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Canada

Canada

Canada happily takes stock of biggest year -- Dip expected in 2007

Canada's wind power industry experienced unprecedented growth in 2006, more than doubling the country's installed capacity with completion of 21 projects in six provinces. Developers put up 775 MW of new hardware to bring Canada's total to nearly 1460 MW. "It was obviously a tremendous breakthrough year," says Robert Hornung, president of the Canadian Wind Energy Association (CanWEA). "It was a year where we moved to a level, a much higher level, of productivity that we think we can sustain going forward. It is, I think, a true indicator of the kind of potential Canada has over the next few years."

Ontario made the largest leap forward, starting the year with 15 MW and ending with 414 MW. Quebec's 109.5 MW Baie-des-Sables project came online, the first of eight selected in late 2004 as part of the province's first major purchase of wind power. Alberta lost its top spot among the provinces, but still added three projects totalling 109.5 MW. Nova Scotia also added 13.4 MW at eight sites. Manitoba completed its first wind project, while Saskatchewan finished installing its largest (table).

GE Energy turbines were used in about 73% of all Canadian installations last year, while Vestas, which has led the market until now, supplied about 25%. The majors found themselves facing some home grown competition too. AAER Systems, which holds the North American license for German Fuhrländer-Pfleiderer technology, announced its first sale of Quebec-made turbines. The company is to open a nacelle assembly and blade manufacturing plant near Montreal this year. Another Canadian competitor, Toronto-based Americas Wind Energy, completed installation of two of its 900 kW turbines in Nova Scotia. The turbine was developed by Dutch company Lagerwey, the supplier of a ubiquitous 75 kW turbine in continental Europe in the early 1990s.

The diversity that has so far characterised Canada's wind market also continued in 2006, with projects ranging in size from a single 600 kW turbine providing power to an Ontario greenhouse to a 189 MW wind farm that is currently the largest in Canada. Equally diverse were the types of developers and owners involved in projects, including a government-owned utility, long-established oil and gas companies, upstart developers, veteran wind producers, tax-advantaged partnerships and income funds. "It is an indication that wind energy can develop at multiple scales and modes in Canada," says Hornung.

Consolidation

At the same time, though, the industry is clearly on a path towards greater consolidation. "We have seen a number of smaller players purchased by larger players. In part that is fairly typical of the evolution of different sectors," says Hornung. But the dynamics of the industry have also played a role, he says. "It is a reflection of the very competitive processes through which wind energy is procured. It is a product of the difficulty in procuring turbine supplies, and it's a product of the need to find the best possible financing arrangements you can."

A growing foreign interest in the Canadian market is a big part of the move to consolidation. Airtricity, based in Ireland, bought Toronto developer Gale Force Energy, the UK's Renewable Energy Generation Limited acquired Toronto's AIM PowerGen Corporation and Germany's HSH Nordbank AG took an undisclosed minority stake in SkyPower Corporation, also based in Toronto. The trend continued into 2007 with the January announcement that Deutsche Bank AG, an international investment bank with headquarters in Germany, had formed a joint venture with Katabatic Power in British Columbia (BC) to develop a site with 3000 MW of potential on Banks Island in north-western BC.

Some of the biggest players in the US market, including FPL Energy, PPM Energy and Invenergy Wind LLC, began taking a serious look at opportunities north of the border last year. On the flip side, Canadian companies started to more aggressively explore markets in the US. Toronto's Ventus Energy began construction of a 99 MW project in Prince Edward Island that will sell most of its output into the New England Power Pool and most of its environmental attributes into the Massachusetts market for renewable energy certificates, while Manitoba Hydro used its hydro base to shape a premium-priced wind product for its US customers.

