An upcoming request for proposal calling for an additional 2,000 megawatts of renewable energy in Ontario in several phases, will mean the appearance of many new wind-power projects – and a lot of work for lawyers in the sector.
Last November, the Ontario Power Authority released a request for expressions of interest for a new renewable energy supply.
That’s after the Ministry of Energy issued a directive last summer, based on the potential identified by the OPA for up to 2,000 MW worth of new renewable generation projects – each greater than 10 MW in size – to come into service by 2015. The first portion of the proposal will be 500 MW, and the RFP in draft is supposed to be out any day now. Submissions are anticipated to be due by late summer or September.
The first phase of the project, called RES III, follows two previous initiatives. The first, RES I, called for 300 MW of new renewable energy supply in 2004 and resulted in 10 renewable-energy projects that will provide Ontario with 395 MW of power. The second, RES II, will result in nine new renewable energy projects and 975 MW of power, in the areas of wind, water, landfill gas, and bio-gas.
According to the ministry, the first two requests for proposal have resulted in a 25-fold increase in Ontario’s renewable wind-energy capacity – from 15 MW to over 415 MW – representing enough power for over 100,000 homes.
David Lever and Michael Weizman of McCarthy Tétrault LLP confirm that there are also similar RFPs in British Columbia, Manitoba, Nova Scotia, New Brunswick, and Quebec, for varying amounts of power.
“The vision is that Ontario will have a level of wind power, by virtue of the last two RES programs, RES III, and wind power projects under standard offer, that really will put us as one of the leading jurisdictions in North America for wind power,” says Weizman.
“We’re talking about a lot of power in the fullness of time.”
Following the projects built under RES I and RES II, and smaller standard offer, the province stands at about 500 MW of wind-generating capacity, with another 600-700 in the pipeline over the next year or two, says Weizman.
He estimates a procurement of 2,000 MW could result in about 10 to 20 new large wind projects.
“A lot of work for lawyers, because there are the contracts to negotiate, and many of these projects are . . . project-financed,” he says. Weizman and Lever expect to be very busy from this RFP and they are already getting questions.
“This RFP . . . is a phased RFP, so it’s not like 2,000 MW tomorrow. It’s 500. Then there will be more; then there will be more. So it’s going to stretch out over a period of time. So our expectation nationally is we’re going to be quite busy in the wind area over the coming years,” says Lever.
“There are a number of RFPs coming and out, and so it will be an exciting period over the next few years in the energy sector in Ontario,” says Lever.
“These renewable energy projects have created a considerable amount of activity,” whether it be on the procurement side, helping bidders, or helping government agencies like Ontario Power Authority set up the procurements, says Rocco Sebastiano, a partner with Osler Hoskin & Harcourt LLP in Toronto.
Lawyers then assist those proponents who are successful with negotiating their engineering-procurement and construction contracts, helping to arrange financing or acting for lenders on the financing of the projects, he says.
Sebastiano says the OPA proposes spreading the procurement process over two or three years to capture the full 2,000 MW.
With respect to wind projects, lawyers are also involved in permitting and municipal zoning, and they spend a lot of time working with clients on rights to real estate, says Lever. They are also involved in the turbine-supply agreements.
“Because the market is tight, the commercial terms have changed and the legal terms and conditions have changed. And, from a lawyer’s perspective, it’s harder . . . to get the same advantageous terms and conditions we were able to get in the past,” says Weizman. “In the old days, one was often able to build a wind turbine pursuant to one construction agreement,” where the scope of work would include procurement of turbines to construction of the balance of plans, he adds.
“It’s no longer possible to find full-wrap contracts . . . Typically wind farms are built pursuant to at least two and often a number of contracts,” which, he says, can create challenges making sure the agreements mesh, with no gaps.
One issue at the moment is availability of turbines, and prices have gone up considerably over the last few years. “We should anticipate that the bid prices on RES III are going to be higher than we thought for RES I and RES II,” says Weizman.
Many jurisdictions are competing at the same time, says Sebastiano. “The province of Quebec has already awarded as many, if not more, contracts than the OPA [has] on wind,” says Sebastiano. Hydro-Québec’s call for tenders culminated last fall with over 7,000 MW of bids submitted for 2,000 MW of wind power.
From the perspective of the players in this field, there is already a line forming in terms of trying to get orders in, says Sebastiano. He adds that some developers with a number of bids in different locations are trying to pre-order equipment with the expectation that they’ll be successful and have a better spot in line.
In Quebec, for example, bids were submitted in October and announcements haven’t been made yet. While prices are held firm for 180 days or so, they keep going up in the meantime. “I think some developers went in there and got firm pricing from some of the wind turbine manufacturers, but not all of them. So price escalation is a real risk when projects take not only six to eight months to get through the procurement, sometimes longer, but then to also then get started on the construction,” he says.
The other big problem is transmission constraints, or a shortage of available wires to transmit the power from the source to where it is needed. “Unfortunately the worst constraints are in areas that have a very good wind resource – for example the Lake Huron shoreline,” says Weizman.
“Probably the one biggest issue from a developer’s perspective is the ability to get their projects connected to the transmission or distribution system,” says Sebastiano.
Another issue for wind projects is groundswell in certain communities of residents opposing the proliferation of windmills in their backyards, says Sebastiano. The first such wave was with RES I in the Blue Mountain area, he says.
“There’s been a number of communities that people have come forward and said, well, what is the long-term solution in terms of the decommissioning of these facilities 15 or 20 years from now when their lifetimes are done and over, and who’s going to be responsible for that once these 20-year contracts with the Ontario Power Authority expire,” he says.
Weizman also says that local opposition to wind projects has become more common.
“It’s a sign of the maturation of the wind industry that projects are being opposed and it’s sort of a problem you can anticipate,” he adds.
By Helen Burnett
7 April 2008
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