Canada’s wind energy industry is busy, expecting to install an average of 1.5GW of new generating capacity ever year for the next three years.
But even as developers have their heads down working to get projects built and turbines commissioned, they have one eye on a fast-approaching market cliff.
The large pipeline of projects in Canada’s construction queue is there because of procurement processes undertaken in the past. Between 2007 and 2011, an average of 1.8GW of new wind energy contracts were signed in Canada each year. That dropped to just under 400MW in 2012 and today, aside from Nova Scotia’s plan to buy up to 100MW from smaller-scale community-based projects, the only firm opportunity for new development is a pledge from Quebec to add another 800MW to its grid.
“The most significant challenge we face is uncertainty with respect to future markets for wind energy,” says Robert Hornung, president of the Canadian Wind Energy Association (CANWEA).
The industry is hoping for more certainty in the coming months. The country’s four most populous provinces – Ontario, Quebec, Alberta and British Columbia – are currently reviewing their long-term energy strategies and planning future electricity supply mixes. What they decide will set the stage for wind-energy growth across Canada well into the next decade.
“We are confident wind is well-positioned to do well in all of these processes,” says Hornung. Although each market has its own unique drivers, he points out, governments in all four provinces will be looking at the cost, environmental impacts and economic benefits of their choices. “There are fundamentals that are going to have to be considered, and wind stacks up fairly well against them all,” he says.
At the same time, however, Canada is not immune to the hurdles affecting the global wind sector. Wind and other renewables are scapegoats for rising electricity bills, making politicians anxious about extending further support. The shale gas boom is bringing down electricity prices across North America, making it harder for wind energy to compete. Growth in electricity demand in some provinces has slowed, reducing the need for new capacity.
The upshot is that the wind industry has to fight for future opportunities against other generating technologies looking to do the same, says Hornung. “The situation is different than it was ten years ago, when it was clear there was room for everybody to grow. That’s no longer the case.”
With all four of these processes expected to be complete by 2014 the latest, Canadian wind developers will soon be able to move forward with much-needed long-term visibility. Although it is difficult to predict where governments will land, Hornung is confident wind will play a role. “There will be opportunities for wind going forward. But whether that’s 5,000MW, 10,000MW, 15,000MW is unknown,” he says.
Quebec Supply chain hangs on future target
The Quebec government appointed an independent commission in July to consult with industry and the public about the province’s energy future, with an eye to tabling a new long-term strategy in 2014. Quebec’s current roadmap, published in 2006, expires in 2015. But the changing North American energy landscape, including the rise of cheap natural gas that has cut into demand and depressed prices for exports to US markets, is pushing the province to examine how it should react. The 2006 target for wind was set at 4GW, a goal that will be met once the promised new 800MW comes online, likely in 2016 or 2017. The wind industry needs a new target and a schedule of annual wind purchases from the next strategy, says Jean-Frederick Legendre, CANWEA’s regional director for Quebec.
There are challenges, admits Legendre. State-owned utility Hydro-Quebec is projecting electricity surpluses out to 2027, leading some to question why the government is buying another 800MW now, let alone plan for further wind additions down the road. Legendre, however, points out the surplus is only 1.2% a year on average.
“The premier of Quebec is saying the surplus situation is an economic advantage, an opportunity for the province to develop new markets for electricity. We totally agree with that,” he says.
In fact, one of the goals of the strategy review is to zero in on where those markets might be. Even with new demand, however, the question then becomes to what extent it is met with wind or hydro. While most of Quebec’s energy ambitions have traditionally centred on new hydropower, Legendre argues that wind not only brings diversity benefits, but is also better positioned to meet the requirements of potential customers looking for a green product. “Wind is considered a renewable in most of the US, and large hydro is not necessarily.”
The wind sector also has a strong argument when it comes to preserving the supply and value chain that has emerged in the province. A central focus of the 2006 strategy was to use wind energy purchases to spur industrial development in some of the province’s most economically depressed regions. Today, the industry employs about 5,000 people in the province, including around 900 in manufacturing, and the government is anxious not to see those jobs disappear.
“I think it’s a central element in the discussions,” says Frederic Cote, general manager of Quebec wind-energy research organisation TechnoCentre eolien.
Premier Pauline Marois has acknowledged that new projects must be built through to 2024, when the province will enter a repowering cycle that will help sustain the industry at that point. The TechnoCentre surveyed manufacturers earlier this year and found that a minimum market of 300-350MW a year is required to keep the supply chain alive, but it would be working at only 40% of capacity at this rate. At the other end of the spectrum, CANWEA released a WindVision for Quebec in 2010 calling on the province to add another 8GW of capacity between 2015 and 2025.
While 800MW a year is technically feasible, says Cote, it may be too aggressive right now. “We are in a context now that is challenging, so we feel that something between 300MW and 800MW should be the answer.”
