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Canada's renewable powerhouses are on the march

IN DEPTH | With a relatively small wind sector north of the border, Canadian renewables companies are increasingly moving into the US market, where they have been enjoying considerable success, writes Karl-Erik Stromsta in Toronto

The US renewables market has long been a stomping ground for European heavyweight developers like Spain’s Iberdrola, Portugal’s EDP and Germany’s E.ON which have amassed multi-gigawatt American wind empires. Lately, however, a new breed of foreign developer has been making a big impact on the US market — and this time they’re coming from the north.

Over the past decade, Canada has quietly reared a formidable crop of homegrown renewables champions, fortified by the country’s stable hydro and vibrant wind markets. In many cases, Canadian renewables developers are in stronger financial shape than their American counterparts, and many are acquiring a taste for the massive — if quirky — electricity market south of the border.

Canadian renewables companies are buying US developers, US projects and even entire portfolios. Some are eyeing the nascent US offshore wind market. They are bringing their well-greased relationships with Canada’s big investment houses with them. And there’s every sign they’re just getting started.

The growing aggressiveness of Canada’s renewables sector was highlighted in March when Brookfield Renewable Partners, a Toronto-based hydro operator, outmanoeuvred rival suitors to take control of the TerraForm Power and TerraForm Global yieldcos from their bankrupt US parent SunEdison — catapulting Brookfield into a position of prominence on the global renewables stage.

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Another good example is Algonquin Power & Utilities, a renewables developer and regulated utility company based near Toronto. Founded in the late 1990s with a focus on Canadian hydro, Algonquin diversified into Canadian wind development last decade before acquiring a portfolio of US projects from Spain’s Gamesa.

In 2016, Algonquin finished building two large US wind farms — the 200MW Odell in Wisconsin and the 150MW Deerfield in Michigan’s windy “thumb” — and at the end of the year it spent $75m on turbines that will allow it to build as much as 700MW more US capacity over the next few years, all of it eligible for the full production tax credit (PTC).

Canada was an ideal place for Algonquin to grow up, but “we’ve outgrown the market”, explains Jeff Norman, vice-president for business development at Algonquin Power, the company’s competitive generation arm. “We want to continue to grow, and we need to be in the US market to maintain those aspirations.

“We’re still very happy to participate in the Canadian market and view it as valuable. It’s just not our prime market any more.”

Algonquin’s southward march is being mirrored across Canada’s increasingly dynamic and globalised renewables sector. It’s being seen among independent power producers like Calgary’s Capital Power, which is building the 178MW Bloom wind farm in Kansas. It’s happening among Canadian private-equity firms such as Fengate, which last year made its first-ever investment in the US, buying a stake in the 120MW San Juan Mesa wind farm in New Mexico.

Importantly, it’s also happening among Canada’s massive pension funds, which bring the kind of financial heft that can move the needle even in a market as big as the US.

Caisse de Dépôt et Placement du Québec made an early move in 2014, buying a minority stake in Chicago-based Invenergy, North America’s largest privately owned renewables developer. So far this year, Alberta Investment Management acquired a 50% stake in Utah-based developer sPower, while Ontario Teachers’ Pension Plan agreed to back US transmission developer Anbaric, which has a number of huge renewables-related projects under way.

There’s always been a substantial investment flow between Canada and the US, including in the energy markets. But executives agree the trend in renewables has been especially pronounced over the past few years. A number of factors appear to be driving it.

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To start with, the Canadian wind market is slowing down, and the landing may be rough. Canada now has the world’s seventh-largest installed wind base, nipping the heels of the UK.

But the outlook for short-term development in Ontario and Quebec, the main Canadian wind markets of the recent past, looks grim. Analyst MAKE Consulting believes Canada’s wind installation rate could drop by nearly half over the coming decade compared to the past ten years.

The brightest spots for the Canadian wind market right now are the western provinces of Alberta and Saskatchewan, both of which have recently initiated processes to procure substantial amounts of new renewables capacity by 2030. But industry sources say those markets will not be enough to absorb the ambitions and financial firepower of Canada’s renewables independent power producers (IPPs).

