IN DEPTH: Siemens firm in Ontario

It has been a year of political and energy policy upheaval in Ontario, but Siemens Canada wind power leader Jacob Andersen has kept his focus on positioning the industrial giant for continued turbine business growth there and opportunities elsewhere in the sprawling country.

The young executive has played a key role in establishing Siemens as a top player in Ontario since he moved there in October 2010 from Houston, where he was director of wind service for the Americas region.

“Any manufacturer will need to be competitive regardless of what the political structure is. We will be,” he tells Recharge, adding that Siemens accepts that it operates in a sector with a lot of political shifts. “I prefer not to speculate about policy and policy changes. Our belief is that wind will be part of the energy mix in Canada – both in Ontario and outside of it.”

The stakes are high for Siemens in Ontario, Canada’s largest wind market, where it has made a sizeable investment this decade. The overwhelming majority of its fleet of more than 1GW is located there, along with a state-of-the-art blade plant in Tillsonburg that began production in July, employs 250 people and is already being expanded. 

The plant can produce blades for both the company’s popular 2.3MW turbine and a 3MW machine with a 113-metre rotor diameter that Siemens believes has good sales potential in the province. The company also selected Chatham to site its first Canadian wind turbine service and maintenance distribution centre.

Amid this success and a healthy order book that will keep the plant humming for several years, the governing Liberals took decisions that have cost Siemens additional  business, unnerved green investors, and raised questions about what role renewables will play in Ontario’s energy mix beyond existing feed-in tariff (FIT) contracts.

In July, Premier Kathleen Wynne’s government renegotiated a controversial C$9.7bn ($9.35bn) wind and solar power purchase deal with a consortium led by South Korea’s Samsung that includes Siemens among its suppliers. While she estimates Ontario will save C$3.7bn in electricity payments over 20 years, the new contract slashes wind capacity build-out by the group to 1.069GW, eliminating a potential 931MW in turbine orders for Siemens.

In February 2011, her predecessor Dalton McGuinty abruptly froze development of offshore wind, citing a need for more environmental research in the Great Lakes. The Liberals cancelled all projects, leaving developers saddled with financial losses. Windstream Energy, the only one with a FIT contract, had reached an initial supply agreement with Siemens for up to 130 turbines.

Wynne’s supporters say she has to make tough choices with green energy development in response to rising electricity costs, an aging fleet of nuclear plants and a World Trade Organisation (WTO) final ruling in May against Ontario linking FIT eligibility for renewable energy contracts to local equipment production and services. They argue the Samsung decision was part of this process.

The political opposition contends the Liberals should never have inked the Samsung pact as it was too costly for Ontario. Wynne had little choice but to act, critics say, given generous subsidies embedded in the deal will further push up energy costs as wind and solar projects come online.

Expensive electricity was a major campaign issue in late 2011when an increasingly unpopular McGuinty barely won a third term and formed a minority government. He resigned in late 2012 and left office in February, succeeded by Wynne, Ontario’s first female premier. Her energy minister Bob Chiarelli has vowed to “bend the cost curve down” for power. If the Liberals can, Wynne would potentially benefit should she call elections.

While avoiding Samsung contract politics, Andersen says the revamped accord still leaves Siemens with a strong backlog in Ontario. “It’s clear that the Samsung deal is a significant one,” he says. As part of the contract, his team has begun delivering blades to the 270MW South Kent project that is among the largest wind farms in Canada.

Turning to offshore, Andersen, a Dane, has ample experience with wind power in a marine environment. He joined Siemens Wind Power in 2003, working on installation of the Nysted site in his native Denmark – at the time, the world’s largest offshore wind farm. “We respect and agree that you need to know the consequences before you do something,” he says, referring to Ontario’s move to halt fresh water wind development until further study.

Meanwhile, in wake of the WTO ruling, industry is waiting for the Liberals to spell out their plans for wind beyond 5.8GW the province has contracted with FIT.  Wynne quickly scrapped FIT for wind and solar projects over 500kW replacing it with a competitive procurement process that Chiarelli will unveil soon. The domestic content requirement was cut to 25% as an interim step toward WTO compliance. His ministry is also wrapping up a review of the 2010 Long-Term Energy Plan that will include recommendations for wind, nuclear, solar and other energy build-out.

“I think it is difficult to ignore wind as a long-term, attractive energy source,” Andersen says, noting one benefit is that the future fuel price is known. Another is environmental considerations. Technology is also driving down the cost of wind faster than most competing energy sources. “It is amazing and impressive to see how much more efficient a wind turbine is today compared to five or 10 years ago,” he remarks. Advances in energy storage know-how will give wind another attractive dynamic going forward.

While the Liberals are expected to continue procuring renewable energy, Siemens and its rivals in Ontario will likely be chasing much smaller amounts than under McGuinty, when the province was among the world’s hottest wind plays. They will also feel pressure from imports that could squeeze prices and profits.

Andersen is unperturbed, noting his team is acutely aware that Ontario will likely become more competitive. He believes that Siemens is well-positioned given its proven track record there that includes successful execution of projects. He contends that its turbine technology also fits well with the Canadian market, a diversified wind regime.

“The portfolio of more than 1,000 megawatts speaks for itself. Those turbines are running very reliably. We see those customers are eager to come back and do more business with Siemens,” he says.

Andersen cautions against assuming that large turbine component makers in Asia, Europe and parts of the neighboring US will grab chunks of market share in Ontario after the local content requirement goes away in March 2014.

“Given the size of these components, the fact you have local manufacturing is a sure benefit. It corresponds that it is also a cost benefit transporting a component of that size close to where they are going to be installed,” he says. 

Beyond Ontario, Siemens is anxious to gain a foothold in Quebec, Canada’s number two wind market. Four of its top competitors – Enercon, General Electric, REpower  and Vestas – are entrenched there. 

Quebec is moving ahead with a new 800MW tender. Provincial utility Hydro-Quebec will purchase 450MW through a public request for proposals, while developing 200MW itself. The remaining 150MW is a First Nations project that Quebec-based Innergex will develop.

Andersen sees the Siemens 3.0-113 wind turbine as especially suitable for the province given its large rotor and prevailing moderate wind conditions.  “Our intention is to use the existing supply base in Quebec,” he says, noting the company has no manufacturing operations there. LM Wind and Marmen, a tower producer, would be likely suppliers.

He believes that Siemens has other strong opportunities across Canada. The company entered into a “preferred supplier” agreement last December for 100 wind turbines with the developer of the 400MW Naikun project in the Hecate Strait off British Columbia.

“It’s a pleasure working with that group. They bring a lot of energy to that project,” he says. Naikun, which has suffered delays, could become the launch customer in North America for the new Siemens 4.0-130 offshore wind turbine.

Other possibilities include Alberta, where Vestas is strong, and the prairie provinces of Saskatchewan and Manitoba, where Siemens has installed a 23MW project – its only one outside Ontario. Canadian Premier Stephen Harper is also promoting wind energy to power numerous mining operations in the country’s remote northern territories.

“Regardless of what happens, we believe that wind will continue to be part of the total energy mix in Canada. If you look at the long-term, we intend to be part of that,” says Andersen.