QUEBEC – THE BASICS
Decision expected 2014
Key long-term strategy decision Annual wind-energy growth target
Decision expected 2014
Current installed capacity* 1,716MW, supplying about 2.6% of demand
Construction pipeline 1,664MW
Current policy structure State-owned utility Hydro-Quebec holds wind-specific requests for proposals to meet government target.
What to watch out for A new target for wind, and no change to the way it is procured. The province will continue to buy wind, but the level will likely be closer to the 300-350MW-a-year minimum local manufacturers require. New purchases will most likely target post-2017 in-service dates. Incentives to help Quebec-based suppliers develop export markets are possible.
* As of 15 August 2013
Alberta: Clean energy drive could help wind
The Alberta government is sifting through options to help drive renewable-energy development, spurred by growing international scrutiny over how the province is tackling its greenhouse gas emissions.
That scrutiny is threatening plans for a pipeline to carry oil sands to refineries on the US Gulf Coast, with even US President Barack Obama, who has final approval for the US leg of the project, suggesting Alberta “could potentially be doing more” to mitigate carbon release.
“What we’re seeing right now is our social licence and our ability to produce and get oil to market is in question,” Bob Savage, director of the government’s Climate Change Secretariat, told a meeting of power producers earlier this year.
The situation has led energy minister Ken Hughes to turn to the renewable-energy sector for ideas on how to green Alberta’s largely coal-based electricity grid. “There’s the realisation that the electricity sector is an area where there is some low-hanging fruit when it comes to emissions reduction,” says Tim Weis, director of the renewable energy and efficiency programme at the Pembina Institute, a sustainable energy think-tank.
This new interest in renewables-friendly policies is something of a sea change for the province. Alberta operates Canada’s only deregulated electricity system – where competitive electricity suppliers sell to the users – and has been loathe to do anything that would interfere with the pure functioning of the market. The problem is that market structure presents some significant barriers to wind development.
Analysis by CANWEA recently found that the province has about 5GW of easily accessible wind resources that can produce cheaper energy than all but combined-cycle gas generation. But there are few long-term power purchase contracts available to producers and, as a result, they lack both a guaranteed revenue stream and access to long-term project financing. Wind also tends to pull down wholesale power prices when prices are low and wind facilities offer into Alberta’s wholesale market at a price of C$0/MWh to ensure they get dispatched.
CANWEA has pitched the idea of a clean electricity standard (CES), which would require retailers contract for power to help them meet defined emissions-intensity targets, and an increase in Alberta’s current carbon price cap of C$15 (US$14) per tonne to help boost revenues.
With those policies in place, says CANWEA, Alberta could see 3.2GW of new wind installed by 2025. It is open to other ideas that address the barriers, says Lana Norgaard, CANWEA’s regional director for Alberta. But without some action by government, she says, the market for wind will stall.
A market-based and technology-neutral CES is likely the best way forward, says Weis. “I think if there is a solution that fits as well as can be with the competitive market, then that is probably close to it.”
Wind would be an early winner under a CES, he says. But solar production tends to better match peak demand, meaning its revenues are 30% higher than the average. “It won’t be long before solar is right on wind’s heels. And then I think there are going to be options for hydro and conceivably even carbon capture and storage, combined heat and power and geothermal.”
ALBERTA – THE BASICS
Key long-term strategy decision Policy to reduce greenhouse gas
Decision expected 2014
Current installed capacity* 1,117MW, supplying about 3.4% of demand
Construction pipeline 510MW
Current policy structure Wind competes in the open market
What to watch out for A clean electricity standard as proposed by CANWEA may be a tough sell in a market where there is an aversion to policies that play favorites and involve government in the market. Wind industry concerns about long-term revenue certainty and access to finance, however, are shared by other generators so there is room for progress on that front. An increase in the carbon price is likely, but on its own will not drive significant new development.
* As of 15 August 2013
British Columbia: From 25MW to 5.25GW by 2025
The future market for wind energy in Canada’s westernmost province hinges on state-owned utility BC Hydro’s new integrated resource plan (IRP), which lays out expected load growth in the province and how it will be met over the next 20 years.
There is little doubt that energy demand is growing, driven by an explosion in shale-gas exploration and extraction, plans for new liquefied natural gas (LNG) terminals to ship the output to Asian markets and new mining activity.
What is not clear, and what the industry is looking to the IRP to help answer, is how much of that new demand will be met with grid-based electricity and how much with on-site gas turbines. CANWEA has been pushing for an aggressive electrification strategy. Its 2011 analysis found that connecting these loads to the grid could help drive BC’s installed wind capacity from the current 248MW to 5.25GW by 2025.
“In the last two years the amount of energy demand projected for the province has only gone up, and the recognition that the cost of wind has come down has only spread,” says Nicholas Heap, CANWEA regional director for BC.
