Energy minister George Smitherman has issued a directive to the Ontario Power Authority (OPA) asking it to hold in reserve enough transmission capacity in the south-western part of the province to support renewable energy generating facilities whose proponent, Samsung, has signed a province-wide framework agreement with the government. It specifies that 240 MW of capacity in Haldimand County and 260 MW in Essex County and the municipality of Chatham-Kent be reserved. Both counties are on the north shore of Lake Erie.
Energy ministry spokesperson Amy Tang says that the province has been working on the deal with Samsung C&T Corporation that would see the South Korean industrial giant invest C$7 billion in wind and solar manufacturing and project development in Ontario.
Green economy boost
"A legally binding framework agreement already signed with this globally recognised company will help kick start a sector of Ontario's green economy and will further Ontario's position as North America's leader in green energy," Tang says. "It will also lead to the creation of over 15,000 direct and indirect jobs." Although not formally announced, Samsung's plans reportedly include building 500 MW of wind power capacity along the north shore of Lake Erie.
Taking 500 MW out of the transmission equation will mean that some developers who might have expected to win a contract in the initial round of legislated purchase prices will be bumped down the priority list for grid connection. The issue is particularly acute in Essex County and Chatham-Kent, where there is limited grid capacity and a number of wind projects under development, says Tim Stephure, an analyst with Massachusetts-based Emerging Energy Research (EER). "That is highly desirable transmission capacity there," he says.
Smitherman's transmission order was issued just six days after the rules for the mandated power purchase prices were released. The OPA set a launch window for the initial round of contract applications that opened October 1 and closed November 30, a strategy designed to make sure that the most advanced projects get priority access to available grid capacity.
"It is kind of ominous that they went and announced something outside those rules," says Stephure. "People don't really know what to expect now because the province is giving preferential treatment to some players who are willing to make large investments."
Robert Hornung, president of the Canadian Wind Energy Association (Canwea), says that Smitherman's directive took the industry by surprise. "We do feel that reserving transmission in that way is inconsistent with the spirit of the feed-in tariff program, which is meant to provide open access to all," he says of the province's fixed price mechanism.
Canwea, says Hornung, has informed the province of its concerns, which have been echoed by both the Association of Power Producers of Ontario and the Canadian Solar Industries Association. The industry has also provided information on development in the areas covered by the directive to indicate there are a number of projects that are ready to go and that would be affected.
But Tang offers assurances that Ontario's current transmission capability "allows for billions to be invested beyond those investments contemplated by Samsung". She also points out that the province has ordered government-owned Hydro One, which operates 97% of Ontario's grid, to jump-start planning for 20 transmission projects that will enable connection of renewable energy facilities.
Samsung's desire to be a project developer makes sense as part of a strategy to break into the wind turbine market as an original equipment manufacturer (OEM), says Stephure. The company announced earlier this year that it plans to begin serial manufacturing of a 2.5 MW turbine in 2011 (Windpower Monthly, July 2009).
"The difficult thing about being a new OEM in this market is financiers really need to see an operational track record," says Stephure. "Samsung, although having a lot of industrial might behind it, has no track record as a wind OEM. So the easiest way for those guys to develop that track record and really prove that technology is to develop a project themselves."
Stephure says that a main goal of the Ontario government's new renewable energy policy is job creation, something that a deal with Samsung provides. "From a political perspective it's maybe even more important than the power part," says Stephure. "It goes to show the Ontario government is serious about bringing supply chain and component manufacturing to Ontario, and that they are willing to make some pretty large concessions for anyone who is willing to sign one of these big agreements."
As part of its push for new employment, the province has set domestic content regulations for contracts under the mandated purchase price requiring 25% of wind project costs be spent on Ontario goods and labour, increasing to 50% in 2012. To meet the targets, says Stephure, it is going to have to bring more manufacturers than Samsung on board.
Byeonghoon Min, spokesman for Samsung C&T, would not comment on the company's Ontario plans while talks with the province continue.