Canada

Canada

Election result marks end of federal support

CANADA: Canada's federal incentive for wind-energy development has expired, and the results of last month's election - returning the governing Conservatives to power with a solid majority - leave little hope it will be renewed or replaced.

The government's fiscal year 2011-2012 budget, tabled but not passed before the election, contained no new money for the federal Ecoenergy for Renewable Power (ERP) programme, which pays a C$0.01/kWh production incentive for the first ten years of a project's life.

When finance minister Jim Flaherty reintroduces his spending plans, likely sometime this month, few expect to see a change of heart. "The Conservative government has fairly clearly expressed that it does not see itself playing a role through an incentive programme," says Robert Hornung, president of the Canadian Wind Energy Association (CANWEA).

No project developers are really considering the renewal of ERP as an option, according to Mark Porter, a senior associate at financial services firm Ernst & Young.

The Conservatives introduced ERP in 2007, building on a similar programme implemented by the previous Liberal government. Developers looking to tap into ERP's C$1.48 billion of funding had to have their projects up and running by the end of March 2011.

The rush to get projects in under the deadline helped drive what Hornung describes as the most dramatic quarter for wind installations Canada has seen, with nine projects totalling 580MW completed in six provinces in the first quarter of 2011. Although the final results have yet to be released, ERP more than met its goal of supporting the installation of 4GW of renewable-energy capacity, most of it wind. It also generated interest far beyond its budget, with at least 13GW of projects left in the queue when the programme ended.

The end of ERP is bound to have an impact on how investors view the Canadian market, says Hornung. "It sends a signal that questions the level of commitment to the development of renewable-energy technologies if the federal government is absent, particularly when contrasted with the role federal governments are playing in other parts of the world."

The lack of a federal driver will decrease Canada's attractiveness as an investment destination, agrees Porter: "Both from a political and economic point of view there is less support, so therefore there is less comfort." But because wind development in Canada is largely driven by provincial policy, the end of ERP is "not a showstopper" for the industry, he adds.

In fact, ERPs expiry coincides with a big ramp up in wind energy installations in Canada that will nearly triple the country's current installed capacity by 2015. Most of that growth will occur in Ontario and Quebec, whose efforts to bring more wind on to their systems is largely independent of the federal government.

But in other provinces, including some that are in the process of defining their long-term energy strategies, the lack of federal money to help reduce the cost of bringing new wind online could have significant implications.

Hornung says that while provinces are unlikely to abandon wind completely, they may be less ambitious in their plans than they might otherwise have been. "This is a critical time, because we have a number of jurisdictions right now that are really reflecting on what the path forward looks like," he adds.

Although direct incentives are no longer an option, there may be other mechanisms the federal government could use to support the sector, says Hornung. During the election campaign, prime minister Stephen Harper promised to provide a loan guarantee to the planned 800MW first phase of the Lower Churchill hydro megaproject in Labrador and give similar consideration to other green projects across the country. "That may mean there is some potential for infrastructure-related investments or something similar that could benefit wind," he says.

Ultimately, Hornung says, it will be up to industry to look at potential alternative ways that the federal government can play a role and push for them.

One way in which the government could make a big difference to the investment climate for wind is by putting a price on carbon, says Tim Weis, director of the renewable energy and efficiency programme at the Pembina Institute, a non-partisan sustainable energy think-tank. So far, the Conservatives have avoided concrete action on climate-change policy as they wait to see what strategy the US, as Canada's largest trading partner, adopts.

"The most important thing at this stage of the game for the federal government to be doing is creating some clarity around where the country is going," Weis says.

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