However, much of the new industrial development is in regions not well connected to the province’s power grid, requiring costly transmission investments at a time when BC Hydro is already staggering under growing debt and consumers are complaining about rising power prices. BC Hydro’s latest draft integrated resource plan, issued in August, anticipates the LNG sector will use direct-drive natural gas turbines to run the energy-intensive cooling and compression process and only buy electricity for ancillary requirements, such as lighting, control systems and office requirements. As a result, it says, existing generation resources and already planned conservation efforts will be sufficient to meet demand for the next ten years. At that point, the utility wants its long-planned but controversial C$7.9billion, 1.1GW Site C hydro project to pick up any slack.
But there are positive signs too. A new provincial government was elected in May and, in its marching orders to cabinet, ministers emphasised the need to “maximise the use of clean power in LNG projects” and “work with the clean-energy sector to ensure there remain significant opportunities for renewable-energy companies” to provide power to British Columbians.
“You put that together and you have a pretty strong signal that this government sees the provision of renewable energy to play a significant part in the economic development of the province going forward. I think that’s a change,” says Heap.
The government has sent the draft IRP back to the utility for further consultation with industry and other stakeholders, asking BC Hydro to resubmit it in November. The province’s wind industry will use the opportunity to continue to push for industrial electrification, says Heap, and to demonstrate that wind is cost-competitive with new hydro.
A GL Garrad Hassan study commissioned by CANWEA in 2012, he notes, found more than 14,000GWh of wind potential at a cost of C$94/MWh or less. The same study found Site C would produce 5,100GWh for C$94/MWh.
BRITISH COLUMBIA – THE BASICS
Key long-term strategy decision Electrification of new industrial demand, via BC Hydro’s integrated resource plan
Decision expected Late 2013
Current installed capacity* 390MW, supplying about 1.75% of demand.
Construction pipeline 401MW
Current policy structure State-owned utility BC Hydro holds all-source requests for proposals (RFPs) to meet the government’s requirement that 93% electricity come from clean or renewable sources
What to watch out for No specific wind energy policy is anticipated, but the industry is a a strong competitor on a cost basis. Industrial energy demand is increasing, but not all of it is likely to be electrified. Standard practice for the global liquefied natural gas sector is to self-power the energy-intensive cooling and compression process because it is very sensitive to any interruption in supply, and BC is unlikely to change that in the near term.
* As of 15 August 2013
Ontario: Looking beyond big pipeline
The Ontario government is expected to released a revised long-term energy plan (LTEP) this autumn, after spending the summer consulting with industry and the public on issues that include how the province should obtain power between now and 2030. A formal review was part of the plan when the LTEP was first issued in late 2010, but it comes at a time when the province’s renewable-energy policy is in the midst of a complete overhaul.
The government announced in July that it would axe its controversial feed-in tariff (FIT) for renewable energy projects of 500kW and over and revert back to a competitive bidding process.
Given falling wind costs across North America, Ontario should be able to knock 30% off the FIT programme’s C$0.115/kWh price with the change, says Matt DaPrato, senior research analyst at consultancy IHS Emerging Energy Research. “I think that actually helps wind moving forward, just in terms of its competitiveness,” he says.
A CANWEA analysis found the levelised cost of energy for wind in Ontario falls in the middle of the pack. Hydro is cheaper but requires new transmission. Combined cycle gas and co-generation costs are lower, but gas has its own challenges – fuel transportation costs in the province are significant and growing, and the province’s independent environmental commissioner has already warned against moving too strongly toward gas, saying it would undermine the progress the province has made in reducing greenhouse gas emissions by shuttering its coal fleet.
A key question facing the Ontario wind industry is the timing of new additions. The province currently has an electricity supply surplus, but by the 2018-2023 timeframe is looking at a 7GW deficit. CANWEA wants the province to fill 2GW of that gap with wind, says Brandy Giannetta, the association’s regional director for Ontario. It also wants to see a predictable schedule of procurement, starting with 250MW in 2014 and 2015, followed by 750MW in each of the following two years. Given project approvals can take up to four years, she says, the selected projects would be coming online just as the power is needed.
David Butters, president of the Association of Power Producers of Ontario, is not convinced the province will be looking to procure more wind as quickly as the industry would like. It still has about 3.7GW of contracted wind projects that have yet to come online. “My view would be that we’ll build out what we’ve currently got in the pipeline, and then we’ll take a bit of a breather and probably have to reassess it in a few more years,” he says.
There are other factors at play that could open the door to further opportunities for wind development in Ontario. One is attrition in the projects that have FIT contracts but have yet to be built, which Giannetta estimates could be as much as 1.3GW. Another is the extent to which Ontario decides to refurbish its aging nuclear fleet, which currently supplies 53% of the province’s power.
ONTARIO – THE BASICS
Key long-term strategy decision Long-term energy plan
Decision expected Autumn 2013
Current installed capacity* 2,043MW, supplying about 3% of demand
Construction pipeline 3,739MW
Current policy structure Transitioning to competitive bidding for new renewable-energy supply
What to watch out for Given wind’s relative competitiveness and the government’s expressed commitment to continued renewable-energy development and supply mix diversity, another 2GW of contracts seems reasonable. The timing of new procurement, however, is uncertain.
* As of 15 August 2013
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