Quebec calls for one thousand megawatt -- Fears that local content demands will discredit wind economics

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Hydro-Quebec has issued its long awaited request for proposals (RFP) for 1000 MW of wind power, but some observers are concerned that the strict local content requirements it contains could drive up the cost of the energy the utility eventually acquires. "I'm very glad to see it, in terms of the size, of course. It has been a long time coming," says Philippe Dunsky, executive director of Montreal's Helios Centre, a non-profit sustainable energy consultancy. "I do have a concern, however, that costs are going to be enormous because of these local content requirements and also because of the speed with which it all has to happen."

The 172-page bid document lays out a multi-year delivery schedule for the power. The utility wants the first 200 MW to be delivered by December 1, 2006, with 100 MW added the following year and 150 MW in each of the next four years. The final 100 MW must be online by December 1, 2012. The deadline for the submission of bids is June 15, 2004.

The provincial government, which owns Hydro-Quebec, has long made it clear that it sees the wind power industry as a way to create jobs and investment on the economically depressed Gaspé Peninsula, and its goals are reflected in the request for proposals. Not only must the wind projects be installed in the regional municipality of Matane or in the administrative region of Gaspésie-Iles-de-la-Madeleine, but the turbine nacelles must also be assembled there. As part of its bid, a developer will have to provide a statement from a turbine manufacturer guaranteeing it will set up assembly facilities in the region.

In addition, the RFP requires that 40% of the total project costs for the first 200 MW must be spent in the region, a proportion that rises to 50% for the next 100 MW and 60% for the remaining 700 MW.

Guy Painchaud, a Montreal-based consultant and past president of the Canadian Wind Energy Association, agrees that the restrictions may drive up costs in the short run. But the huge volume of power and the extended timeline for development should help mitigate that over the longer term, he says. "If you can create an industrial base you're going to have economies of scale because you are going to have local production."

The province's demands clearly add to the complexity of the bidding process. "It is going to require a lot of thinking from everybody interested to decide how they are going to position themselves to respond," says Painchaud. Siting projects is going to put developers to the test, he says. "That's a lot of wind in a limited area, so we want to make sure developers will act responsibly to develop projects that are not overwhelming for the population in terms of density."

A lot to offer

It also remains to be seen whether restricting manufacturers to Matane, located on the south shore of the St Lawrence River, and Gaspésie-Iles-de-la-Madeleine, which covers the peninsula and includes a sparsely populated archipelago in the Gulf of St Lawrence, will attract the kind of long-term, sustainable investment the government wants.

The region, says Dunsky, would not be a company's "first choice" for a manufacturing centre. But Élizabeth Ménard from the region's TechnoCentre Éolien believes it has a lot to offer. Matane has a year round deep sea port for shipping access to the Great Lakes, the Maritime provinces and the eastern seaboard of the US and, therefore, to the broader North American market. "Companies are global these days. If you can produce a product that is of good quality and at a good price, you are in business. Where you are is not an issue," she says.

Provincial government programs sweeten the pot by offering a 40% tax credit on labour costs for wind related industry locating in the region, as well as a tax exemption to 2010 for the manufacturing sector in general. At least one major manufacturer is already publicly signalling its interest in meeting the RFP requirements. NEG Micon's Daniel Charette says that if his company can capture contracts worth 500 MW over five years it will not only assemble nacelles in the region, but also source towers there and manufacture blades.

Discrediting wind

Fostering wind power in a region that desperately needs economic development may be a legitimate policy goal, says Dunsky, but it may not be the best thing for the industry itself. "The concern, really, is that we will end up confounding economic development costs with wind energy costs," explains Dunsky. "My concern is discrediting the technology for future RFPs by an inflated price is that is not there because of wind."

The desire to see local benefit from the exploitation of the Gaspé's wind resource is strong within the region itself -- and has been since the late 1990s when the existing 100 MW Le Nordais wind project, using NEG Micon 750 kW turbines and located on sites near Matane and neighbouring Cap-Chat, was built. At the time, says Dunsky, there was "a great deal of concern and frustration" that after the area finally landed a large scale wind development, so much of its economic value flowed elsewhere. "You need that high local content to make this acceptable to them," he says.

Whether it proves acceptable to the wind industry remains a question. "I don't know how it will pan out. It is not obvious that it will pan out well. I hope it does, I think there's a chance that it will, but it is far from guaranteed," says Dunsky.

Painchaud, however, is optimistic. "The size of the prize is such that I think it is going to put Quebec on the map of wind in the world. Overall, it's good news for the industry. We are going to see a lot of activity in the next few years."

For at least one Quebec developer, that activity is set to start. Two days after the RFP's release, Boralex Eole announced it has entered into a partnership with the University of Quebec at Rimouski (UQAR) to develop wind energy in the Gaspésie and Lower St Lawrence regions. The partnership will conduct wind studies and UQAR will be invited to participate financially in projects that go ahead.

Boralex says it will benefit from the university's regional presence and its expertise in wind power training, research and development. "The success in the development of wind power in the Gaspésie and Bas St-Laurent regions is a function of our ability to include in our projects strategic partners with whom we will generate expertise, which will have academic and economic benefits for the regions," says Boralex boss Jacques Gauthier.

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