Canadian market widens up for US supply chain

Ontario’s termination of domestic content requirements was a welcome change for the US wind power supply chain. But how ready is the market for new entrants?

Summerhaven construction project supplier H.B. White Canada had a significant role ranging from road construction to turbine foundations

By Heba Hashem

Canada’s Green Energy Act 2009 had set rules requiring minimum local content levels of up to 50% for wind projects contracted under the programme to obtain subsidies.

Following a failed appeal against a World Trade Organisation ruling, the renewable FiT programme was cancelled last May to be replaced with a bidding system, and the domestic content threshold for small projects was cut back, in a move that was welcomed by developers and financiers.

The new law, however, will not affect FiT projects that have contracts even if not built yet. FiTs for small renewable projects – under 500 kW in size – are also still applicable.

While this indicates that the market is slowly opening up to non-Canadian wind suppliers, it may discourage the contribution of small system suppliers.

Large projects a must for OEMs

“The problem is when a country imposes local content requirements; entry into the market is limited to those companies developing a major presence for their products in the host country,” says Jeffery Maurer, a California-based wind energy consultant and former vice president of international strategic projects at Clipper Windpower.

If every country had local content requirements, he says, this would limit the ability to use the best technology, especially for small projects, where it is unlikely that incentives would be enough to encourage investments because of the relative size of the projects.

On the other hand, if there was a chance to compete for large projects through incentives to attract business, then large original equipment manufacturers (OEMs) with the best technology would be willing to invest in factories.

Indeed, at the beginning of the FiT programme, General Electric added a production facility to an existing industrial motors plant and Siemens opened a blade plant in an automotive parts factory in Ontario.

As a result, GE won several supply contracts, one of which was for the 100 MW Dufferin Wind Farm in Ontario's Melanchthon County. The massive project, now in the construction phase, is using 49 of GE’s wind turbines and will span over 6,000 acres.

“Obviously, manufacturing locally results in lower cost to transport the components and lower custom duties, which can offset some of the costs,” says Maurer, whose experience in the wind power industry spans 23 years.

“But building large manufacturing facilities in the host country is usually a large cost, which needs to be amortized over time. This may not be good enough to amortize the cost of building the facilities.”

Go local

Meanwhile, NextEra Energy Resources, the largest generator of wind and solar power in United States, made an early move when it established NextEra Energy Canada back in 2006, and by doing so, it enabled itself to hire local workers and businesses to complete projects.

Today, its Canadian subsidiary operates five wind facilities and is developing at least seven additional wind energy projects in Ontario, which are expected to be operational by 2015.

“Suffice it to say, we have met the domestic content requirements in Ontario for our projects built or currently under construction,” Steve Stengel, NextEra’s spokesman, told Wind Energy Update.

The 124.4 MW Summerhaven Wind Energy Centre, developed by NextEra Energy Canada’s subsidiary Summerhaven Wind LP and completed in late 2013, utilised more than 300 local workers and 55 Ontario businesses. The project was awarded a FiT contract by the Ontario Power Authority.

Similarly, NextEra’s 60 MW Adelaide Wind Energy Centre in Ontario’s Middlesex County is using various local components and was awarded a FiT contract.

While the turbine blades are being imported from the US and Europe, the steel for the towers will be sourced from Ontario, and the main transformers will also be assembled and tested in Ontario – despite the withdrawal of local content requirements. The facility is expected to come online this June.

Distributed wind

When it comes to small and distributed wind power installations, the scenario slightly changes. Mateo Chaskel, vice president of Operations at New York-based Urban Green Energy, explains: “The laws that govern content requirements for distributed wind turbines – such as those supplied by UGE – are not necessarily the same as those that regulate utility-scale wind power”.

As a result, the company does not often face projects that specifically require domestic requirements.

UGE is a provider of distributed renewable energy and modular components, best known for its vertical axis wind turbines, which are designed to capture wind shifts and turbulence. In Canada, the company sells it turbines through partners including Foothills Power, Rombro Solar Energy and IC North; and has so far supplied about 60 projects in the country, to clients such as Ford and various community developments.

Most Canadian provinces now offer net metering that allows small wind turbine owners to earn credit from their local utility if they produce excess power through their turbine. In fact, provincial governments are now the drivers of wind energy policy in Canada, with federal government playing almost no role.

Incentives to spur new wind users

Such incentives are bound to encourage more residential and commercial users to consider small, modular wind power systems, which translates into more demand from suppliers.

For example, turbines that are 100 kW or less, which are installed in the prairie province of Saskatchewan and comply with the local utility’s net metering policies, are eligible for a rebate of 35% of eligible costs, with a maximum of $35,000 under the Saskatchewan Net Metering Program.

In Ontario, small on-shore wind turbines generating 10kW or less may qualify for a FiT Feed-in-tariff of 11.5 cents/kWh, with an escalation percentage of 20%. A capacity of 65.3 MW will be available in 2014 under the microFIT programme.

Beyond the optional FiTs for small-scale wind, the overall market should be easier to access for the neighbouring U.S. supply chain, now that Ontario’s local content rules have been withdrawn.

Last year, Canada’s wind power industry installed a record-breaking 1,599 MW, bringing the country’s total installed wind capacity to 7.8 GW. A similarly optimistic trend is expected in 2014.