Quebec sets high purchase price -- Local scale project tender

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The monopoly utility in the Canadian province of Quebec has issued two long-promised requests for proposals (RFP) for a total of 500 MW of smaller-scale, locally-based wind power projects, after boosting the ceiling price it will pay for the power by 30%. Hydro Quebec, a government-owned utility, is seeking 250 MW from projects in which Quebec municipalities and co-operatives have an involvement and 250 MW from First Nations groups. Both have been vocal in demanding more of the financial benefits of wind energy development in their jurisdictions.

Projects bidding for contracts can be a maximum of 25 MW in size and must come on line between 2012 and 2014. Municipalities and co-operatives will have to provide at least 30% of project financing and take at least a 30% ownership stake in the wind farm to be eligible for projects to be accepted for power purchase contracts. First Nations groups will have to pony up 30% of project costs and have a 50% ownership stake.

bids due

Bids are due May 19, 2010, with the winning projects announced later in the year. The RFPs were originally supposed to be issued in February, but the provincial government decided to postpone them until May.

The official reason for the delay was to give proponents more time to evaluate costs and funding sources in the current tough economic climate, but the Quebec government was also facing heavy pressure from industry and municipal governments to take another look at how much it was prepared to pay for the power.

The province had set a cap of $0.095/kWh on the price to be paid by Hydro-Quebec, which is equivalent to about a 10% premium on what the utility is paying for power from the 15 winning projects awarded contracts a year ago in the utility's call for 2000 MW of large-scale wind (Windpower Monthly, June 2008).

But an analysis commissioned by the Canadian Wind Energy Association (CanWEA) showed that would provide an internal rate of return of only about 4% and that a price in the range of C$0.115-0.135/kWh would be required to drive investment. It was an argument echoed by both the Federation of Quebec Municipalities and the Union of Quebec Municipalities.

The new price ceiling of C$0.125/kWh has earned accolades from both industry and local governments. "This will set the conditions to have more sustainable projects and more solid projects," says CanWEA's Jean-Francois Nolet.

The financial crisis has made the higher ceiling price particularly important, he adds. "The province had to be reflective of what is happening in the market right now and this was an essential part of it."

Like other Quebec wind power purchases, the RFP carries requirements for much of the project contents to come from local suppliers. At least 60% of the project cost must be spent in the province and 30% in the Gaspésie region. Nolet does not expect the restrictions to be a stumbling block for bidders.

"It is always a challenge to do it, but we're used to it now in Quebec. The facilities and the infrastructure are there. There is a growing wind energy sector in Quebec and in Gaspésie. We feel it won't be an issue specifically," says Nolet. "It has, of course, an impact on the price and that is why it was important to have a realistic price that reflects the market and the conditions contained in the RFPs."

Nolet expects participation in the RFPs will be strong. "It is always hard to say, especially in the difficult times we are in, however what we see and hear on the ground is that with this new ceiling price, there is a great interest from municipalities in Quebec," he says. The government expects the projects to generate C$1.3 billion in investments and create more than 4000 jobs.

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