"During the next several years the US is going to build many, many thousands of megawatts of energy from renewables," McGuinty says. "Someone is going to have to supply that technology. That's where Ontario comes in."
The consortium, led by Samsung C&T and Korea Electric Power, will invest C$7 billion over six years to build 2GW of wind and 500MW of solar projects. It also plans to open four factories to manufacture turbine towers, blades and solar inverters, and to assemble solar modules - and encourage component suppliers to establish facilities in the province. If it brings its factories into service within a set time frame, it will receive a bonus from the provincial government that amounts to C$437 million over 25 years. The bonus is known as a economic development adder, and is payable on the generation from the wind and solar projects, which will already be receiving Ontario's feed-in tariff (FIT) rates of C$0.135/kWh for wind and C$0.443/kWh for solar.
"On average, the economic development adder works out to a 4% increment on current FIT prices," says energy ministry spokesman Amy Tang. McGuinty says the investment will act as an anchor in building green energy manufacturing base, stimulating jobs and exports much more quickly than if the sector was left to grow through some organic process.
Tim Stephure, an analyst with Massachusetts-based Emerging Energy Research (EER), agrees the province has to look beyond its borders to realise its goals. "In Ontario, as a market in and of itself, there isn't a massive opportunity for long-term growth, either from the supply chain or the development side," he says.
"There's just not enough growth in power demand, and there are a lot of conventional resources that are around there."
The province, says Stephure, has the infrastructure and manufacturing know-how to take advantage of the opportunity to supply the US. But it is coming into the game at a time when there is already a very aggressive and very crowded market south of the border. The US government, for example, recently awarded US$2.3 billion in clean energy manufacturing tax credits and is looking at investing US$5 billion more.
"That will be the interesting part of it because Samsung and Ontario are not the only deals that are happening," he says. "There's a huge incentive regime in place under the Obama administration in the US. So, does an Ontario facility exporting to the US compete effectively with the incentives that are already available there? And beyond those federal incentives we see a lot of state incentives as well."
The US also has the advantage of having a much more transparent programme when it comes to both manufacturing and project development incentives. The Ontario government revealed it was negotiating with Samsung just weeks after launching its FIT programme, which was designed to provide a predictable power procurement process, as well as drive manufacturing investment by setting domestic content requirements (Windpower Monthly, November 2009).
Stephure says that this shows a lack of confidence from the Ontario government that the parameters it set in its own programme would have the intended results.
The Samsung deal is bound to affect how investors look at the province in the future. With Samsung now playing such a dominant role, says Stephure, other turbine makers will have to ask just how big their opportunity is. If they do invest, he adds, they will be looking for their own special deals. As Stephure says: "That becomes a slippery slope very quickly."
The story is the same on the project development side. The deal reserves 500MW of scarce transmission capacity for the first 400MW of wind and 100MW of solar, which the consortium plans to have online by the first quarter of 2013. That circumvents the open and transparent process for allocating transmission that is part of the FIT program (Windpower Monthly, December 2009).
"With Samsung basically jumping the queue, it is hard to know what sort of chance you have to receive a FIT contract," says Stephure. "There is a limited amount of transmission capacity and a limited amount of appetite for the power. It makes the pie smaller for everybody else."
There are also questions about what will happen over the long term with transmission, adds Robert Hornung, president of the Canadian Wind Energy Association.
"The government appears to have made a commitment towards future reservation of transmission on future transmission lines. But we have no sense as to what lines they might be and when that might happen. That all creates uncertainty for investors," he says.
"We think it's going to be important for the government to come forward and clarify what the rules of the game are going to be."
One aspect of the deal that hasn't garnered a lot of attention is the participation of Pattern Energy Group, which took over Babcock & Brown's North American wind portfolio last summer. CEO Mike Garland is not ready to discuss details, but will say the company's role is as a developer and long-term investor. Pattern, he says, is actively developing several projects in the province.
Other members of the consortium are South Korea's Dongkuk Steel and Satcon Technology Corporation, a Boston-based manufacturer of power conversion systems.