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Canada

Provinces hold key to Canada incentive -- Government support for 1000 MW but no rush expected

Canada unveiled the details last month of its incentive program aimed at supporting the installation of 1000 MW of new wind power over the next five years. The program will make wind a "full-fledged competitor in the electricity marketplace by the Kyoto commitment period of 2008-2012," says the government. Details of the 15 year, C$260 million wind power production incentive (WPPI) were made public in late May by Natural Resources Canada (NRCan) minister Herb Dhaliwa, during a visit to Prince Edward Island.

Dhaliwal was meeting with federal and provincial environment ministers for talks aimed at ending sharp divisions over whether Canada should ratify the Kyoto Protocol on climate change. The meeting ended in discord when Alberta refused to sign off on a plan for public consultations on the best way to bring Canada's greenhouse gas emissions within the Kyoto targets.

Since the WPPI was first announced in December it has been tied to Canada's climate change strategy. When fully implemented, says the 25-page document outlining the program's terms and conditions, the WPPI will cut the country's greenhouse gas emissions by more than three megatonnes annually by 2010.

"Wind energy in Canada is going to have an advantage that it didn't have before," says Canadian Wind Energy Association (CanWEA) past president Fred Gallagher. But he cautioned that the incentive, which is expected to leverage approximately C$1.5 billion in capital investments, is not large enough to be a magic bullet. "It doesn't make us immediately competitive," he says. The Canadian incentive is less than half of the value of wind's production tax credit in the US.

Canadian wind producers have been anxiously awaiting details of the WPPI, which was scheduled to begin two months ago. The delay is problematic because the highest level of incentive payment is made during the program's first year. Under the plan, projects commissioned between April 1, 2002 and March 31, 2003 will receive C$0.012/kWh for the first ten years of operation. The incentive drops to C$0.010/kWh for projects commissioned before the end of March 2006, and to C$0.008/kWh for wind farms that begin operation before March 31, 2007.

Wind developers have lobbied hard for the government to extend the initial qualifying period to the end of December 2003, with CanWEA warning that the industry is "severely curtailed" in its ability to get projects in the ground fast enough to tap the C$0.012/kWh incentive. NRCan rejected the idea of an extension, promising instead to streamline the application process for the first year.

Drawbacks

CanWEA also wants extra time to allow "potential provincial programs to come into effect." One of the drawbacks of the WPPI is that it only covers about half the current cost premium for wind energy in Canada. The government's expectation is that the provinces will match the incentive with their own programs.

CanWEA president Guy Painchaud is confident that at least some of the provinces will come through. "I think the incentive appealing enough to lead to the 1000 MW, both by helping projects that are marginally profitable now and by enticing provinces to do something," he says, pointing to several jurisdictions, like British Columbia, Ontario, Quebec and Nova Scotia, that are looking at ways to promote renewables. "Provinces have started to realise there is now federal money available."

Spreading them out

The WPPI program sets aside a minimum capacity of 10 MW for each province and 1 MW for each of Canada's three northern territories. At least initially, each province will be limited to 300 MW of qualifying capacity to avoid an industry wind rush to any specific area. The government points out that one of the goals of the WPPI is to "allow producers to explore the potential for wind farms in various regions of the country."

NRCan's original WPPI proposal, refined after consultation with about 50 wind industry stakeholders, recommended a number of limits on things like project size and capacity factor and on the amount payable to any one producer. CanWEA urged the government to eliminate the "arbitrary ceilings" and allow the market to determine successful projects. "Governments should not be in the business of picking winners and losers," it argued.

Although some of the proposed quotas have been removed, some remain. For the duration of the program, the maximum amount payable to any producer is C$64 million. But one of the major changes won by CanWEA, says Gallagher, was the lowering of the minimum capacity for eligible wind projects from 5 MW to 500 kW, except in northern and remote locations, where projects as small as 20 kW will be eligible. "The industry is not at a stage where we can go out and develop 50 MW projects. The market is not there yet. The market still has to develop," says Gallagher.

The change will also help weave wind power into the "fabric of this country," he adds. "Very few people know what a wind turbine looks like in this country. We've got to get wind turbines here there and everywhere."

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