Wind power making gains as competitive source of electricity

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It’s taken a decade of technological improvement and a new competitive bidding process for electrical generation contracts, but wind may have finally come into its own as one of the cheapest ways to create power.

Ten years ago, Ontario was developing new wind power projects at a cost of 28 cents per kilowatt hour (kWh), the kind of above-market rate that the U.K., Portugal and other countries were offering to try to kick-start development of renewables. 

Now some wind companies say they’ve brought generation costs down to between 2 and 4 cents — something that appeals to provinces that are looking to significantly increase their renewable energy.

The cost of electricity varies across Canada, by province and time of day, from an average of 6.5 cents per kWh in Quebec to as much as 15 cents in Halifax.

Capital Power, an Edmonton-based company, recently won a contract for the Whitla 298.8-megawatt (MW) wind project near Medicine Hat, Alta., with a bid of 3.9 cents per kWh. That price covers capital costs, transmission and connection to the grid, as well as the cost of building the project.

The Halkirk Wind project in east-central Alberta, which began operating in 2012, was built by Capital Power. The company’s Whitla project near Medicine Hat is still under development. (Jimmy Jeong/Capital Power)

Jerry Bellikka, director of government relations, said Capital Power has been building wind projects for a decade, in the U.S., Alberta, B.C. and other provinces. In that time the price of wind generation equipment has been declining continually, while the efficiency of wind turbines increases.

Increased efficiency

« It used to be one tower was 1 MW; now each turbine generates 3.3 MW. There’s more electricity generated per tower than several years ago, » he said.

One wild card for Whitla may be steel prices — because of the U.S. and Canada slapping tariffs on one other’s steel and aluminum products. Whitla’s towers are set to come from Colorado, and many of the smaller components from China.

« We haven’t yet taken delivery of the steel. It remains to be seen if we are affected by the tariffs. » Belikka said.

Another company had owned the site and had several years of meteorological data, including wind speeds at various heights on the site, which is in a part of southern Alberta known for its strong winds.

But the choice of site was also dependent on the municipality, with rural Forty Mile County eager for the development, Belikka said.

Alberta aims for 30% electricity from wind by 2030

Alberta wants 30 per cent of its electricity to come from renewable sources by 2030 and is encouraging that with a guaranteed pricing mechanism in what is otherwise a market-bidding process.

While the cost of generating energy for the Alberta Electric System Operator (AESO) fluctuates hourly and can be a lot higher when there is high demand, the winners of the renewable energy contracts are guaranteed their fixed-bid price.

The average pool price of electricity last year in Alberta was 5 cents per kWh; in boom times it rose to closer to 8 cents. But if the price rises that high after the wind farm is operating, the renewable generator won’t get it, instead rebating anything over 3.9 cents back to the government.

On the other hand, if the average or pool price is a low 2 cents kWh, the province will top up their return to 3.9 cents.

(AESO)

This contract-for-differences (CfD) payment mechanism has been tested in renewable contracts in the U.K. and other jurisdictions, including some U.S. states, according to AESO.

Competitive bidding in Saskatchewan

In Saskatchewan, the plan is to double its capacity of renewable electricity, to 50 per cent of generation capacity, by 2030, and it uses an open bidding system between the private sector generator and publicly owned SaskPower.

In bidding last year on a renewable contract, 15 firms submitted bids, with an average price of 4.2 cents per kWh.

One low bidder was Potentia with a proposal for a 200 MW project, which should provide electricity for 90,000 homes in the province, at less than 3 cents kWh, according to Robert Hornung of the Canadian Wind Energy Association.

« The cost of wind energy has fallen 70 per cent in the last nine years, » he says. « In the last decade, more wind energy has been built than any other form of electricity. »

Ontario remains the leading user of wind with 4,902 MW of wind generation as of December 2017, most of that capacity built under a system that offered an above-market price for renewable power, put in place by the previous Liberal government.

In June of last year, the new Conservative government of Doug Ford halted more than 700 renewable-energy projects, one of them a wind farm that is sitting half-built.

The feed-in tariff system that offered a higher rate to early builders of renewable generation ended in 2016, but early contracts with guaranteed prices could last up to 20 years.