One Canadian renewables executive points out that there’s now more wind capacity spinning in Texas than there is total generation capacity in Alberta.

Even deals in the secondary market for existing projects in eastern Canada may become scarcer in the coming years.

In February, Fengate closed on an acquisition of three utility-scale solar plants totaling 60MW from Canadian Solar in Sault Ste Marie, Ontario, and it would like to buy more wind and solar assets in the province, says Fengate director Andrew Cogan. But much of the fruits of Ontario’s recent renewables boom has been thoroughly picked over.

“A lot of those assets are now in their second or third hands, and by the time they get there, they tend not to change hands too often,” Cogan tells Recharge. “We’ll keep an eye out. But the growth is going to come, I think, from pushing south.”

The US market is “much larger, it’s very sophisticated and it’s really liquid”, he adds. “We’ve got three or four other projects on the go in the States right now, with another six or seven on the near-term horizon.”

At the same time as opportunities are growing scarcer in eastern Canada, Canadian developers are finally — and grudgingly — getting comfortable with some of the complexities of the US market, particularly the PTC and the attendant need for tax equity.

“For years many large Canadian IPPs stayed away from the US,” says John Carson, chief executive of Alterra Power, the British Columbia-based renewables developer that recently handed Vestas the turbine order for its second US wind project, the 200MW Flat Top in Texas.

“It was mostly because of the tax-equity aspect of it, but also because there were a lot of good Canadian deals they could spend their time on,” Carson tells Recharge. “As those deals have dried up, some of them have begun to look south.” And in the meantime, “they’re finally realising tax equity is not the demon they once thought it was”.

Like a number of Canadian developers, Alterra took steps in late 2016 to qualify future wind capacity for the full PTC — in its case as much as 1.7GW — and the company has plans to open a US office.

Canada’s fossil-fuel giants — which have generally embraced renewables more quickly than their US counterparts — are also pressing into the US renewables market. TransCanada, the company behind the controversial Keystone XL oil trunkline, owns a 132MW wind farm in Maine, and pipelines giant Enbridge has become a substantial wind player in the US — including its recent purchase of the 249MW Chapman project in Texas, due for completion this year.

"Developers like Northland are taking what they’ve learned in Canada and bringing it to bear in markets that are at a higher-growth point in their cycle right"
Mike Crawley, Northland Power

The trend of Canadian companies pushing into the US renewables market is universally expected to continue. Indeed, some Canadian developers with lingering reservations about the PTC may actually accelerate their push into the US as the tax credit phases down over the next few years.

Innergex, the Montreal-based renewables IPP, expects to become more competitive in the US market as the PTC winds down, and recently revealed it is considering buying a developer south of the border.

“I’d be happier without the PTC, and I think a Canadian company can do better without the PTC,” says chief executive Michel Letellier. Without the tax credit in place, Innergex will have “a better angle to attack the US market”, he says. Larger, better established US companies have a clear advantage over their Canadian competitors in attracting low-cost tax equity deals.

The US will no doubt remain the largest foreign target for Canada’s renewables sector, but Canadian players are increasingly flexing their muscles even further afield.

Last year, UK-based Cubico Sustainable Investments, which owns a 2GW portfolio of renewables assets across Latin America and Europe, was acquired by two Canadian pension managers — the Public Sector Pension Investment Board and Ontario Teachers’ Pension Plan.

Montreal-based Boralex, meanwhile, has become the largest independent wind developer in France, and Northland Power, the Toronto-based IPP, has made a major splash in the European offshore wind market, most recently by buying the 252MW Deutsche Bucht project in the German North Sea.

The era of the Canadian renewables powerhouse, it seems, has arrived.

“Developers like Northland are taking what they’ve learned in Canada — the skills, the relationships they’ve built — and bringing them to bear in markets that are at a higher-growth point in their cycle right now,”, Northland’s executive vice-president for business development, Mike Crawley, tells Recharge.

Beyond its plans to build more offshore wind farms in Europe, Northland is developing projects in Taiwan and looking to enter the emerging offshore market in the US Northeast.

“There are still growth opportunities in Canada,” Crawley notes. “But there are significant growth opportunities elsewhere.”

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