wind power generation facilities in South-Central Saskatchewan, Canada. SaskPower Inquiry # 1010733 can be downloaded on MERX at www.merx.com/saskpower along with all amendments, addenda, clarifications, and further instructions. Terms not defined in this article but capitalized are as defined in the RFSQ.
The RFSQ is the first of a two-stage competitive public procurement process. Firstly, through the RFSQ, SaskPower will compile a list of qualified prospective independent power producers (“IPPs”), who will be invited to respond to a Request for Proposals (the “RFP”). Secondly, if qualified, IPPs will have the ability to respond to the RFP to develop, finance, construct, own, operate, maintain, and decommission one of two, 200 MW new IPP-owned and IPP-operated Wind Generation Facilities.
Through the RFP, SaskPower will select one or two successful IPPs to provide all metered energy, ancillary services, and environmental attributes through Power Purchase Agreements (“PPAs”). A single IPP will not be awarded two PPAs.
SaskPower’s unwillingness to award a PPA to a single IPP for a 400 MW Wind Generation Facility is short-sighted. Some IPPs may have already acquired interests in land for project sites for a single 400 MW project. IPPs may be unwilling, or not have enough time or money, to split a larger prospective project area into two project areas. SaskPower may wish to consider whether it should make amendments in the RFP to allow the possibility to award a PPA to a single IPP for a 400 MW Wind Generation Facility.
Please see the Procido LLP article, Frequently Asked Questions Regarding The Power Corporation Act (Saskatchewan): Why Understanding the Act is Critical to your Energy Project in Saskatchewan, to learn more about SaskPower’s exclusive rights in Saskatchewan.
(a) Evaluation Criteria for Respondents
Respondents to the RFSQ will be evaluated on two criteria: (i) financial strength and capacity, and (ii) experience. SaskPower will assign a pass or fail rating for each criterion. Respondents must pass the first criterion (financial strength and capacity) to be evaluated based on the second (experience).
(b) Key Requirements for Respondents
The evaluation criteria are explained in more detail in the RFSQ. Certain requirements in the RFSQ may prevent some IPPs from responding, notably:
- Designated Equity Requirement: IPPs must meet the Designed Equity Requirement of forty million Canadian dollars ($40,000,000 CAD);
- Utility-scale Power Generation Development Experience: IPPs must have acted as a Principal Developer for at least two power generation projects with a nameplate capacity of 25 MW or greater that: (1) have reached COD within 10 years prior to the August 25, 2023 RFSQ submission deadline; and (2) have been in operation for at least three years by the August 25, 2023 submission deadline; and
- Sites in Defined Area: IPP sites must be located in the South-Central Zone of Saskatchewan and be located outside the Coal Avoidance Zone.
(c) Fairness Concerns
SaskPower will appoint a third-party Fairness Advisor to ensure fairness during the procurement process described in the RFSQ and RFP. The Fairness Advisor will have a challenging role, as there are concerns from the perspective of the Respondent about the fairness of the current procurement structure, including:
- Geographic Limitation: By specifically limiting the geographic area where a wind power project may be located within Saskatchewan, this procurement shifts toward being interpreted as a tender (i.e. Contract A/Contract B) as opposed to a non-binding Request for Proposals, which is a broad and open request with very minimal restrictions on the projects which the Respondents wish to submit for consideration;
- Unfair Advantage for Pre-Existing Sites: IPPs have been developing wind sites in Saskatchewan for at least 20 years. The introduction of this new geographic restriction within the Province may provide an unfair advantage to those IPPs or Indigenous groups who have pre-existing sites in the defined geographic area, as compared to IPPs and Indigenous groups with sites outside of the defined geographic area;
- Issues with the “Wholly Contained” Requirement: The requirement for a project site to be “wholly contained” within the defined geographic area may create issues for IPPs who have signed up landowners under existing Option to Lease and Lease Agreements that border the defined geographic area. Groups of landowners that have anticipated being a part of a project alongside adjacent landowners, but whose land falls just outside the defined area, may be unnecessarily prejudiced, which may cause conflicts between landowners or within communities. Further, IPPs and Indigenous groups may have sites entirely outside the defined geographic area but directly adjacent or very close to the line and be excluded from the procurement process as there is no mechanism noted in the RFSQ to allow these directly adjacent or nearby sites to be part of this procurement;
- Bias Against Newer Sites: SaskPower’s requirement that all “preliminary and final geotechnical and environmental assessments” be undertaken for sites, may bias against IPPs with newer sites, which may not have sufficient time to complete this work given the tight procurement timeline and the onset of winter in Saskatchewan;
- Coal Avoidance Zone Prejudicial: IPPs and Indigenous groups may have sites in the Coal Avoidance Zone which would offer the added benefit of remediating and utilizing lands which were previously used, or to be used for future coal mining. Excluding these sites, which have increased environmental benefits compared to others outside the Coal Avoidance Zone, may be prejudicial to these IPPs and Indigenous groups.
In our view, IPPs and Indigenous groups should be able to freely decide on where they think electricity demand will be in the future, where they think existing transmission line capacity can be used most cost-effectively, where wind resources within the Province provide for commercially viable projects, how they wish to finance these projects, and to what extent they wish to use their own resources to develop their chosen project sites in Saskatchewan – these are not decisions that a public utility which is a Crown corporation with exclusive franchise rights is best suited to make.
