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Canada

Handcuffed by local content demands

Strict conditions on regional sourcing of components could become a spoke-in-the-works for Quebec's planned call for a further 2000 MW of wind power capacity in the Canadian province. The Quebec government wants to see 30% of the cost of equipment installed spent in the economically depressed Gaspé region to consolidate the area's fledgling turbine manufacturing sector. The wind industry warns the threshold is too high, will be difficult to meet, and will push up costs.

By demanding that a relatively high proportion of components be manufactured in a tightly restricted geographic area, the Quebec government is putting its call for 2000 MW more of wind power capacity in danger

Strict conditions on regional sourcing of components could become a spoke-in-the-works for Quebec's planned call for a further 2000 MW of wind power capacity in the Canadian province. The Quebec government wants to see 30% of the cost of equipment installed spent in the economically depressed Gaspé region to consolidate the area's fledgling wind turbine manufacturing sector. The wind industry warns the threshold is too high, will be difficult to meet, and will push up costs.

The province issued a draft regulation in August laying out the terms and conditions for government-owned Hydro-Quebec's next wind power purchase. In addition to the 30% Gaspésie manufacturing content, 60% of entire project costs must be spent within Quebec. Projects can be installed anywhere in the province and must come online between 2009 and 2013. Stakeholders have 45 days to comment on the proposed regulation. Once it is finalised, Hydro-Quebec has until October 31 to issue its 2000 MW request for proposals (RFP).

Although Canada's wind industry is comfortable with the Quebec content requirements, it would rather no regional restrictions were placed on sourcing turbine components, says Sean Whittaker, policy director of the Canadian Wind Energy Association (CanWEA). Allowing turbine makers to establish production facilities wherever they want in the province, he says, is more likely to result in competitive wind power prices, attract multiple manufacturers, and position a Quebec-based industry to compete in the North American marketplace over the long term. "The best way to create a viable wind industry in Quebec is to have a number of players, and a number of players that are located in places that best suit their needs. To tell them they have to go into a particular area handcuffs them," he says.

The draft regulation, however, makes it clear that regional content "is a fact of life," says Whittaker. As a result, CanWEA plans to call for the requirement to be reduced to a minimum of 10%. This will let bidders satisfy the content requirement by sourcing one of the major turbine elements, such as blades, nacelles or towers, from the Gaspé, ensuring continued job creation in that region as well as the development of manufacturing capacity in other parts of the province, says Whittaker.

Challenging

The Gaspésie has been the focus of Quebec's attempts to capture the economic benefits of its considerable wind resource since 2003, when Hydro-Quebec issued an RFP for 1000 MW of wind. It required projects to be installed on the Gaspé Peninsula between 2006 and 2012 and set minimum local content levels starting at 40% and increasing to 60% over those seven years.

Bidders had to develop their proposals in concert with equipment manufacturers. When the RFP results were announced last October, all eight winning projects used turbines supplied by GE Energy, although Gamesa Eólica and Vestas Canadian Wind Technology Inc also participated in the bidding process.

Component suppliers contracted by GE are in the process of setting up four manufacturing plants in the region. Two facilities located in the port city of Matane, one to manufacture turbine towers and another to assemble nacelles, are expected to be operational in November, while an LM Glasfiber blade factory will open in Gaspé, a city at the tip of the peninsula, in January. In August, Quebec-based Composite VCI, a long-time supplier to GE's gas turbine division, announced plans expand into the wind sector by opening a plant in Matane to make nacelle shells.

GE's Sylvain Bulota says a 30% local content requirement for the next call is not going to be easy. "It is going to be challenging for everybody, including us, even though we already have some installations in the Gaspé area. Obviously those will be useful for the next RFP, but one concern we have, and others have, is the schedule of delivery for those 2000 MW, which overlaps the first 1000 MW."

Growing the pie

The GE suppliers now in the Gaspé will not have the production capacity to meet the combined demand, says Bulota. He believes both the size and timing of the next round of projects is designed to make sure "the pie is big enough" to attract other manufacturers to the region. "Obviously the intent of the government is to invite other suppliers or manufacturers to set up shop to meet the demand," he says.

While GE plans to compete, Bulota is not convinced its win during the first RFP gives it an advantage. "We started from nothing about a year ago and made the necessary investment to qualify ourselves. I'm sure others can do the same thing. We fully believe we are going to participate, but what portion are we going to have of this 2000 MW is anybody's guess."

Despite fears that the strict local content and siting restrictions in the first 1000 MW RFP would push up the cost of the energy, the eight winning projects came it an unexpectedly low average price of C$0.065/kWh. Prices will be higher this time around, says Bulota, but he does not believe it will be because of the new local content rules. "I don't think it has to do with the cost of manufacturing in Quebec. That reality came through in the first 1000 MW. At the time everyone was surprised that the price was that low and that competitive." But since then, he points out, turbine prices have taken a sharp jump across North America, the result of tight supplies, a strong euro, and rising raw material and fuel costs.

In fact, says Gilles Lefrancois of Cartier Wind Energy, turbine prices are now about 30% higher than those quoted to his company during the first Quebec RFP, in which Cartier won contracts for six projects totalling 740 MW. Like Bulota, Lefrancois expects Hydro-Quebec will have to pay more for the next 2000 MW.

This time around, however, bidders will not be limited to developing projects in a specific region. "It gives us chance to use the better sites, wherever they are, in order to lower the price of electricity," says Lefrancois.

CanWEA is pleased with the government's decision to open up the entire province to wind farm development. "Studies looking at Quebec's wind resource indicate there is more than 100,000 MW of potential within 25 kilometres of transmission lines, which is a fantastic figure," says Whittaker. "Obviously if you want to exploit that potential, then you have to allow installations to happen anywhere in the province."

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