Political inactionthreatens market -- Federal subsidy to lapse

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The Canadian government's failure to provide a much-needed cash infusion to its renewable energy production incentive program not only threatens wind projects on the drawing board today but also the long-term growth of the sector. Although the Conservative government tabled its 2009 budget promising billions in new spending and tax cuts designed to get the economy moving again, missing from the plan was renewed support for the government's ecoEnergy for Renewable Power (ERP) program, which provides a C$0.01/kWh incentive for the first ten years of a wind farm's production.

The ERP program started out in 2007 with C$1.48 billion and was scheduled to continue to March 2011, but the money is expected to run out before the end of this year. Prior to the government's budget announcement in late January, renewable energy and environmental groups were pushing for a C$2.8 billion expansion that would have extended the program to 2014 and supported deployment of another 8 GW of capacity. Canada has 2.3 GW of wind today.

There is little doubt the industry will suffer a slowdown without the incentive, says Robert Hornung, president of the Canadian Wind Energy Association (CanWEA). "There are a number of projects that are going to be built before 2011 that could reasonably have assumed ecoEnergy would be there and are now not going to get it. So for those, this will result in a change in project economics that could make them less competitive for capital and may even cause some projects to not be able to meet the hurdle rate investors are looking for," says Hornung.

Stability removed

"The broader impact is the fact that we do not now have a stable long-term policy framework at the federal level for wind in Canada." The government is backing off, he says, at the same time the United States has made wind power a key component of its economic stimulus plan. The gap is going to make it more difficult for Canada to compete for the wind industry's attention. CanWEA is now hoping to convince the government to provide "bridge funding" that will keep ERP going until its original end date, or at least the next federal budget, says Hornung.

I think it's potentially detrimental for Canada, says Andrew Flanagan from US developer Invenergy. He sees more investment diverting into the US than into Canada, where Invenergy is also active. "Obviously less investment in Canada would be a bad thing and along with that you'd have less competition, and competition is a good thing for the ratepayers, it's a good thing for the developers and I think it is unfortunate that something was not passed."

John Keating of Canadian Hydro Developers, a Calgary company that leads the country in wind operating capacity, says the decision does not make sense at a time when infrastructure spending is considered key to economic recovery and job creation. "The leverage from using a relatively small amount of federal funding under ecoEnergy, compared to the amount of investment dollars from the private sector that would generate, is massive," he says.

Shutting the door

The budget does set aside money for "clean energy" initiatives, including C$1 billion over five years for the research and demonstration (R&D) of "promising technologies, including large-scale carbon capture and storage projects" and a one-year C$351 million increase to Canada's nuclear energy program. But Keating calls carbon capture and storage an R&D project compared to the short term stimulus the economy would get from supporting shovel-ready renewable energy projects.

Tim Weis of the Pembina Institute, an environmental think tank, agrees. "I'd be surprised if anybody could build a nuclear power plant in ten years and with carbon capture and storage nobody has any idea when that technology will be available. So we're putting our faith and our money into technologies that can't deliver today," he says. "That's disappointing, because we know these wind energy projects not only provide environmental benefits, which is all good and well, but the fact of the matter is there is this huge investment that could happen today." The door is being shut on them, he says.

The budget also creates a C$1 billion Green Infrastructure Fund that it says could be used to help expand the transmission grid to connect sustainable energy projects. But Hornung has his doubts. "It is our understanding that the fund may also be used to support initiatives in the area of water treatment, public transit and other things," he says. "There will be a lot of competing demands for that money."

The budget's only specific mention of wind power comes in a discussion of expediting projects under the Building Canada Fund, which shares the cost of public infrastructure with provincial and municipal governments. One of the priority projects identified is a 12 MW wind plant being developed by the City of Summerside in Prince Edward Island.

One area where the budget could help is in a series of measures the government is taking to try to improve access to credit, says Keating. "Our hope is it improves to the point where corporate spreads return to some reasonable level. Right now, long term debt, when it's available, is prohibitively expensive."

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