Hornung says Ontario now has an excess of generating capacity, as it went on building when the 2008-9 bust cut market consumption dramatically.

But he insists wind can compete in the open market, offering low prices for generation when Ontario needs new  capacity.

« I expect there will be competitive processes put in place. I’m quite confident wind projects will continue to go ahead. We’re well positioned to do that. »

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Ottawa to deliver competitive boost for Canadian companies

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OTTAWA—The federal government will roll out measures to improve the competitiveness of Canadian companies but will stop short of matching U.S. corporate tax cuts in the fall economic update due to the eye-popping price tag.

Finance Minister Bill Morneau’s department has calculated it would cost up to $70 billion over five years in lost revenue if Ottawa tried to match two tax measures that business leaders in Canada say put this country at a competitive disadvantage, according to a senior government official.

U.S President Donald Trump cut the American corporate tax rate last January from 35 per cent to 21 per cent, essentially erasing a tax advantage Canada had with its combined federal-provincial corporate rate standing at about 28 per cent.

Trump also allowed companies to immediately deduct the full cost of capital purchases.

But Canadian finance officials calculate a similar broad-based corporate tax cut would mean forgone tax revenues of $40 billion over five years.

And to allow businesses to write off 100 per cent of their capital spending immediately, instead of spreading the deductions over several years or the useful life of an asset, would cost $30 billion over five years.

On top of that, a senior government official said when Canada did have a corporate tax advantage over the U.S. it didn’t result in more investment by business, rather in more dividends for shareholders.

Federal officials are mum on what measures the Nov. 21 fall economic statement — sometimes called a mini-budget — will contain, but they cast it as an ambitious update admittedly aided by a strong economy.

“Canada’s economy is exceeding forecasts and doing quite well,” said a source, who spoke on the condition of anonymity.

“We’re taking measures in a balanced way being fiscally responsible to ensure confidence continues in our economy and good jobs are being created for the middle class.”

Morneau met Friday with leading private sector economists, as is custom, to gather their perspectives and expectations for the Canadian and global economies in the months ahead.

Among them was CIBC’s chief economist, Avery Shenfield. Before the meeting, Shenfield published an analysis of which way the fiscal winds are blowing, and said afterwards his views hadn’t changed.

He said soft oil prices have created a “new headwind” for the Canadian economy.

Markets, he said, are watching closely for Morneau’s response “to the competitive challenges posed by last year’s U.S. tax reforms,” particularly a made-in-Canada capital investment boost.

“If Morneau delivers on that hope, some will see it as a new tailwind for a Canadian economy that has not fared well in attracting business capital spending.”

Shenfield said past updates and budgets show the federal government “is lagging behind its plans to spend on infrastructure projects across the country.”

“In trying to spend wisely, and in concert with other levels of government, it’s taking longer to get the funds out the door and the shovels into the ground. We might see more of the same in the week ahead update.”

Add to that, Shenfield said, the Liberals have an incentive in the short term to “keep their powder dry, saving fiscal room against their deficit targets for announcements close to next fall’s election.”

For his part, Morneau is talking only in generalities.

“By investing in the things that matter to Canadians while maintaining a clear focus on fiscal responsibility, our government is helping to build a strong middle class, and helping to make life more affordable for Canadian families,” he said in a statement.

Nevertheless, the Wednesday update is expected to contain measures aimed at showing the Liberal government of Justin Trudeau is serious about diversifying Canada’s international trade.

It could mean new trade promotion offices opening abroad. It will certainly mean more emphasis on new markets.

Morneau, fresh off a visit to China last week, said Canada is looking to pursue sector-by-sector agreements with Beijing, emphasizing trade in agriculture and energy, in the hope that agreements reached in the short term could become the building blocks for an eventual long-term deal.

Finally, the update will also emphasize the Trudeau government’s drive to lower and eliminate domestic barriers to internal free trade, an issue Trudeau wants to make a dominant theme at the first ministers’ meeting in early December in Montreal.

But any new significant measures to deal with skilled labour challenges in Canada will likely wait for a spring budget or even the Liberal government’s fall election platform.

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