German wind turbine suppliers take Quebec -- Wind industry globalisation gets big boost with results of 2000 MW tender

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Two German wind turbine manufacturers will lead Quebec's most ambitious foray into wind power yet, supplying the equipment in a multi-billion dollar building program that will add 2004.5 MW of new capacity to the province's electricity grid at what Hydro-Quebec calls a "highly competitive" cost. The government-owned utility announced last month that it had selected 15 projects from 66 bids it received in response to a request for proposals (RFP) issued in October 2005.

The selected projects, to be built by eight different developers, will come on stream between 2011 and 2015. Enercon GmbH will supply 1050.5 MW of turbines to ten projects, while the remaining five projects, with a total capacity of 954 MW, will get their turbines from Repower Systems AG. Enercon, a private company owned by Alloys Wobben, supplied the fourth largest volume of turbines globally in 2007 of any manufacturer. In comparison, Repower, a publicly traded company controlled by India's Suzlon, did not figure in the top ten suppliers. Until now, neither company has had a significant presence in the North American market.

The projects selected by Hydro-Quebec will require capital outlays of an estimated C$5.5 billion, including C$1.1 billion for transmission infrastructure required to connect the new wind capacity. "We're very satisfied with the outcome," says Hydro-Quebec CEO Thierry Vandal. "It ensures a supply of renewable energy at a highly competitive cost for wind power."

Hydro-Quebec will pay wind farm owners an average C$0.087/kWh for the energy. It expects that the cost of transmission will add another C$0.013/kWh to the bill and that the increased system management cost from having to balance more variable supply with demand will add an estimated C$0.005/kWh. This balancing service will be supplied by Hydro-Quebec Production, the arm of the utility that manages the province's vast network of hydroelectric dams.

Economies of scale

Bidders in the RFP faced some strict local and regional content requirements that some observers warned would push up the price of the wind output at a time when costs in the industry are skyrocketing. But André Boulanger, president of Hydro-Quebec Distribution, believes the utility got a very good price. He credits that to the high level of competition in the RFP, which attracted bids offering a combined 7724 MW, and the economies of scale that come with such a large purchase. "I would say we are quite happy with the price we received. We had heard about other calls for tender elsewhere and the prices were close to or higher than that," he says.

The content requirements meant that bidders had to team with a turbine manufacturer prepared to guarantee they would be met. GE Energy, which won all the orders when Quebec followed a similar model to buy 990 MW of wind power in 2004, was in the running. So were AAER Inc and EKUA, two Quebec-based companies with plans to begin manufacturing in the province. AAER has technology licensing agreements with German wind turbine maker Fuhrländer and Austrian Windtec, while EKUA has an agreement to make a 1 MW turbine developed by one-time Dutch company Lagerwey. But Enercon and Repower won the day.

"The suppliers are well known in the wind industry and I think this is going to ensure good wind farms with stable production, so this is good for Hydro-Quebec and its customers," says Boulanger. Enercon, which became market leader in Canada last year when it supplied 169 MW, was attracted by the utility's approach, says the company's Michael Weidemann. "What Quebec did right was that, together with offering such a market opportunity, it offered a very good time frame. Many tenders right now are asking for 200 MW or 300 MW within two years. That is hard these days," he says. "We can take our time to establish our facilities."

Local jobs

Enercon plans to open a factory to produce concrete towers, a first for North America, and another for the assembly of electrical components. Both will be in Matane, a port city located on the south shore of the St Lawrence River on the Gaspé Peninsula. It also plans to establish a large service unit in the province, along with its Canadian headquarters in Montreal. In all, says Weidemann, Enercon expects to invest more than C$30 million in Quebec and create about 200 engineering, administrative, production and service jobs.

Locating manufacturing facilities in Matane will give Enercon access to markets in Atlantic Canada, Ontario and parts of Manitoba as well, says Weidemann. "The entire Quebec approach for Enercon is based on the idea of having exports. Exports for us means exports to Canada," he says. There are no plans to sell turbines into the US. "It's a pure business decision," says Weidemann. The US is a difficult environment, he explains, with a market driven by the notoriously uncertain production tax credit.

