Post-FIT, Turbine OEMs Mull Ontario Future
The Ontario government’s recent decision to end the province’s feed-in tariff (FIT) program for large-scale renewable energy projects – in favor of a competitive-procurement mechanism – has introduced a jolt of uncertainty for provincial wind turbine component suppliers and manufacturers.
On May 30, Energy Minister Bob Chiarelli announced the province and the Ontario Power Authority (OPA) will develop a competitive-procurement process for renewable projects exceeding 500 kW while also making 900 MW of new capacity available for the Small FIT and microFIT programs. The change is immediate and effective for all projects going forward.
The government’s decision to end the nearly four-year-old program could not have come at a worse time for some manufacturers and suppliers.
In fact, some suppliers have invested heavily to retrofit or build new production facilities in the province. For example, Suzlon Group’s REpower Systems expects to open a blade production facility in Welland this fall. And Siemens Canada tells NAW it is ramping up wind blade production at its Tillsonburg-based facility and anticipates the delivery of the first blade later this month.
Pattern Energy – which along with Siemens is helping Samsung Renewable Energy fulfill a C$7 billion agreement it struck with the provincial government following the Green Energy Act in 2009 – believes the end of the FIT program may hinder Ontario’s wind energy market.
“Replacing the FIT program with competitive bidding could result in lower-cost power, but it will likely slow down the amount of renewable resources being built in Ontario,” says Pattern Energy CEO Mike Garland. “It may increase the risk of performance of the projects that do go forward if the projects are not owned and operated by reliable wind companies.”
“We understand these market conditions can be driven by policy decisions,” says a Siemens spokesperson. “However, our focus is to provide renewable energy solutions to meet Canada’s energy demands.”
To comply with the Ontario FIT program’s domestic-content requirements, which mandate that for wind projects exceeding 10 kW, 50% of the cost of a project must be derived from Ontario goods and labor, Siemens maintains it is securing components, such as towers, from local manufacturers.
However, in May, the World Trade Organization (WTO) ruled that Ontario’s domestic-content requirements are illegal. The ruling comes after the European Union and Japan claimed that the rules discriminated against foreign companies and unfairly pressured Ontario renewable energy developers to purchase locally sourced materials.
A spokesperson for the Ministry of Energy says Ontario intends to comply with the WTO ruling and is working with the federal government on next steps. Further, the spokesperson explains the Ministry will be in a better position to communicate details for large-scale wind later this year after the province reviews its Long-Term Energy Plan, which considers all aspects of Ontario’s electricity system – conservation, generation, transmission, distribution and emerging technologies such as energy storage.
While the OPA has signed contracts for an additional 3.7 GW of wind energy capacity still remaining from the large-scale FIT, the pipeline for future large-scale wind projects will slow.
Nonetheless, some manufacturers remain undeterred. For its part, Siemens continues to view Ontario as an attractive market for wind power and later this year will open a wind power service facility in Chatham, Ontario, which Siemens characterizes as the first of its kind in Canada.
Vestas, which maintains a Toronto sales office and several service centers in and around local wind farms, says although it is “disappointed” by the government’s decision, Canada remains an important market. By the end of this year, Vestas will have supplied 178 turbines to six new Ontario wind farms.
“The challenge now after the cancellation of the FIT program and acceptance of the World Trade Organization’s ruling is keeping these facilities in the province,” explains Luke Lewandowski, MAKE Consulting’s lead regional analyst for North America. “An industry-wide effort to consolidate manufacturing assets and reduce overhead may trump maintaining small-scale facilities in the province, especially with independent sourcing options nearby.”
He explains that market prospects for manufacturers in the province without a strong order book become dubious as manufacturers in neighboring Quebec and in the U.S. with underutilized capacity can now serve Canada’s largest market.
“Existing non-firm orders may now be re-evaluated to secure cost savings in an industry confronted with shrinking margins,” Lewandowski continues. “The change in policy is a boon for independent suppliers with facilities in proximity to Ontario, such as LM Wind Power, Marmen, Ventower and Energetx.”
He notes that one potential benefit for local manufacturers from this policy review is the stronger emphasis on municipal participation. Projects that use locally made equipment may receive higher local approval, he says, “but this isn’t a strong enough argument to maintain a facility in the province.”
