Low interest rates, a strong dollar, solid revenue contracts and falling turbine prices have helped bolster returns. Expectations of double-digit growth as thousands of megawatts of contracted wind projects enter construction have also attracted investor attention, especially in light of European economic uncertainty, political risk in the US, and a slowdown in China.
"Just to hear the growth story here is good, because there is a real premium on growth these days," Derek Burleton, vice-president and deputy chief economist of TD Bank Financial Group, told a financing luncheon during the Canadian Wind Energy Association conference in Toronto. "Growth is hard to come by if you look at the global landscape."
Another driver of activity is the fact that corporations have money to invest. Since the financial crisis, companies have been building up cash on their balance sheets. "Corporate balance sheets are in great shape in this region, and you could argue they are in the United States as well," said Burleton.
Companies are looking to deploy that capital and, experts agree, the wind sector is a good option. "Renewable assets are seen as an attractive long-term investment by Canadian and foreign investors," said Alexandra Iliopoulos, a partner in the law firm Cassels Brock. "Foreign companies are making investments in Canada and continue to do so, and Canadian companies are having success growing though acquisitions."
Challenges remain
However, financing challenges remain in the Canadian market, conference delegates heard. Wind companies looking to raise equity in the capital markets have some hurdles to clear. A solid power purchase agreement and a decent management team used to be enough, said Steve Winokur, a managing director at Canaccord Genuity, Canada's largest investment bank. "I think that's changed over the last two years," said Winkur. "It's become almost impossible to raise public equity for companies that don't have operating assets."
If ongoing issues, particularly in Ontario, around things such as a protracted permitting process and anti-wind sentiment start to impede the ability of companies to grow, added Winkour, that could affect their valuations and their ability to raise capital.
The debt side of the market is healthy, said Cam DiGiorgio, vice-president of structured and project management at Stonebridge Capital. "There is substantial capital available in various forms," he added.
Risks around emerging issues such as curtailment of wind energy in Ontario are a concern for lenders, however. The biggest problem when it comes to curtailment is the current uncertainty over whether producers will be fully compensated for lost income, said Stephen Furlan, a partner in the law firm McCarthy Tetrault.
"Until that anxiety is relieved, I think there is a bit of chill," he said.
Ontario's domestic content requirement is also an issue, given the province does not make a ruling on whether it has been met until the money is spent and the project is operating. That concern will likely ease as more projects successfully navigate the process, said Antony Lawrence, managing director of the infrastructure finance group at National Bank Financial.
