Canada Special: Market Overview - Fighting to secure federal support

Even as some provinces take a big step forward in securing a future for wind, a lack of support at the federal level has left Canada's wind power investors pondering a future south of the border in the United States.

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On the one hand, Canada's wind industry is thriving, set to pass the 3 GW installed capacity mark this year. But the economic crisis has had its impact, particularly in the Maritimes - comprising New Brunswick, Nova Scotia and Prince Edward Island - where the majority of projects scheduled to come online this year have been set back by difficulty accessing financing. Even so, it is still possible the industry will set a new record for installed capacity.

By mid-2009, four wind farms totalling 486 MW had come online in Ontario, Newfoundland and Prince Edward Island to bring the country's installed capacity to 2855 MW. Additional projects in British Columbia, Alberta, Quebec and New Brunswick are on track to be commissioned by the end of the year. Meanwhile, new requests for proposals issued this year in Quebec and New Brunswick will add another 600 MW to the 5259 MW of wind capacity that is now under construction or holding a signed power purchase agreement (table).

And by 2015 around 12 GW of wind plant will be generating electricity in Canada if current provincial wind targets are met. But for a country with the sixth largest electricity grid in the world, this would still not even come close to matching Canada's potential, says Robert Hornung, CEO of the Canadian Wind Energy Association (CanWEA). "Even then that's only going to move us up to about four per cent of the country's electricity supply, which will still leave us quite a bit behind where a number of countries already are today."

Under its WindVision 2025 plan, released at its annual conference last year, CanWEA proposes a far more ambitious national target for wind to supply 20% of Canada's electricity by 2025. The industry has spent the last year promoting the plan, working on ways to open up the market to sustained long-term growth. As a result, some provinces are now starting to think big about the technology's potential. The same cannot be said for the federal government, however.

Change of tempo

The national ecoEnergy for Renewable Power (ERP) program, which pays a C$0.01/kWh production incentive for the first 10 years of a project's life, is going to run out of money this fall, more than a year ahead of schedule. And no new funding for the program was included in the Conservative government's 2009 budget, leaving the industry shocked and thousands of megawatts of planned projects hanging in mid air. This is "obviously a very real concern, particularly for the 2000 megawatts of wind energy projects that are contracted to be built between now and 2011," says Hornung. The tempo of Canadian wind development activity has slowed to a more melancholy beat.

Unguarded comments by natural resources minister Lisa Raitt in late January have done little to cheer spirits. She is "not going to put up with the whining of CanWEA" over the issue, she quipped just days after the budget was announced, little suspecting her words would be caught on tape. Hornung is magnanimous. With plenty of time since the incident now passed, he says he believes the minister is supportive of the industry's efforts to secure new funding. But time is running out for that support to be translated into action, he adds.

The government's next major fiscal update, traditionally delivered in late fall, is looming and CanWEA is pushing for a commitment to funding for wind and other renewables to be included. "But we're in competition with a lot of different priorities," says Hornung. The industry has been calling for a C$2.8 billion expansion of the existing ERP program, extending it to March 31, 2014, and providing payments to support another 8000 MW of renewable energy projects. A second possibility proposed by CanWEA is a capital grant program. This would have the same economic value as ERP, but the incentive would be paid up front instead of over 10 years. A third alternative is a production tax credit that is fully refundable, so even small players without a large enough tax appetite to use the deduction would benefit.

"We're trying to present options that provide the government with some flexibility," says Hornung. "If their concern is program spending they can use a tax-based option. If their concern is long-term commitments that lead to deficits over time, they can put money up front. If their concern is that they have a huge deficit at the moment and they can't put a lot of money up front, then they can support a program that pays the money out over an extended period."

The message is clear, he says: "What we're telling government is that we are willing to present a suite of options, but the one option that is a non starter is do nothing. You cannot simply turn away from the industry at this point in time."

