CANADA: Ontario Aggressively Woos Green Power Investors

• by Peter Gorrie* - IPS/IFEJ (toronto)
• Wednesday, October 28, 2009
• Inter Press Service

With the tariff - similar to those that spur renewable sources in Europe but novel to North America - many in the industry see Ontario as a bright market at a time when the recession and declining demand for electricity have dimmed prospects across the rest of the continent.

'I want every American governor to say, 'Why did we not think of that and why did we not put that in place?'' Premier Dalton McGuinty said when the programme was announced on Sep. 24.

McGuinty's Liberal government says it is promoting green energy to combat climate change. It needs additional energy sources to fulfill its promise to shut Ontario's last four coal-burning generating stations - the province's biggest sources of greenhouse gas and toxic air pollutants - by the end of 2014.

That search became more urgent last spring when soaring costs forced the suspension of plans to expand nuclear power generation.

'We are thrilled that the government has followed through on its pledge to make Ontario a global leader in renewable energy,' a coalition of local and international environment groups said shortly after the announcement.

The scheme also impressed German parliamentarian Hermann Scheer, the force behind his country's tariff-fueled green-energy boom: 'Ontario is quickly emerging as a global leader... with policies that rival those of the renewable energy superpowers in Europe and elsewhere,' he said.

But likely more important than environmental considerations, the government is counting on investments in renewable energy, particularly in wind development, to replace jobs being lost in the declining auto industry — until recently, the heart of Ontario's economy.

The scheme will be expensive, requiring the Ontario Power Authority, the government-controlled electricity system manager, to pay far above current market rates. Those prices will be guaranteed for 20 years, with, apart from solar projects, no limits on production as long as there's capacity on the provincially owned transmission grid to carry it.

The plan includes 2.1 billion dollars to upgrade the aging and bottlenecked transmission system. And a 'domestic-content' rule, requiring developers to buy some local equipment and services, aims to attract turbine manufacturing and other industries.

Ontario now has nearly 1,100 megawatts (MW) of installed wind capacity and about 500 more under development. While tops in Canada, that total pales in comparison with the world-leading United States, Germany, Spain and China, which combined account for three-quarters of the global total of 121,000 MW.

It's also a small fraction of the provincial generating capacity of 34,000 MW, dominated by nuclear, hydroelectric and coal.

But wind will dominate any new production that results from the feed-in tariff, which sets different rates for each renewable source. Wind generators with land-based turbines will get 13.5 cents for every kilowatt-hour they send to the grid. Projects built offshore in one of the four Great Lakes that border Ontario are to be paid 19 cents.

Current residential rates are either 5.6 or 6.5 cents, depending on how much a household consumes in a billing period. The average wholesale price is about 3.0 cents.

The programme replaces two flawed schemes: One paid a version of feed-in tariff to projects under 10 MW: Solar installations received 42 cents per kilowatt-hour; all other renewable sources got 11.2. Bigger developers had to bid for the right to supply limited amounts to the grid — a process that was not only expensive and uncertain but also kept prices below 10 cents.

'Ontario wants green-energy business,' Energy Minister George Smitherman said at the announcement of the new tariff. 'These regulations will help ensure industry and municipalities that jobs will be created, investment is committed and that the renewable energy industry grows across the province.'

Three months earlier — after he had introduced legislation to permit the new system, but without details — Smitherman received the World Wind Energy Association annual award, which cited his 'outstanding achievements in making Ontario the leading wind energy jurisdiction in North America'.

There are signs the strategy is working.

'We've seen a lot of developer interest and a lot of entrants that weren't in the market before,' says Tim Stephure, an analyst with the market research firm North American Wind Power Advisory, of Cambridge, Mass.

The tariff is 'very competitive, especially compared with other markets in North America', he said. 'It's very attractive.'

'Ontario has become of great interest to the industry, not just in Canada but beyond,' says Robert Hornung, president of the Ottawa-based Canadian Wind Energy Association. 'There's a tremendous amount of competition to secure investment and bring in jobs. Ontario has sent a clear signal: 'We want to compete.' '

A flood of applications for projects offshore - where the potential capacity is estimated to be 35,000 megawatts - forced the government to call a halt, at least until spring.

Major developers are arriving, some acquiring smaller companies. Calgary-based TransAlta Corporation recently purchased the already sizeable Canadian Hydro Developers Inc., also from the Alberta city, which plans a major offshore project in Lake Erie.

British giant International Power plc recently acquired AIM PowerGen, which is building a 40-MW wind farm in Ontario. International's chief executive, Philip Cox, said the new tariff was key to the decision.

Still, the industry has concerns.

Just six days after announcing the new plan, Smitherman ordered 500 MW of transmission capacity to be reserved for developers who sign 'framework agreements' with the province. The government hasn't provided details, but the move is apparently to reward companies that agree to build manufacturing plants, and create jobs, in the province.

First on that list is said to be South Korea's Samsung Group, which might use Ontario as a base for selling turbines across North America.

While job creation is a worthy goal, investors question further constraints on access to the grid and, more important, wonder what other changes might be in store, Stephure says.

Smitherman's order 'sends a somewhat ominous signal to the rest of the industry,' he says. Ontario 'makes the rules the whole industry has to play by and now they're bending them already. Standard rules and certainty are important.'

The domestic-content rules — 25 percent for projects built to the end of 2011; 50 percent afterwards — will inhibit developers getting the cheapest equipment available on the global market and, in turn, increase project costs.

German solar developers are protesting the rule and threatening to stay away if it's not rescinded. It's not yet clear whether wind developers will issue the same threat.

As well, the Ontario Power Authority will keep any carbon offsets or other environmental benefits that might be available if a carbon market ever develops.

And, to appease critics who fear health and noise impacts, the government has imposed setbacks from homes and schools that are stricter than most in Europe and elsewhere. Even so, a neighbour of one project has launched a lawsuit that demands wind development be stopped until further studies are done.

None of this will open up development of Ontario's by far biggest wind resource — the remote shores of James and Hudson Bays, now well north of any major transmission line. The plan doesn't include expansion of the grid to this windswept tundra. Developers would also have to negotiate with aboriginal communities, which now have a major influence over what happens in the northern half of the province.

Despite the uncertainties and criticism, Hornung is optimistic. 'It's still early days. This is a very ambitious initiative. We're just in the launch-window phase.'

*This story is part of a series of features on sustainable development by IPS and IFEJ - International Federation of Environmental Journalists­ for Communicators for Sustainable Development (www.complusalliance.org).

© Inter Press Service (2009) — All Rights ReservedOriginal source: Inter Press Service