Building boom draws in global players

CANADA: Strong growth and proactive provincial policies are raising Canada's profile in the North American wind-energy market, but the country presents unique challenges to companies looking to gain a foothold.

New business: Nanaimo Port started handling turbine components in June for the 99MW Cape Scott wind farm on Vancouver Island, British Columbia
New business: Nanaimo Port started handling turbine components in June for the 99MW Cape Scott wind farm on Vancouver Island, British Columbia

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The Canadian wind sector is experiencing aggressive growth that is outperforming global installation rates, said a report published in April by accounting firm Ernst & Young. Between 2005 and 2015, it says, Canada is expected to see a five-year rolling compound annual growth rate averaging 38%, compared to a global average of 24% over the same period.

New build is expected to reach a record 1.5-1.7GW this year and to top 2GW over the next two to three years, says Dan Shreve, a director at Make Consulting. The maturation of the Canadian market coincides

with a projected slowdown in the US, driven by a combination of uncertainty over the future of the production tax credit, low natural gas and power prices, and little demand for new renewable-energy supply.

As a result, adds Shreve, Make expects Canada to account for 27% of new installations in the Americas in 2016, up from just 9% in 2009.

These numbers are attracting firms looking for new avenues for growth. Developer EDP Renewables North America entered the Canadian market in 2010 through the acquisition of a modest set of development assets in Ontario, says Andrew Young, executive vice-president for the western region and Canada.

The compound challenges facing the US have encouraged EDP to spend a lot more time exploring prospects north of the border, says Young. "It's intensified our interest," he adds. "We're certainly not alone in looking for opportunities in Canada."

Florida-based NextEra Energy Resources has made Ontario central to its growth plans over the next two years, with 593MW of projects in line for construction. California-based Pattern Energy is moving forward with 870MW of wind, expected online in 2014, as part of a Samsung-led consortium with plans for 2GW in Ontario. EDF EN Canada is poised to become one of the largest wind-energy owners in the country with more than 1GW of capacity headed for construction in Quebec.

The increased attention on Canada, however, is not confined to companies active in the US. "We've seen a number of, in particular, Asian companies having an interest (in Canada)," says Stephen Lewis, senior vice-president at Ernst & Young.

Unusual market

Part of that interest may be attributed to the slowdown in the US, says Lewis, but there are other factors at play as well. Chief among them is the fact that Canada has held its own economically in comparison with other G7 countries. "Our economy is growing, which is obviously positive. And we have capital markets that are functioning and they are deep, so there is really no great challenge to raise hundreds of millions of dollars in project financing in Canada," he says. "You can't necessarily say that about a lot of other markets."

The clearest opportunity for companies looking to Canada for new growth opportunities is in the services side of the business, from transportation through to engineering and construction. "There is going to be a lot of building going on in Canada in the next few years, and there are going to be some very significant opportunities related to that," says Robert Hornung, president of the Canadian Wind Energy Association.

The path forward for developers is not quite so obvious, however. Most of the coming expansion of Canada's wind market is the result of procurement processes going back years in some cases. Opportunities to develop a completely new project and win a new power purchase agreement are actually quite limited.

While Ontario has committed to buying the power to meet its 10.7GW renewable energy target by 2018, which should include about 7.5GW of wind, there are thousands of megawatts of projects already under contract, with more waiting in the wings. "The Ontario market is very competitive. There are a lot of developers that have been prospecting there for years," says Matthew Kaplan, associate director at IHS Emerging Energy Research.

Growth in the east

Interest among investors in the Quebec market has picked up in the last 12 months or so, says Ernst & Young's Lewis, and with the province's recently announced plan to buy another 700MW in its effort to meet its target of 4GW of wind on its system by 2015 it is likely to continue. "It wouldn't be surprising to see more US independent power producers at least look at Quebec for this coming tender, because it is one of the largest renewables tenders right now on the continent," says Kaplan. But for developers not already active there, he adds, the very local nature of development in the French-speaking province can be a barrier. "There is still opportunity in Canada, although I would say it is not necessarily a lot of new opportunity."

Companies entering the market are looking to do it through acquisitions, says Lewis. "Where we see the foreign companies having a particular interest is in projects that are in what I would call development stage. What I mean by that is they have a feed-in tariff contract in Ontario or perhaps a power purchase agreement in Quebec or BC, but the developer is not able, for a variety of reasons, to push it forward into the construction phase," he explains. "That's where we've been spending a lot of time with clients, buying projects that are about to go into that construction phase."

EDP is pursuing a similar strategy, says Young, looking to use its experience and balance sheet by either acquiring projects or partnering in them. "There's a place for us in the value chain to put projects in the ground," he says. EDP's interest is currently centred on Ontario and Quebec, adds Young.

While Alberta - Canada's third-largest wind market - is one of the few jurisdictions in North America where electricity demand is forecast to grow at a healthy rate, the province's competitive wholesale market structure means there are few power purchase agreements available to wind developers. At the same time, spot prices have been driven down by low natural gas prices. "I think there may be some companies that hang on to their projects in the hope that gas prices will shift and the market conditions will change a bit, although right now it doesn't look like a huge opportunity," says Kaplan.

Wild card

Electricity demand is growing in British Columbia too, and the government-owned utility's draft integrated resource plan includes the possibility of acquiring up to 2,000 gigawatt hours from clean-energy projects that would come into service in 2016-2018. But concerns over rising power prices and questions about the role of natural gas leave the province a bit of a wild card for wind. "The theme of BC has really been that there is a lot of promise but not a lot of action," says Kaplan. The provincial government's plan to build renewable energy for export has fallen by the wayside in the face of lower power prices and less demand in the US, as have similar strategies in Manitoba and Prince Edward Island.

Contracts recently awarded to three Nova Scotia wind projects totalling 116MW brings the grid to its current integration limit for large-scale wind, but Lewis says the province's community feed-in tariff programme is attracting investors to work with local co-operatives and First Nations on smaller projects. And as the most active markets of Ontario and Quebec approach their current targets, the longer-term outlook becomes cloudy.

Local content

But this could change in the coming months. Ontario has promised to examine its renewable-energy target next year and may increase it. Quebec has also scheduled a review of its energy strategy in 2013. Both provinces have used local content requirements to build a wind manufacturing base they could be looking to sustain, says Kaplan. "What is positive is the governments of Ontario and Quebec obviously value the job creation benefits they are getting from wind energy."

Alberta will have completed its consultation on an alternative and renewable energy strategy next year, which could help lower the barriers to wind development. With completion of utility BC Hydro's long-term integrated resource plan scheduled for the end of this year, 2013 should also bring a better understanding of where that market is headed.

The industry, says Hornung, will be pushing for wind in all these cases: "The sustainability of wind energy in Canada is going to be influenced enormously by what happens in these discussions over the next year."

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