Flood warning

Much of Hornung's concern revolves around Canada's competitive position in the North American marketplace for wind. The end to federal support for wind in Canada would coincide with a huge ramp up in US spending through its new renewable energy grant program and other stimulus measures. "That discrepancy has already started to lead to a situation where some investment is being taken from Canada to the United States," he says. E.ON is one international player that has already publicly stated it is pulling back on development in Canada to focus on the US, but it is not the foreign firms alone that are now tempted to head south. The locals look like deserting too.

"If I build in Maine today, I get a renewable energy credit. I get an incentive from the federal government. And I get a favourable tax treatment. If I build in New Brunswick, I get a favourable depreciation. I get no incentive. And I get no credit," said Chris Huskilson, CEO of Emera, a Canadian energy company based in Nova Scotia, when he spoke to the Board of Trade in Saint John, New Brunswick, recently. The opportunity for wind in the Maritimes is huge, but the investment climate is suffering, he warned them.

"If I'm investing my shareholders' money in building a wind farm, the better business case is there for me to set up those turbines in Maine," Huskilson says.

Emera owns Canadian utility Nova Scotia Power as well as the Bangor Hydro Electric Company in Maine, and operates a trading arm that markets electricity between Canada and the US. It built a 345 kV interconnection between Maine and New Brunswick in 2007 and is part of consortium proposing a new transmission line between northern Maine and New England that would allow for increased imports from Atlantic Canada. Huskilson's warning is just one of a growing number. "You have Canadian companies for the first time in a serious way looking at opportunities to invest in wind energy in the United States over opportunities in Canada," says Hornung. "If that situation is not addressed, the trickle of investment that we now see heading south of the border could become a flood."

Long-term vision

A federal incentive remains important to overcoming other barriers to wind project development as well, says TransAlta Wind's Jason Edworthy. "A year ago, with oil at $140, you could have thought we'll never need those kinds of incentives again. Now here we are on that roller coaster with oil really low and electricity prices really low," he says. "So one of the barriers is thinking long term. And the incentive helps customers, particularly provinces, think long term. That is a very small, simple thing. But it's really, really important."

Most of TransAlta's current wind investments are in Alberta, where the impact of lower electricity prices hits particularly hard. Most wind power in Canada is currently procured through competitive bidding processes that culminate in long-term power purchase agreements (PPAs) with utilities. But in Alberta's competitive wholesale electricity market, those kinds of PPAs are not available. So far this year, driven by lower gas prices and demand weakness, spot prices are tracking at some of the lowest levels seen since the market was restructured in the late 1990s and are expected to average only about C$43/MWh for the year. Making a buck in that environment can be tricky, says Edworthy. "You really have got to have the stomach to take a long-term view. We really do know it is not going to stay there, but it can't stay down for very long either."


Alberta wind projects do have an opportunity to tap into another income stream at least. The province is the only place in North America so far where wind-generated greenhouse gas offsets can be used to meet legislated emission reduction obligations. The system gives emitters a chance to pay C$15/tonne into a technology fund, or to purchase offsets to meet targets. While the cash payments have proved the most popular compliance option, 5.18 million offsets were created under the system in 2007 and 2008. Of those, 1.24 million came from wind. "They are an important player in the marketplace," says Keith Driver of Blue Source Canada, an emissions marketing and consulting firm based in Calgary.

While the technology fund payment level effectively caps the price wind generators can get for their offsets, it does allow them to capture at least some value for the environmental benefit they bring. "Whether you use them yourselves or sell them, that product has at least a known value and it is a stable value," says Edworthy. "We don't know what's going on a couple of years down the road when the national system takes over for the Alberta one. But we would like to hope there will still be value there."

The federal government released the draft rules for its own trading system in June and it also allows wind energy to create offsets. At the same time, though, the government has long favoured a coordinated North American strategy for dealing with greenhouse gas emissions and most expect that Canada's approach will have to align with whatever strategy the US, its largest trading partner, ends up adopting. Where that leaves wind is a big question, says Hornung. "It is far from a sure thing that a US climate change regulatory framework would allow greenhouse gas offsets from wind energy. In fact, I think it is the general expectation that it wouldn't," he says. "If that's the case, what value does a Canadian system provide with an uncertain future?"

