Moving into the mainstream

A 46% increase in delegates, coming on the heels of some major wind purchase and policy announcements made October's Canadian Wind Energy Association conference one of the most energetic in its 20-year history. But the industry still faces multiple challenges in its drive to realise the multiple benefits that developing Canada's vast wind resource can bring

Riding the crest of Hydro-Quebec's announcement of a massive wind purchase and a federal government pledge to quadruple the target of its wind power production incentive (WPPI), the record 681 delegates attending the Canadian Wind Energy Association's October 17-20 conference in Montreal had a lot more to celebrate than just CanWEA's 20th anniversary. With a growth rate hitting 36% in 2004 and unprecedented political and utility interest feeding predictions of thousands of new wind megawatts in the years to come, the mood during the conference's intensive three-track schedule and throughout the crowded exhibition rooms was one of optimism, even excitement. Canada's wind market, participants agreed, is on the move.

"Wind energy is moving mainstream," CanWEA president Robert Hornung told delegates during the conference's opening session, an audience that included the federal environment and natural resources ministers as well as energy ministers from three provinces. "It is not simply going to fill a small environmental niche in electricity production. It can make a substantial contribution to electricity supply. It can bring industrial development and economic growth to Canada. We still have some steps to do to complete the supportive policy framework, but we are heading the right direction."

Nowhere was that more evident than in the conference sessions examining wind's policy progress at the provincial level. Renewable energy targets, many specifying wind and most backed by legislation or requests for proposals, are being set in nearly all jurisdictions. "If you add all these initiatives together and look at what that means to Canada's wind energy capacity, if all governments proceed with what they are talking about, we're looking at 5000 MW of wind energy capacity in Canada by 2012, a more than ten-fold increase in the current size of the industry," said Hornung.

By the end of the conference's first day, that estimate already needed updating. Manitoba's former energy minister Tim Sale, who was shuffled to the health portfolio just days before the conference started, announced his government's plans for the development of 1000 MW of wind. Although the province's Energy Development Initiative sets a timeline of ten years, Sale believes the wind power can come online well before that. "I would say the next short decade, perhaps a five year decade."

projects in the pipeline

Manitoba, which has a 5500 MW electricity system dominated by large hydro and which exports nearly half of the power it generates, currently has no installed wind capacity. But the official announcement of its first project, a 99 MW development in the province's windy, and grid-accessible southwest, is expected within weeks. And with two more projects in the development pipeline, private sector wind resource monitoring underway at 25 sites and Manitoba Hydro, the province's government owned monopoly utility, undertaking its own wind measurement program, Sale is confident the target will be met.

"We know there may be some technical challenges to integrating that much wind into a 5500 MW base, but we think because of the nature of the hydro reserve we can push a long way into this before we reach too many serious obstacles." In fact, said Sale, the complementary relationship between hydro and wind goes beyond the ability to store and shape wind's output using reservoir capacity. "We had a heck of a drought two years ago and it would have been nice to have 400 or 500 MW of wind because we were paying ten or eleven cents for power that we could have made a lot cheaper if we had our wind farms up at that time. So it is also not just something for export. It is something that provides us with more energy security."

Next door in Saskatchewan, construction of the 150 MW Rushlake Creek project, scheduled to be online by the end of next year, will push wind's penetration to slightly more than 5% of the province's 3500 MW of mostly coal and gas fired capacity. SaskPower, the government-owned monopoly utility, recently issued a request for proposals (RFP) for a systems study to determine just how much more wind capacity is possible without putting security of supply at risk.

"Wind has its role in any system," says SaskPower's Ted Quade. "It represents a zero-emissions source of energy and if you have a system like SaskPower's where there is a fair amount of fossil fuel on the margin, it acts as a gas hedge and a CO2 offset."

Like most North American utilities, said Quade, SaskPower is facing the retirement of a significant amount of capacity built during an explosion of power plant development that occurred shortly after the Second World War. "We've got something like 800 MW that is going to have to be replaced with something else, and the decisions to do that are going to have to come along fairly quickly."

Among the options out there, wind is one of the easier technologies "to get through the licensing, permitting, engineering, final dollar and building process," Quade told delegates. "So to the extent the system can take on wind, it is probably one of the ways to alleviate some of your short term anxieties around resources."

Building an industry

While Quebec is facing a tight supply and demand balance, its strategy for wind also goes beyond the energy it supplies. The energy ministry's Richard Boucher said the province sees a "window of opportunity" to become the first jurisdiction in North America to build an industry around its wind resource. It imposed strict local content requirements on the recently announced winners of 990 MW in contracts with government owned Hydro-Quebec (Windpower Monthly, November 2004). A second planned 1000 MW wind power RFP will build on that objective, said Boucher. "We want to be leaders for the long term."

The prospect of bringing even more industrial development to Canada via the wind is an opportunity that should not be ignored, said Simon Olivier, manager of GE Energy's Canadian wind power operations. "The potential is great and should be taken very seriously. We're talking about a multibillion industry going forward."

Earlier this year, the Canadian government launched a study to assess the country's manufacturing and service opportunities related to wind energy. Consultant Helge Wittholz, who conducted the research, told delegates that, right now, 65-70% of the economic benefits related to wind power development leave Canada. "If you want to say it bluntly, the taxpayer's money that is used to pay for the WPPI creates, at the moment, jobs in Germany and Denmark and the United States, and I guess that has to change," he said.