2. RFP Process and Considerations
(a) Negotiations and Amendments to the PPA
A draft form of PPA will be issued concurrently with the issuance of the RFP. Proponents to the RFP may submit comments or suggested changes to the draft PPA and will be expected to engage in a commercially confidential meetings with SaskPower in respect of the draft PPA, the RFP process and SaskPower’s technical/interconnection standards. SaskPower typically issues an Addendum to the RFP containing a second draft of the form of PPA. Proponents may submit comments on, or suggested changes to the second draft of the form of PPA. The final form of the PPA will be issued prior to the deadline for submission of Proposals under the RFP, and it is expected that IPPs will base their RFP Proposal on this final draft of the PPA.
(b) Alignment of PPA Supply Term with Option to Lease and Lease Agreements
Both PPAs to be awarded pursuant to the RFP are proposed to be for fixed terms of 30 years. IPPs will need to review their Option to Lease and Lease Agreements to ensure they align with the requirements set out in the PPAs. For example, the lease term should not be less than the “Supply Period” set out in the PPAs.
(c) Required Utility Security in PPA
Each PPA will require concurrent delivery by the IPP SPV of a twelve million Canadian dollar ($12,000,000) Letter of Credit (“LC”) and concurrent delivery of a thirty-eight million Canadian dollar ($38,000,000) Guarantee from the Designated Equity Provider, if applicable.
As in past SaskPower wind RFPs, the Successful Proponent will be responsible for designing, constructing, owning and maintaining, at the Successful Proponent’s cost, such additional Supplier’s Interconnection Facilities to enable the Supplier’s Facilities to interconnect with SaskPower Transmission System at the Point of Change of Ownership. SaskPower will conduct an interconnection study that sets out the work required by SaskPower and costs to be incurred by the IPP for interconnection.
(e) Environmental Attributes
There is no regulated market for emissions offsets or credits in Saskatchewan. Saskatchewan relies on the voluntary emissions reduction markets. Regardless, SaskPower will retain all credits and offsets that are produced from an IPP’s project. See Procido LLP article entitled, Carbon offsets in Saskatchewan: Saskatchewan’s move towards a voluntary carbon offset program, for more information on environmental attributes in Saskatchewan and the Procido LLP article entitled, Canada’s Greenhouse Gas Offset Credit System for more information on the Federal system.
(f) Decommissioning and Remediation Obligations
In a departure from past SaskPower PPAs, the PPAs for the current RFP may include additional obligations on IPPs related to decommissioning and site remediation. IPPs will want to pay particular attention to any onerous decommission or remediation requirements in the PPAs.
(g) Third Party Service providers
The Target Commercial Operation Date (“COD”) for the PPAs is November 15, 2027. This is a very aggressive timeline which certain IPPs may not have the available resources to meet. This aggressive COD timeline will require IPPs to retain, engage and mobilize experienced professional resources, such as legal, engineering, and accounting service providers as soon as possible. IPPs should be aware that Saskatchewan is currently a very busy, labour-constrained market.
In order to respond to the RFSQ and qualify for the RFP, the Respondent (and eventual Qualified Proponent for the RFP), whether a resident or non-resident of Saskatchewan must register with the Saskatchewan Ministry of Finance to collect and report provincial sales taxes (PST). Typically the Respondent must be registered as a corporation (or other legal entity) in Saskatchewan or such entity must be extra-provincially registered in Saskatchewan if registered for PST. Procido LLP’s Corporate Services Group incorporates many entities in Saskatchewan and can extra-provincially register your corporation in anticipation of compliance with tax requirements in the PPA. See Procido LLP article entitled, Taxation requirements and Investment Tax Credits for Independent Power Producer Renewable Energy Projects in Saskatchewan for more information.
(i) Indigenous Participation
PPAs will only be awarded to IPPs with not less than 10% Indigenous ownership. Proponents with an Indigenous equity ownership percentage determined to be greater than 10% will receive additional points in the RFP, with maximum points received for 51% equity ownership.
Interestingly, SaskPower has noted that no additional points will be awarded for ownership by an Indigenous Entity exceeding 51%. Some view this position as shortsighted, arguing that SaskPower should be awarding points for up to 100% Indigenous equity ownership to incentivize even further rapid economic development for wholly-owned Indigenous developers and Indigenous IPPs.
The RFSQ submission deadline is 3:00 pm CST on August 25, 2023. Questions can be submitted up to five days before the deadline. The Qualified Proponents will be notified by September 8, 2023.
Procido LLP has acted for domestic and foreign lenders, investors and IPPs on renewable energy projects for nearly two decades. Procido LLP has also acted for Indigenous groups on power projects for more than a decade. Procido LLP does not act for SaskPower. We are firmly and fully committed to supporting IPP- and Indigenous-led power projects in Saskatchewan. Don’t hesitate to reach out to any member of the Procido LLP Energy Group if you would like to learn more about how we can assist you or your project.
This publication is provided as an information service and may include items reported from other sources. We do not warrant its accuracy. This information is not meant as legal opinion or advice. The viewpoints expressed herein are not the views of any client of the firm. Do not rely on any information in this article without first obtaining legal advice. Contact Procido LLP (www.procido.com) if you require legal advice on the topic discussed in this article.