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Canadian wind market set for 2019 rebound as Alberta lifts off

CanWEA chief Robert Hornung on the year ahead – from Alberta's election to the fallout from Ontario's cancelled contracts

The Canadian wind market is set for a sharp rebound in 2019 as Alberta’s build-out swings into high gear, although the province’s upcoming election hangs over the market’s future.

Canada added about 565MW of wind capacity in 2018, according to preliminary figures from the Canadian Wind Energy Association (CanWEA). That marks the third year of weak installations in a row, following a market pullback in Ontario and Quebec amid an electricity glut in those populous eastern provinces.

But with the first generation of projects out of Alberta’s landmark Renewable Electricity Program due for completion this year from EDP Renewables, Capital Power and Enel Green Power, the Canadian wind market is expected to bounce back in 2019 to its modern-day average around 1GW, CanWEA says.

2018 brought a nasty shock for Canadian renewables as Ontario’s new conservative government cancelled hundreds of contracts for as-yet-unbuilt projects and took the extraordinary step of halting German developer Wpd’s White Pines wind farm that was already under construction.

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Yet the debacle in Ontario was offset by nearly 1GW of new wind contracts signed at an average price below C$40 ($30) per MWh in the prairie provinces of Alberta and Saskatchewan, burying any lingering doubt that wind is the cheapest form of new power generation in Canada, the world’s tenth largest economy.

The left-of-centre New Democratic Party (NDP) that governs Alberta and the conservative Saskatchewan Party that controls the neighbouring province could not be much further apart on the Canadian political spectrum, notes Robert Hornung, chief executive of Ottawa-based CanWEA.

Yet both governments have embraced competitive tenders to take advantage of the wind industry’s dramatic cost reductions of recent years. “In both cases they’re walking away from those processes feeling that they’ve been successful and wind has demonstrated good value, which is a very positive sign for the industry going forward,” Hornung tells Recharge.

The recent procurements in western Canada introduced a new player to the wind sector’s premier league, with Toronto-based Potentia Renewables – owned by Power Corporation of Canada, and previously focused on rooftop solar – securing more than 500MW of future wind capacity across Alberta and Saskatchewan.

Alberta’s upcoming election

With Alberta now contracting wind at or below prices seen anywhere in the US after discounting for the production tax credit, the industry is justifiably fixated on the province’s election this spring.

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The NDP’s victory in Alberta’s 2015 provincial election was one of the most shocking in Canadian political history, ending more than four decades of conservative rule in the oil-centric province. Over the past four years Premier Rachel Notley’s government has ignited the wind market in western Canada.

However, polls strongly indicate that Jason Kenney’s United Conservatives will retake power in Alberta this spring, with unknown consequences for the renewables market.

While Kenney has given little indication of his view on wind energy or his plan for Alberta’s evolving power market, the wind sector can be forgiven for being uneasy about the likely shift in power.

Kenney is fiercely critical of the federal government’s plan to impose a carbon tax on Alberta. He has also lashed out against US environmental groups that oppose transnational oil pipelines, saying such groups view Canada as “the weakest kid on the playground” and “have never touched Venezuela, Saudi Arabia, the rest of them”.

Details of Alberta’s next renewables tender are not due until sometime later this year, perhaps after the election. “There’s some uncertainty,” Hornung says. “Would a new government use the same mechanism for procuring wind? I think that’s an open question.”

Many of the most important energy-related policy decisions in Canada are made at the provincial level.

Uniquely in Canada, Alberta has traditionally operated a merchant power market. It’s possible that a conservative government could revert to that model for wind and do away with the Renewable Electricity Program. While wind would still be competitive in a merchant market, the lack of long-term contracts would create revenue uncertainty that would likely raise financing costs.

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Yet there are a variety of reasons to expect that wind will continue to thrive in Alberta, regardless of the election’s outcome. To start, the province is phasing out its sizeable fleet of coal plants. That means that unlike most Canadian provinces, Alberta actually needs new generating capacity – the only question is how much will come from wind and how much from natural gas.

One advantage that Alberta’s merchant market structure holds for wind is the possibility of corporate offtake deals, now a central driver of the US renewables market. Such deals would be difficult in most other provinces, where state-owned power monopolies typically control the market.

There’s “a lot of interest” in corporate deals right now in Alberta, Hornung says. “Companies have seen the results in the procurements and are looking at whether they’d be interested in moving into bilateral contracts.”

Another important X factor is the big burst of wind farm construction that will kick off this year in Alberta, with 600MW from the first procurement round held in 2017 due for completion by the end of 2019. The injection of jobs and new revenue streams into rural communities could affect the political calculus.

Vestas, which has a cluster of factories in Colorado, has won several of the early turbine orders in Alberta, but many projects have not yet disclosed their suppliers.

Road to recovery back east?

It remains to be seen how devastating Ontario’s contract terminations will be on renewables development in Canada’s largest provincial economy. “There’s absolutely no doubt that the decisions taken have shaken investor confidence in Ontario,” Hornung says.

Wpd’s stillborn White Pines project aside, the other contract terminations were clearly done so on a legally permissible basis. Still, “any time somebody goes through a process and signs a contract, they clearly expect to be able to go forward and build that project.”

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In the meantime, a number of later-stage projects that were not cancelled continue to make their way through Ontario’s pipeline. Pattern Development’s C$1bn Henvey Inlet project due on line this year on a First Nations reserve along Lake Huron’s Georgian Bay will be the largest single-phase wind farm ever built in Canada, at 300MW.

Hornung says that Ontario’s grid operator expects an electricity supply gap to reemerge in the 2023-25 period, potentially opening the door to more wind development. “We’ll have a better sense by the end of 2019 whether this is an opportunity that will bear fruit for the industry.”

Hornung also sees possible future opportunities in Quebec and British Columbia. But the big story for 2019 – as has been the case for several years – remains Alberta.

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