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Canada

Canada

Federal program deals with success -- Canada's subsidy pool

Less than a year after Canada's federal government invested nearly C$1 billion in expanding its wind power production incentive (WPPI) program, the country's wind industry is calling for still more funding to ensure WPPI premium payments keep pace with the rapidly expanding provincial purchase plans. The Canadian Wind Energy Association (CanWEA) is asking for the WPPI target be expanded to 8500 MW by 2014, more than double its current 4000 MW goal, at an estimated cost of C$1.17 billion over 15 years.

The proposed new objective is roughly equivalent to the tenders and targets already in place in the provinces. WPPI, says CanWEA president Robert Hornung, was critical in getting provincial governments to take action on wind energy. With recent increases in the installed cost of wind plant, spurred largely by turbine prices jumping 15-20% in 2005, federal support is still necessary. Hornung expects the increased costs will be reflected in bid prices that are higher than in past tendering processes, a least over the next couple of years.

"We're a little worried that may cause provinces to begin to rethink or get a little hesitant about the bigger commitments they've made. We think it's important for the federal government to send a signal that it believes this technology is going to be an important contributor and cost-effective over the long term, and that they're willing to ensure that happens."

With other countries moving "further and faster" to develop their wind resources, warns Hornung, the current WPPI commitment to 4000 MW by 2010 may not be enough to attract hoped-for manufacturing capacity to Canada. "Canada is never going to be able to compete with China or some larger countries in terms of the number of megawatts. Where Canada has to be able to compete is in the stability of the marketplace," he says.

"That's why we're talking about another expansion, one that goes until 2014. It would give us almost a decade of policy certainty, which we think would make a difference in terms of influencing manufacturers in making their investment decisions, particularly vis-à-vis the United States."

Complicating CanWEA's request is the question of just which political party will be authoring the 2006 federal budget. The Liberal government, which created WPPI and expanded it last year, was defeated in a non-confidence motion in November, forcing a rare winter election campaign that will end with a January 23 vote. "What we're doing right now is bringing forward these proposals and educating the bureaucracy about them because they will have to deal with whoever comes into power," he says. "We're also talking to all parties about them."

WPPI weaknesses

At the same time as seeking more money for WPPI, the wind industry is wrangling with Natural Resources Canada (NRCan), the government department that administers the program, over proposed changes to its structure. Among other rule changes, NRCan proposes a capacity factor cap of 30% on WPPI payments. Under the current program rules, a developer signs a contribution agreement with NRCan based on a project's expected production over the first ten years, when the incentive payment of C$0.01/kWh is made. The problem, says NRCan's Jimmy Royer, is that actual production at the 14 wind farms commissioned under WPPI so far is about 20% below those projections. But NRCan has set aside funding to cover the higher capacity factor estimates and if the trend continues, says Royer, C$53 million out of the C$255 million in the original WPPI budget will not be spent.

As a result, NRCan wants to set a capacity factor cap on incentive payments when it distributes the C$920 million added to WPPI in the 2005 federal budget. "If we limit it at 30% we're sure every project will reach that level and all of the funds will be allocated," says Royer.

But CanWEA's Hornung says placing limits on incentive payments discriminates against projects and provinces with better wind regimes. "It provides absolutely the wrong signal to developers about where they should go and start building wind projects." At the same time, he says, the industry has no interest in seeing funds lapse. A better solution would be to set out a process to review a project's performance and, if necessary, renegotiate the WPPI contribution.

A second proposed change that has stirred controversy is the program's repayment clause, which is designed to ensure WPPI is not supporting projects that generate what the discussion paper describes as "excessive revenue." The proposal sets the revenue threshold at C$0.10/kWh, including the WPPI payment and any revenue from the sale of environmental attributes. If revenues rise beyond that limit, WPPI payments may be stopped and developers may even have pay back part of what they received. The plan, says Hornung, is "an absolute non-starter." The proposed limit could exclude small scale projects from WPPI and, with recent cost increases, even some large scale projects, he says.

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