Repower, on the other hand, sees its Quebec presence as part of a broader continental strategy. "Facilities in Quebec are going to be an integral part of Repower's global supply chain and central in responding to our growing market share in the important North American market," says CEO Per Hornung Pedersen.

Repower plans to make turbine blades, towers and electrical converters in Quebec but, says the company's Daniela Puttenat, it is not yet prepared to release details on where the factories will be located, how many jobs will be created or how large the company's investment will be.

Winning developers

Repower worked exclusively with one developer in the bidding, a consortium led by France's EDF Energies Nouvelles, one of the turbine maker's key customers. EDF teamed up with Renewable Energy Systems (RES) Canada, part of the UK-based RES Group, and Hydroméga Services, a Quebec developer, to form St-Laurent Énergies, by far the biggest winner on the developer side. The partners will build five projects with a combined capacity of 954 MW and a total price tag of C$2 billion, including what will be the two biggest wind farms in Quebec at 300 MW and 350 MW, respectively.

Boralex Inc, a Quebec company with wind farms in France and hydro and thermal plants in Canada and the north-eastern US, is partnering with Gaz Métro, Quebec's natural gas utility, to build two wind projects with a total capacity of 271.9 MW. Their projects are located in a vast stretch of undeveloped forest owned by the Séminaire de Québec, just east of Quebec City.

Venterre, a joint venture that includes TCI Renewables Limited, a UK-based developer, and wind industry veteran Canadian Hydro Developers, a Calgary company that will build, own and operate the projects, was awarded contracts for two wind farms with a total capacity of 116 MW. Kruger Énergie, a division of the Montreal-based pulp and paper firm Kruger Inc, which is in the midst of building its first wind farm in Ontario, is the only other developer to win multiple contracts, with two projects totalling 168 MW.

The original developer of two existing wind projects in the province, Quebec company 3Ci Inc, won a contract for its 156 MW Des Moulins proposal. Invenergy, a major player in the US, takes its first solid step into the Canadian market by winning a contract for its 138.6 MW Le Plateau project. B&B VDK Holdings, a subsidiary of the Australian-based global wind power investor Babcock and Brown, was selected for a 100 MW project in the Lower St Lawrence region, a contract that comes at a time when it is negotiating with Manitoba Hydro to build a 300 MW project in that province. Adam Macdonald, the company's head of energy development in Canada, says Babcock and Brown's entry into the Canadian market helps diversify its wind portfolio, not only geographically but also in terms of tariff structure. "The Canadian market is principally an RFP market and therefore it is an attractive offtake option," he says.

Spanish veteran wind developer Enerfin Sociedad de Energia SA, with more than 700 MW of installed wind capacity in its home market and another 150 MW in Brazil, will build a 100 MW project southwest of Quebec City. General manager Guillermo Planas says the contract gives the company a foothold in North America, where it sees opportunities for further growth. "We have been thoroughly studying the Canadian market since 2006 and we are currently analysing other projects that we hope to accomplish soon, as well as other opportunities in the USA," he says.

Veterans hold back

None of the companies chosen in Hydro-Quebec's first major RFP, in 2004, were among the winners in this latest call. All three of the 2004 bidders, however, competed in the most recent RFP.

Hydro-Quebec Distribution will draw up power purchase contracts with the project proponents over the next few months, which must then be submitted to the province's energy board for approval. Boulanger says winning a contract is only the first step for developers in a province where government and industry have been facing mounting pressure from some groups questioning the pace and intensity of wind project development, and from some municipalities demanding a chance to profit from turbines installed in their territories.

"Generally speaking, I think the social acceptability of the projects is pretty good. It is not perfect, but that is something the promoters will have to deal with," says Boulanger. "But I am pretty optimistic about that."

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