Is The U.S. Showing
The late extension of the production tax credit (PTC) has certainly crimped wind development activity this year. However, Washington-based Port of Vancouver USA (POV) says it is beginning to see some rumblings of activity regarding turbine component shipments slated for U.S. projects.
Alastair Smith, the POV’s senior director of marketing and operations, tells NAW that by the time the PTC was extended in early January, turbine original equipment manufacturers were long out of their production cycle.
And when the PTC was finally extended, there was no definition of what it meant to begin construction. “That affected us too,” he explains. “We had no movement of wind components of any kind until two months ago.”
Smith says the only request to move turbine components came from Ralls Corp., the developers behind a group of proposed Oregon wind projects whose contracts were later nullified by the Obama administration out of national security concerns.
The developers later named Obama in a lawsuit. As the lawsuits began, the 20 towers and 10 nacelles slated for the wind projects idly sat at the port.
“Last summer, the turbine shipments just stopped,” Smith recalls, adding that Ralls Corp. has only recently begun to relocate some towers and nacelles to Colorado.
Slowly, the trend could be changing, however. Citing discussion with industry participants as well as internal forecasts, Smith anticipates more project announcements soon.
“In talking to customers, we hear anecdotally that project activity will begin,” Smith says. “We are just not sure at this point where the components are headed.”
For its part, the POV has a bit more certainty for projects planned closer to home. Although the project has not been finalized, Smith expects the POV to handle turbine components for Phase II of the Lower Snake River wind farm.
The wind farm, which will be powered by 116 Siemens 2.3 MW wind turbines, was acquired by Portland General Electric earlier this month.
Still, he says, the U.S. wind market remains challenging, specifically as it relates to imports of wind towers made in China and Vietnam.
Last year, the U.S. International Trade Commission determined that the U.S. wind industry was materially injured by dumped and subsidized imports of utility-scale wind turbine towers from China and Vietnam.
The U.S. Department of Commerce later levied steep anti-dumping and counter-vailing duties on wind towers emanating from China and Vietnam.
Since then, shipments destined for U.S. wind farms have all but stopped, Smith explains. “With 90 to 100 percent duties levied on top of the purchase, the price for one of those is now about the same as a tower made in the U.S.”
While the fines have helped level the playing field for U.S. tower producers, the POV has been significantly impacted. Smith says tower shipments from China and Vietnam comprised the lion’s share of the wind components handled by the port. To fill the void, the POV has recently devised a way for components to continue arriving at the port – but be shipped to Canada without being subject to anti-dumping and counter-vailing duties.
Despite the slowdown in the U.S. market, the Canadian wind market remains robust. Led by Alberta and British Columbia, shipments to Canada are moving briskly. As evidence, Smith says the POV will handle 52 Vestas towers slated for the 300 MW Blackspring Ridge Wind Farm, located in Alberta, later this summer or early fall.
He credits the POV’s recent enhancements to its rail and crane infrastructure – as well as its proximity to the Columbia River Gorge system – for its success with Canadian shipments.
How Wind Can Aid In Climate Change
As general-session panelists dutifully recited the attributes of wind energy at the concluded WINDPOWER 2013 in Chicago, fellow panelist Larry Schweiger, president and CEO at the National Wildlife Federation (NWF), let forth with statements so pointed that they quickly shattered the genial atmosphere of the McCormick Place ballroom.
Schweiger urged wind attendees to become their own best advocates in educating the public and decision-makers about how wind energy can help combat climate change.
“For a long time, the wind community has talked about wind energy in a way that has not been about the climate threat,” Schweiger tells NAW, adding that wind energy, among other renewable energy sources, can help mitigate the rate of global warming from reaching the point of no return.
Schweiger cites a November 2012 report from PriceWaterhouseCoopers examining the effect the carbon-intensity rate has on global temperatures. The report – “Too Late for Two Degrees?” – found that in order to give the planet a 50/50 chance against a two-degree rise in temperature, global carbon emissions must be reduced by 50%.
“We need to help people understand that we are facing a climate emergency,” Schweiger says, explaining recent catastrophic weather events will become the norm if the planet continues to warm.
“With four percent more moisture over the oceans, coupled with warmer surface waters, there is more moisture and energy to supercharge bigger hurricanes,” he adds, noting Hurricane Sandy.