While creating a market for wind is key to reversing that trend, he said, it will not automatically create manufacturing activity on large scale. "I strongly recommend we prepare a strategic plan to maximize benefits for the Canadian economy." Wittholz believes a target of 60% Canadian content is possible -- and enough to create a wind industry generating C$1.67 billion in annual revenues and employing 21,000 people by 2012. Canada can get there, he said, by focusing on components, like blades and towers, that are expensive to ship, building on existing capabilities in areas like advanced power electronics, and attracting investment with measures like government tax incentives, technology transfer funding and training assistance.

The bigger view

Konrad Mauch of Vancouver-based Xantrex Technology, whose sale of wind converters accounted for about one-fifth of its US$136.6 million in revenues last year, said government needs to get involved, as it did in creating Canada's automotive and aerospace industries. "It is not enough to say we want a market. You also have to say we want an industry and set up policy to achieve that." On the other side of the equation, he said, turbine manufacturers are looking for opportunities to grow. "If a country has a will and a vision and says we want local content, they'll find a way to make it happen."

At the same time, warned GE's Olivier, it is important that local economic development goals do not spread the industry too thin. "If everyone starts working in their own areas or provinces to bring local content to start a local manufacturing industry, what is going to happen is that it is going to diffuse the potential economies of scale and potential competitiveness of the wind industry. We're not talking about competing among ourselves within Canada. We're talking about competing in a global market."

Doug Duimering of Vestas pointed out that while a large purchase like Quebec's can provide a baseload for manufacturing, it has to be part of broader plan. A plant manufacturing the company's new 3 MW turbine, he said, would have to produce at least 150 units a year to be economic. "So to make an investment like that we are talking about a very big market. It is good to have that perspective. To make something profitable you need adjacent markets and you need also the long term view of stability."

Although the federal plan to increase the WPPI budget to support development of 4000 MW of new wind capacity is a "solid first step" to providing that stability, said Hornung, how well the program dovetails with provincial plans, other federal initiatives and the challenges faced by a growing industry will help determine its effectiveness.

One of those details is the incentive level. Right now, WPPI pays wind producers C$0.01/kWh for the first ten years of a project's life. But that payment is scheduled to drop to C$0.008/kWh in 2006. Natural Resources Canada officials have also suggested they want to discuss new rules for the expanded program. Among these may be adoption of a sliding scale that would pay a lower incentive for projects in higher wind speed sites or set a capacity factor cap on payments.

Both Hornung and Vision Quest Windelectric's Jason Edworthy were adamant that the incentive has to stay where it is now. "It is important to understand that in Canada at this time this business has razor thin margins and our costs are actually going up. As well, our challenges are increasing," said Edworthy.

As wind farms multiply in size and number, developers are facing new issues and costs in meeting changing interconnection requirements, accessing transmission and shepherding projects through environmental assessment and permitting. Mitigation of those costs will only come as grid operators and permitting agencies gain experience in wind, said Edworthy. "We have to continue to mature this industry, and the next five years are absolutely critical."

CanWEA's call to extend the WPPI deadline from 2007 to 2010 would cover those five years and make it a better fit with emerging provincial programs, said Hornung. But some even more fundamental changes in government thinking about the way it supports wind are needed, he said.

Finance tool

A case in point is the Canadian Conservation and Renewable Expense (CRCE) program, which allows developers to write-off certain pre-construction expenses, including the installation of wind test turbines that can account for as much as 20% of a project's capacity. Because they can also flow-through those deductions to investors, the program is becoming an increasingly significant tool for accessing financing at a project's start-up phase. Recently, several funds have emerged that pool capital by offering wind power flow-through share issues to retail investors.

"In the past year or so we have been seeing more advanced flow-through share structures. Obviously there is borrowing going on from the experience of the oil and gas and mining sectors and their use of flow through shares," said Finance Canada's James Green. The problem from the wind industry's perspective is that turbines built with CRCE are not eligible for WPPI payments. "We find that a little nonsensical. The two incentives are very different," said Hornung.

The latest draft of the greenhouse gas offsets trading system being developed for Canada's electricity sector also excludes projects receiving WPPI. The reason, says Environment Canada's Mike Beale, is that Ottawa has already counted the 2.8 megatonnes of reductions it expects to see from its investment in WPPI in its climate change plan. The industry, however, is quick to point out that producers own those credits and the revenue they generate is essential. "We need the value of those. We either have to have a mechanism to receive that value, or they are going to have to pay us for that value," said Edworthy.

The government's concern essentially boils down to an accounting issue, said Hornung. "We think accounting issues are not what should be the driving factor here. The driving factor should be what is the package of initiatives that can help move the industry forward," he argued. "We think all three of these mechanisms could form a very attractive package for the wind energy industry if they were allowed to work together, but at this point in time that is not the case."

Despite the growing pains, Canada's wind market is increasingly capturing the attention of industry players, new and established, at home and abroad. Garrad Hassan, a leading international wind consultancy based in Britain, is one, opening an office in Ottawa just two weeks before the conference started. "I've been working on Canadian projects since I've been with them in the UK," says the company's Marc LeBlanc. "But now we're feeling that the market is really moving forward. I'm planning to build a team here as well, so things are really looking positive."

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