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Canada

Government invites bids for huge volume of wind -- Quebec seeks 2000 MW on condition of major benefits to local economy

The wind industry is being given nearly 18 months to rise to the challenge of providing 2000 MW of competitively priced wind generation for the Canadian province of Quebec while at the same time meeting the provincial government's demand for maximum economic spin-offs for its citizens.

In an 89-page bid document, released October 31, government utility Hydro-Quebec Distribution sets out a multi-year delivery schedule for the power, with the first 300 MW to be installed by December 1, 2009, followed by 400 MW in 2010, another 400 MW in 2011, 450 MW in 2012 and the final 450 MW in 2013. Project developers must team with a turbine manufacturer to meet the call's demands for locally made equipment. They have until April 17, 2007 to submit their bids.

Gilles Côté, manager of energy procurement for Hydro-Quebec Distribution, says the utility is hoping to duplicate the success of Quebec's 2003 call for wind generation, which eventually led to the purchase, in October 2004, of 990 MW at an unexpectedly low average price of C$0.065/kWh. "We feel the first call for tender was a success because we gave people time to prepare. We intend to give people time to prepare as well with this one," says Côté.

The timeline, he continues, will give developers a chance to monitor the wind resource on sites over two winters, a time of high production in Canada. It will also give turbine manufacturers the time to build up partnerships in Quebec and examine their alternatives for meeting the content requirements. "We are trying to attract first class developers and first class equipment suppliers," he says.

Restrictions

Most industry stakeholders consulted by Hydro-Quebec preferred an extended deadline, said Côté, a view that is not surprising considering the complexity of the bidding process. The tender requires that 30% of turbine manufacturing costs be incurred in the regional municipality of Matane or the administrative region of Gaspésie-Iles-de-la-Madeleine and 60% of the entire project cost must be spent within the province of Quebec.

The Gaspé restrictions on imported content are designed to consolidate the region's fledgling wind turbine component manufacturing sector, the creation of which was spurred by Hydro-Quebec's 2003 call for wind. It set minimum local content levels starting at 40% and increasing to 60% over the seven years, from 2006 and 2012, the winning projects will be installed.

The industry has warned that the additional requirements for regional sourcing of components laid out in this latest call will be difficult to meet, will push up costs and could discourage manufacturers from participating if they do not already have a presence in the region. GE Energy was selected during the first call to provide turbines to all the winning projects. Component suppliers contracted by GE's wind division, based in the US, have since set up four factories in Quebec to produce blades, towers and nacelle shells and to assemble nacelles.

"In order to get a good price we need competition by turbine manufacturers," says Gilles Lefrançois of Cartier Wind Energy, which won purchase contracts for six projects totalling 740 MW in Quebec's first 1000 MW call for proposals. "We are very happy with GE, but we don't want GE to become a monopoly. What we need is to make sure other manufacturers are interested, at least to bid."

Côté believes that with 2000 MW of orders at stake, they will be. "I know there are concerns we may not be able to attract equipment manufacturers. I had this concern about a month ago. But I would say in recent weeks we've felt at Hydro-Quebec a change in the market. There is certainly more interest than there was a month, two months, three months ago."

The energy ministry's René Paquette is also confident: "I think 2000 MW is big business. I think we will be able to have four or five manufacturers participate and we will have a competitive price."

Component specific

The tender offers extra credit towards meeting the local content requirements if turbine makers manufacture high technology components, either gearboxes or generators, in Quebec. The value of those components is bumped to 200% when manufactured in the Gaspé and 150% when built elsewhere in the province. "This is meant to give manufacturers some flexibility in meeting the requirements," says Côté.

GE's Simon Olivier, however, says it will be "very challenging" for gearbox and generator manufacturers to set up shop in the Gaspé because of a lack of existing infrastructure and local expertise. "You are not talking about assembly, you are talking about manufacture and that requires not only infrastructure, but very expensive capital expenditures in the region."

The request for proposals (RFP) also gives manufacturers an opportunity to meet part of the local content obligation by exporting components made in the Gaspé to other markets. In an order-in-council laying out the terms and conditions for the 2000 MW call, the Quebec government emphasises projects must contribute to the "economic development of local and aboriginal communities," a requirement that has become part of the evaluation process. Bidders will receive points if their projects have at least 10% equity participation by municipalities or First Nations communities or if they can demonstrate that local elected representatives "unconditionally support" the project. Payments to landowners and communities will also be taken into account.

One potential complication for developers was eliminated just days before the RFP was released. In setting out the original terms and conditions for the call, the Quebec government, in what one developer describes as a "wicked twist," reserved the right to take over the wind farms, at no cost, at the end of the contract period. But the government eventually backed off the provision in the face of strong opposition from the wind industry, which complained it would not only make negotiations with landowners more difficult, but also increase financing costs, since developers could not count on having any residual value associated with a project site once its power purchase agreement expired. "It is really a problem we did not need at all," Lefrançois says.

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