He says scientists are also studying the link between May’s deadly Oklahoma tornadoes and climate change, but at this moment scientists do not have sufficient data to conclusively link tornado frequency and intensity to a warming planet. “The point is we are changing the climate with carbon pollution, and that is triggering unprecedented and dangerous weather conditions around the world,” he says.
“The wind industry needs to educate decision-makers as well as the public about how wind energy is an important pathway in climate change,” Schweiger continues. “We need to find a way to link the two together. This is not about wind for wind’s sake – it’s a solution.”
Such efforts will no doubt raise the ire of fossil fuel advocates, who are battle-tested in waging hard-fought campaigns. Schweiger explains scientists studying climate change have been “brutalized by the surrogates of the fossil fuel industry.”
“The fossil fuel industry plays hard ball,” he says. “The people that have gone after them have targets on their backs and scars on their bodies. The wind industry needs to be more assertive in their messaging. Otherwise, the wind industry will continue to plod along.”
For its part, the American Wind Energy Association (AWEA) maintains that it continually works with the NWF and other environmental non-governmental organizations (ENGOs) on climate change matters, according to Peter Kelley, AWEA spokesperson.
By deploying non-emitting renewables, the production tax credit and renewable portfolio standards are, in essence, climate policy, Kelley notes. “We have worked with NWF and other ENGOs to advance these policies.”
Evidence that utilities are increasingly turning to wind energy is well documented, and recent announcements show this trend accelerating. Last year, for the first time ever, wind power came in as the largest single source of new electric generating capacity in the U.S., installing 42% of all new capacity in 2012 and 36.5% of all new generating capacity over the past five years.
Utilities are increasingly recognizing the hedge value against fossil fuel price volatility and the zero fuel risk premium that wind energy brings to a generation portfolio.
By the end of 2012, the top five electric utilities with wind power capacity on their systems were Xcel Energy, MidAmerican Energy (including PacifiCorp), Southern California Edison, Pacific Gas & Electric and American Electric Power. Eight utilities currently purchase or own more than 1 GW of wind power each.
In total, more than 1,400 utilities purchase or own wind power directly or through wholesale electric power providers, including joint action agencies, generation and transmission cooperatives, and other authorities. This means that over 43% of the 3,250 electricity providers in the U.S. have wind energy in their generation mix.
Helping to drive the drop in wind prices is the larger wind-swept area of the turbine blades and the taller wind towers, along with improving turbine production and a subsequent improvement in net capacity factors. Not only have such technology improvements meant more output at sites historically known for their top wind resources, they have also triggered a growth in the number of geographic areas in which wind farms are economically feasible. Areas previously not considered to be potential project sites are now under development, giving an ever-growing number of utilities a cost-effective wind energy option.
Further, a number of recent announcements continued to underscore the trends of utilities doing even more with wind power – in some cases, on an unprecedented scale:
- MidAmerican Energy announced plans to add up to 1,050 MW of wind generation, consisting of up to 656 new wind turbines, in Iowa by year-end 2015. The company indicated that this latest expansion of wind power will enhance economic development and provide in excess of $360 million in additional property tax revenue over the next 30 years.
- Xcel Energy announced that it would sign new power purchase agreements in Colorado for an additional 550 MW of new wind projects resulting from a request for proposals issued earlier this year. Xcel Energy indicated that wind power is now competitively priced with other forms of generation, which will allow it to increase the amount of wind generation in its Colorado system by 25%.
- The Michigan Public Service Commission approved two power purchase agreements for wind projects in that state to supply wind energy to DTE Energy, the state’s largest utility, allowing the utility to meet renewable portfolio standards requirements one year early. This led to a plan filed in early June that will allow DTE Energy to reduce a renewable energy surcharge for their residential customers from three dollars to 43 cents, based on the declining cost of wind power – driven by improved wind turbine technology and the extension of the production tax credit, noted DTE Energy in its filing.
As wind energy expands in the U.S., utilities are increasingly locking in long-term fixed prices and reaping the benefits for their stakeholders, their customers and their bottom line.
At the American Wind Energy Association (AWEA) Utility Working Group meeting held in conjunction with WINDPOWER 2013, two trends emerged: utility growth in operations and maintenance (O&M) of wind turbines and the impact of large corporate purchasers of wind energy.
