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Largest in Canada to proceed to plan -- Reassurance from Babcock & Brown

The financial woes of Australian investment firm Babcock & Brown (B&B) should have no impact on a planned 300 MW wind project in Canada that is being developed by its North American wind power business and slated to start construction later this year in southern Manitoba, according to Colin Edwards, a director of B&B's Canadian operations.

Manitoba Hydro's board announced in late November that it has given the green light to a proposal from St Joseph Wind Farm Inc, owned by Babcock & Brown Canada, for what will be Canada's largest wind facility. The project is one of 84 bids the government-owned utility received in response to a 2007 request for proposals and the only one selected for further negotiation.

The announcement that a deal has been reached sparked questions in the Manitoba legislature about the company's financial capacity. But Babcock & Brown Canada's Edwards says the firm's North American energy group is strong. "The parent company is where all the news is coming around in terms of its financial health and I think a lot of those concerns are quite legitimate," he says. "This project is going to be delivered by the North American energy group, which is probably the most profitable group at Babcock & Brown. We continue to bring projects in North America into operation as we speak. So I think if you were relying on the ultimate parent it may be difficult, but this is a North American project and all the people and resources are still available."

Twenty-five year contract

Although Manitoba Hydro and B&B have agreed on the "material commercial aspects" of the deal, says Edwards, they still have to finalise the 25-year power purchase contract, something he expects to occur in early 2009. The company hopes to start construction in mid-2009, with commercial operation scheduled for late 2010 or early 2011.

Manitoba Hydro originally announced back in March that it had selected B&B as its preferred supplier. While negotiations have taken longer than anticipated, that has not affected the project schedule, says Brown. Edward assures that while his company's plans are now caught in the midst of a global credit and financial crisis, he does not expect it will have an impact on Babcock & Brown's ability to complete the project as envisioned.

"Our business model is to raise debt and equity from a variety of sources, so we do have redundancy on our capital funding solution," he explains. "I think for most people trying to raise money right now, certainly on the debt side, credit spreads have gone up but benchmark rates have gone down, so it's kind of a wash. That kind of has a neutral effect."

The project has an estimated price tag of more than C$800 million. It will be built across about 50,000 acres of farmland near the community of St Joseph, located 85 kilometres south of Winnipeg and about 20 kilometres north of the US border. More than 200 landowners are involved, according to Edwards. "Manitoba is an ancient lake bed, so the soil conditions require some additional design on foundations, but other than that, this is just an exceptional site," he says. By early December, the company had not yet settled on a turbine model.

Community revenues

The project is expected to generate C$70 million in local landowner payments and C$198 million in provincial and municipal tax revenues over its life, and displace 800,000 tonnes of greenhouse gas emissions a year. As well as the economic and environmental benefits, says Manitoba Premier Gary Doer, it underscores the province's position "as a leader in clean energy." Currently, 97% of Manitoba's electricity comes from hydroelectric facilities. "The St Joseph wind farm represents another important step in diversifying Manitoba's energy resources," says Doer.

The province, with one 99 MW wind farm currently in operation, is targeting the installation of 1000 MW of wind in what is now a 5500 MW electricity system. It envisions adding another 200 MW of wind capacity every other year from 2013 to 2018. Robert Hornung, president of the Canadian Wind Energy Association, says the industry is hoping the government and the utility will announce the timelines for processes to procure that power soon.

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