The past year has not all been doom and gloom. There has been some significant progress towards meeting the objectives of CanWEA's WindVision 2025. "Part of the reason for developing the WindVision document was to try to encourage people to think big about wind energy in Canada, and I think we have seen some examples of that this year," says Hornung. The best example is Ontario, where the new Green Energy Act promises a guaranteed tariff for renewables projects, priority access to the grid, streamlined project approvals and quicker action on transmission system upgrades (page 11). The details of how it is implemented will ultimately determine how successful it is, says Hornung, but, he adds, it represents "the strongest statement and commitment yet to the deployment of wind energy in Canada."

On the East Coast, meanwhile, the federal government has gone some way to eroding its early 2009 image as the villain of the piece. It has committed C$4 million to study the potential for an Atlantic Energy Gateway that would tap into export markets for the region's renewable energy resources, building on an idea the provinces in the region have been examining for a while. In Alberta, the province's electric system operator unveiled plans for a C$2.45 billion, 240 kV loop system that will gather output from a series of so-called "wind interest zones" spread across southern Alberta and channel the electricity into the grid. The plan is designed to provide transmission access to another 2700 MW of capacity. "That's a very, very significant step forward," says Hornung.

Challenge ahead

Real progress towards creating a comprehensive strategy for significant, long term wind deployment is going to depend on more than the actions of individual provinces however, he says. And that presents a challenge - electricity and transmission planning are currently a jealously guarded provincial responsibility. "The risk we run in Canada, I think, in terms of being able to reach our full potential, is that we're going to see efforts to optimise wind integration on a province by province basis."

Success will also require more than just a vision, he adds. It also requires a detailed understanding of how wind turbines can best be distributed across the country; a thorough analysis of how other generating resources like hydro can be used to facilitate integration; and new policies to break down provincial and regional barriers. Further transmission investment is also needed. "We don't have the answers to all the questions yet and we realise if we are going to sell this vision and get people to buy into it and move forward with it, we need those answers," adds Hornung. CanWEA is hoping to get a piece of the federal government's C$1 billion Clean Energy Fund to pay for a study that will answer some of those questions, providing a technical underpinning to its 20% proposal (page 8).

Potential for record year - Wind development still progressing well

Projects completed in 2009 up to mid-August
Ontario (379.30 MW)
Wolfe Island Canadian Hydro Siemens 2.3 197.80
EcoPower Centre Developers
Ontario Wind Enbridge Inc. Vestas 1.65 181.50
Prince Edward Island (79.20 MW)
West Cape Wind GDF Suez Vestas 1.8 79.20
Farm, Phase 2 North America
Newfoundland and Labrador (27.00 MW)
Fermeuse Wind SkyPower Corp. Vestas 3 27.00
Total 2009 485.50
Projects completed in 2008
Ontario (290.95 MW)
Melancthon II Canadian Hydro GE 1.5 132.00
Port Alma Kruger Energy Siemens 2.3 101.20
Ravenswood Sky Generation Vestas 1.65 9.90
Frogmore AIM Powergen Vestas 1.65 9.90
Cultus AIM Powergen Vestas 1.65 9.90
Mohawk Point AIM Powergen Vestas 1.65 9.90
Clear Creek AIM Powergen Vestas 1.65 9.90
Cruickshank Enbridge Vestas 1.65 8.25
Quebec (109.50 MW)
Carleton Cartier Wind Energy GE 1.5 109.50
New Brunswick (96.00 MW)
Kent Hills TransAlta Vestas 3 96.00
Newfoundland and Labrador (27.00 MW)
St Lawrence Enel Vestas 3 27.00
Total 2008 523.45
Total 2008/2009 1008.95

On the way
In the queue

Province MW

BC 271
Alberta 201
Saskatchewan 25
Manitoba 300
Ontario 1170
Quebec 2822
New Brunswick 213
Nova Scotia 245
PEI 12
Total 5259

* Under construction and/or awarded a PPA

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