Not surprisingly, in parallel with utilities’ increasing use of wind power is their growing interest in wind energy O&M. This activity underscores utilities’ growing confidence in, and understanding of, wind energy as a resource that can comprise a larger portion of their energy mix. These topics will be front and center for additional work by the Utility Working Group.
A large number of utilities have also reported significant and sudden interest in the past few months by large corporate entities interested in directly procuring large amounts of wind energy to power their operations and the desire to work with their utilities to provide options as never before in this area.
Companies such as Google, Facebook and Apple have all made announcements recently along these lines, and utilities are increasingly receiving more inquiries and requests from their large corporate and industrial customers.
Utilities agree that this trend will only increase, and AWEA will be working with them to devise common and practical business models and solutions to allow utilities to meet these requests.
Jeff Anthony is AWEA’s senior director of membership and business development. He can be reached at firstname.lastname@example.org.
Wind Farm Sales
Vancouver-based developer Finavera Wind Energy Inc. reports that its shareholders have overwhelmingly voted in favor to authorize the sale of the company’s interest in two wind farms.
At its annual meeting, 98.99% of represented Finavera shares voted in favor of the previously announced transaction – well above the 66.67% necessary. In April, the developer announced it had finalized a $28 million purchase and sale agreement with Pattern Renewable Holdings Canada ULC, a subsidiary of Pattern Energy Group LP, for Finavera’s 47 MW Tumbler Ridge and 117 MW Meikle wind energy projects. However, the transaction required shareholder approval.
“We are completely aligned with Pattern Energy to progress these projects to operation and will continue to provide Pattern with ongoing support in order to facilitate the key milestone of construction financing,” says Finavera CEO Jason Bak.
Cape Wind Nets
Danish pension company PensionDanmark, via the fund Copenhagen Infrastructure I managed by Copenhagen Infrastructure Partners (CIP), has made a $200 million investment in the Cape Wind offshore wind farm.
Following 12 years of development, Cape Wind anticipates financial closing and beginning of construction of the 468 MW project, slated for Nantucket Sound, by year-end.
“This important investment is a milestone in the Cape Wind project. We are pleased to welcome PensionDanmark and CIP into the project as experienced investors in offshore wind,” says Cape Wind President Jim Gordon.
“We are delighted to participate in the Cape Wind project. Investing in energy infrastructure is not new to us,” explains Torben Möger Pedersen, CEO of PensionDanmark. “We have made equity investments in two offshore wind farms in Denmark and three onshore wind farms in the U.S. and provided debt financing for onshore wind parks in Sweden and Belgium. At a time when bond yields are very low, this is expected to be an attractive investment opportunity for us.”
In addition to the PensionDanmark funding, Cape Wind will be financed through a combination of equity from investors and loans from banks and other institutions. The Japanese Bank of Tokyo-Mitsubishi UFJ is coordinating in-debt financing for the project.
Vestas has announced it is launching the first phase of a global campaign to separate myths from facts and channel public support toward political action favoring wind energy. The company says the Act on Facts campaign embodies a unique approach to dealing with significant business challenges, integrating multiple marketing, communications, and public affairs channels and platforms.
“The wind industry is being attacked by media-savvy and politically influential adversaries who often display a brazen disregard for factual information. The Act on Facts campaign is our way of fighting back,” comments Morten Albaek, Vestas Group senior vice president.
Albaek is joining other wind energy stakeholders at a launch event in Australia, a region the company says is a hotbed of anti-wind activity. The event will feature a live panel discussion about the tactics used by anti-wind energy activist groups and what the wind industry can do to counter the claims and convert the so-called “quiet majority” of wind energy supporters into active campaigners.
Together with wind energy players such as Infigen Energy Managing Director Miles George and a panel of experts on climate, health and regional development, Albaek will officially unveil the Act on Facts campaign, including the Web portal actonfacts.org. According to Vestas, the portal features well-documented information to help dispel the scare tactics used by anti-wind activists, as well as up-to-date information on pro-wind initiatives in which local citizens can engage.
Albaek describes Act on Facts as a “bold stroke” to counter anti-wind activists. “Veering off the well-trodden public relations path entails risks,” he says. “But playing it safe is even riskier.” w
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Post-FIT, Turbine OEMs Mull Ontario Future
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