Special Report - A Guide to Wind Power Investment in Canada - Ontario - high time to rule on transmission access

Ontario has great potential, serious targets, lots of activity and a plan to solve the single biggest barrier to seeing extensive development of the province's wind power resource. But it all depends on fast action and competing plans for all other new generation, including nuclear.

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Ontario will recapture the lead for installed wind capacity in Canada by the end of this year and is looking to build on that with a series of planned additional renewable energy procurements. But uncertainty over when new transmission lines will get built and constraints at the lower level of the distribution grid are looming impediments to growth in a province where developers see a lot of opportunity.

"We are very bullish on the Ontario market," says David Timm, vice president of strategic affairs for AIM Powergen, a wind developer based in Toronto. "If you look at what Ontario is doing, where it has come from and where it is going, it is pretty encouraging."

By the third quarter of 2008 the province had 521 MW of installed wind capacity in operation and nearly 1600 MW under construction or contracted, mainly consisting of large scale wind farms, but also including a number of small projects to be connected to the grid via the distribution network. A big chunk of that will come online soon, with Canadian Hydro's 132 MW Melancthon II plant, Enbridge's 181.5 MW Ontario Wind Power Project and 8.25 MW Cruikshank installation, and Kruger Energy's 101.2 MW Port Alma Wind Farm all expected to be operating before the end of the year, followed by Canadian Hydro's 197.8 MW Wolfe Island project in March.

The Ontario Power Authority (OPA) issued a new request for proposals in August for 500 MW of renewable energy, the first step in its plan to procure and additional 2000 MW by 2011. "We feel wind will be a pretty significant player in that 2000 MW," says Timm.

A serious plan

Over the longer term, the province's integrated power system plan (IPSP) calls for about 4700 MW of wind power by 2020. The industry lobbied for more, and it may still get its wish. On September 18, energy minister George Smitherman announced that he had asked the OPA to review and "tweak" the IPSP with the goal of accelerating conservation efforts and adding more renewable energy to the electricity mix. "We want an energy system that reliably meets our needs, makes it easier on the earth and helps stimulate our economy. And we want to get it right," he said. "The rewards for early adapters are clear."

In addition to taking another look at the amount of renewables in the supply mix, the review will also consider ways to improve transmission capacity for renewables and study the availability of distributed generation. The current IPSP does have a plan for dealing with transmission constraints that are already starting to hinder wind development in some parts of the province. It proposes building what the OPA calls "enabler lines" to tap into areas, particularly along the Great Lakes, with the greatest potential for cost effective, large scale wind power development.

"The IPSP is on the right path," says Robert Hornung, president of the Canadian Wind Energy Association (CanWEA). "The challenges there will be ensuring the IPSP gets passed and that the transmission build actually proceeds along the timeline that's talked about. You can see the light at the end of the tunnel there."

Timing, agrees Timm, will be key. Although the current 500 MW request puts a long list of limits on how much new generation can be developed where because of transmission constraints, a lot of wind projects will still be able to bid. Depending on what happens with some of the OPA's pending non-renewable energy procurements, Timm expects there will be enough left for wind to compete for the rest of the 2000 MW too.

"But there is going to be a wall that gets hit soon and we need to start the permitting and approvals process on the enabler lines and the new build so that there isn't a lag time in bringing on new megawatts," he says. "If we want to see new wind come online in good resource areas, some of that early development on the lines should start today."

The IPSP is currently under review by the Ontario Energy Board, and one aspect of the process Timm finds encouraging is the work being done on the question of how the new lines should be paid for. The board has issued a report outlining four different options. The wind industry is throwing its support behind a mechanism similar to one used in California, which would roll the cost into the rate base and then have developers pay a pro rata share to connect.

"It is fair because you are paying your proportional share of the cost of that transmission line. You are not having to be the first in, build the line and have everyone else benefit after you," says Timm. "It also means the lines would be built to accommodate the resource that is available in a certain area."

Competing interests

The IPSP, however, is only one of two main market stimuli operating in Ontario. The other is the province's groundbreaking program of standard offer power purchase contracts for renewable energy facilities of 10 MW or less that connect into the distribution network at grassroots level rather than directly into the transmission grid. The lack of transmission capacity is hitting this fledgling market, in which wind plant owners are paid a fixed price of C$0.11/kWh.

Hundreds of megawatts of planned small wind projects in a large area around the Bruce Peninsula on Lake Huron were shut out of the Renewable Energy Standard Offer Program (RESOP) when the OPA announced, just before the program's launch, that all available transmission capacity in the region was being reserved for new large scale generation. Most notably, this was the restart of two idle nuclear units expected to start delivering energy in 2010.

Then in the spring, OPA surprised the industry again by announcing it was cutting off standard offer contracts in several other key wind development areas, reserving available transmission for larger projects competing in its 500 MW renewable energy call and two combined heat and power solicitations also planned for this year.

This is not the first time RESOP producers have been hit with new rules midstream. Hydro One Networks, which operates Ontario's transmission grid and a large part of its distribution system, decided last year that it would allow projects to connect to only one of the two transformers that are typically found in distribution substations in the province - and then only to an upper limit of 60% of the transformer's rated capacity.

With received applications for distribution network connections far outstripping those allowed under that scenario, OPA announced in May that it was changing the rules again, so that an individual company can now channel no more than 10 MW through any single transformer station.

Much too conservative

The industry has been pushing for solutions that will allow project development to continue, but a big concern is the negative message that unilateral rule changes send to investors. "You had developers, like ourselves and others, who had skin in the game, who made investments and you can't just make an arbitrary ruling on a date and strand that investment," complains Timm.

Glen Estill of Sky Generation, an Ontario developer that brought the province's first standard offer project online in January, says the restrictions are indicative of a much too conservative approach to bringing new renewables into the electricity mix. There are technical and policy fixes for the RESOP issues, he says. Getting aggressive about implementing the fixes will give the province more flexibility in the future.

"What's wrong with building options? I have had frustrations with the electricity system over time in Ontario, and I am as frustrated with it today as I ever have been," laments Estill. It is deeply troubling that there seems to be a lack of anybody actually taking charge and saying that we need to solve these problems and that we will solve these problems and go forth and get a renewables future going," he says.

"There are all kinds of companies chomping at the bit to get out and build this stuff, whether it is wind or solar or biogas. We just have to harness the energy in the business community instead of stomping it every time you turn around."

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