Confidence

For investors both inside and outside Canada, 2006 was a year that threatened to erode confidence in what had been seen a relatively stable market. The new Conservative government, elected early in the year, froze funding for a promised expansion of the federal wind power production incentive, leaving the industry in limbo for nine months. "The new government always indicated it would be looking at seeing how wind energy could fit going forward, so we weren't in a situation where there was a categorical rejection. But nonetheless uncertainty is problematic," says Hornung, shuddering at the spectre of Canada repeating the infamous on-again, off-again pattern of wind market support in the US.

The Conservatives restored the C$0.01/kWh incentive early in 2007, providing federal policy stability for the next four years. What is now needed are "firmer targets and clearer paths" at the provincial level, says Hornung. The provinces have announced targets and tenders totalling close to 10,000 MW by 2015, enough to meet about 4% of electricity demand. But few have roadmaps to get there and fewer still have cemented their goals in legislation or regulation. "We really need to encourage these jurisdictions to put their money where their mouth is. Put these goals into something firm so the next government can't erase it, so we can make investments and move forward," says TransAlta's Jason Edworthy.

The only three provinces without utility-scale wind on their grid took steps to change that in 2006. Newfoundland and Labrador Hydro and BC Hydro signed power purchase agreements for their first projects, while New Brunswick Power announced it would be offering contracts to multiple bidders to get its first 200 MW. "We're really in a situation where we can look forward to the fact that every province in Canada will have installed wind capacity," says Hornung. "When you think about even just five years ago, where you essentially had wind energy outposts in Quebec and Alberta and not really much else going on, it is a tremendous evolution."

The buying is continuing. Manitoba Hydro and Nova Scotia Power are to release new requests for proposals, bids in Hydro-Quebec's 2000 MW wind solicitation are due in May, and BC Hydro is preparing for an all-source call for power later in the year. Ventus Energy's 9 MW Norway Wind Park is under construction, the first to tap into Prince Edward Island's renewable energy feed-in tariff of C$0.0775/kWh. And the first contracts in Ontario's much-touted standard offer program, promising C$0.11/kWh for small-scale renewable energy projects up to 10 MW in size, will be awarded this year.

A slight pause

Despite the positive outlook, CanWEA expects growth to take a dip in 2007. "Our rough estimate at this time, and it's a conservative estimate, would be at least 500 MW in 2007, with the potential for it to be 50% higher than that, and with the expectation that 2008 would be a significantly bigger year," says Hornung.

One reason that 2007 installations may not match 2006 is simply the timing of the signing of contracts with various utilities. But another factor is that for some projects, approval timelines are taking longer than expected. "Because of that, some of what we might have expected for 2007 is moving into 2008," says Hornung.

The problem is particularly acute in Ontario, where one project was cancelled in 2006 because it could not get the necessary municipal permits in time to meet its delivery deadline, and two others faced significant delays after local residents asked the province to subject them to more stringent environmental reviews. Just weeks ago yet another Ontario project was put on hold because of what the developer described as "uncertainties about the timeline for certain future approval processes."

Challenges

In fact, the Canadian industry's strongest year was also its most challenging. In Quebec, developers faced calls for the nationalisation of the industry, demands for moratoriums on development while land use and other impacts are examined, local campaigns to place restrictions on projects, and claims by municipalities, who do not get tax revenue from wind facilities, to a greater share of the profits. In Alberta and Ontario, transmission bottlenecks are starting to throw up roadblocks to project development. As projects multiply, questions about the feasibility of integrating large amounts of wind power are being raised. "There is a fairly common perception in Canada now that you can go up to 10% penetration, but after that there is not such a consensus," says Hornung. "Clearly there is more work that needs to be done to provide system operators and utilities with the comfort they need to see that they can go beyond 10%."

For Hornung, it is all part of the evolution of the industry. "It is true that as the industry has grown and become more of a major player and as penetration levels increase and the number of projects increase, there are more challenges coming to the fore. That is a trend that is likely to continue as well. But on the positive side, none of the challenges that I think the industry faces are insurmountable. In a sense they are part of growing up. We have to work to address them and we have to work with others. But I think others are willing to work with us."

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