Eyeing deals under Ontario’s sweetheart Green Energy Act

The vaunted feed-in tariff draws Alberta investment

January 01, 2011

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Enbridge has invested roughly $1 billion in ontario’s renewable power market in the last year, including the addition of 60 megawatts to the Sarnia solar project

Crude oil careens through pipelines with the momentum of a freight train, says Karre Svidal. “If you slow it down in one jurisdiction, it slows down in the next,” says the energy manager with Enbridge Pipelines Inc.

Keeping the black gold and natural gas flowing along the Calgary firm’s vast network of pipelines requires a lot of energy. It took just under 4,000 gigawatt hours of electricity – or the annual average power consumption of 400,000 homes – at a cost of around $240 million to shuttle petroleum products from Edmonton-area hubs to refineries in the U.S. Midwest and all points in between in 2009.

The bulk of the firm’s operations are driven by electricity sourced from provincial power grids that run on a variety of energy sources including gas, hydro and coal, Alberta’s generating mainstay. The power is procured under long-term contracts called power purchase agreements. A tiny fraction of the total used by the liquids pipelines division comes from Enbridge’s 30-megawatt Magrath wind farm in southern Alberta.

“It’s not a frequent exercise within Enbridge, because it’s difficult to structure these [power procurement] contracts and we have a responsibility to deliver low-cost electricity for our shippers, but where possible we’ll consider” using green energy to meet power needs, says John Maniawski, senior director of the company’s power generation business development unit.

Rather than try to connect the pipeline system’s pumps and compressors directly to solar, wind or geothermal energy sources, Enbridge has developed a trading system that it calls a “neutral footprint initiative.” The idea is to inject a kilowatt of alternative power into the grid for every kilowatt of non-green electricity consumed by the firm’s operations over and above January 2009 consumption levels. Since 2009, Enbridge has announced development plans for 753 megawatts of renewable power capacity including 638 megawatts of wind, 80 megawatts solar and 35 megawatts geothermal.

A good deal of the investment has been directed towards Ontario. In the past year alone, the Calgary firm has invested roughly $1 billion in the province’s renewable energy market, Maniawski says. The total includes construction of the Talbot and Greenwich wind farms, both 99-megawatt facilities. Another 60 megawatts of capacity was added to the 20-megawatt Sarnia Solar Project, making the photovoltaic setup the largest of its kind in North America.

Fossil fuels like coal, oil and natural gas will remain prominent arrows in the world’s energy quiver for years to come, Maniawski says. “But it’s also clear that the world is experiencing a shift towards a greater use of lower carbon-intensive fuels,” he notes. “We believe that green energy provides a natural hedge against the yet unknown effects of a reduced carbon environment.”

Ontario in particular has seen an influx of investment in its renewable power sector following the 2009 launch of a scheme called FIT, the feed-in tariff. The program guarantees premium rates for electricity produced from renewable sources like hydro, wind and solar schemes under fixed-price, long-term energy contracts.

The green deal has attracted attention from international suitors. South Korean industrial giants Samsung C&T Corp. and Korea Electric Power Corp. were among the first to buy into the program with a $7-billion plan to build capacity for 400 megawatts of wind and 100 megawatts of solar power as part of a blueprint that calls for the construction of 2.5 gigawatts of generating capacity by 2016. By mid-2010, the Ontario Power Authority (OPA) entered into roughly 600 similar agreements that promise to introduce as many as 2,000 additional megawatts to the province’s electrical grid.

The uptake is significant for a province with plans to wean itself off coal-fired electricity by 2014. This fall, the OPA shuttered two of eight generating units at the massive Nanticoke power plant southwest of Toronto. Another two coal-fired units were decommissioned at the 1,920-megawatt Lambton power station. The conservation measures are akin to taking some two million cars off Ontario’s roads, provincial authorities say.

But replacing thermal power stations with less carbon-intensive fuels has not been as simple as flipping a switch. TransCanada Corp. learned that the hard way when the OPA abruptly discarded plans for a $1.2-billion natural gas-fired power plant in Oakville, a particularly well-heeled suburban enclave west of Toronto.

Demand for power softened since the 900-megawatt plant was first proposed four years ago, the province maintained. But the development was also dogged from the outset by a vocal group of opponents calling themselves Citizens for Clean Air. The blueprints were scrapped only weeks before the province introduced a 10 per cent tax rebate to help households, businesses and farmers cope with a projected 46 per cent spike in residential electricity prices – due in part to the green shift – over the next five years.

The about-face could be repeated elsewhere as isolated thermal generating plants in Canadian hinterlands give way to power plants built closer to urban centers where electricity is used. At Enbridge, Maniawski says low-cost natural gas brought on by the boom in shale gas makes cleaner-burning power stations an attractive match for his firm’s growing suite of renewable power schemes. “It’s an area that we’re exploring that we feel could complement our growing platform in green energy.”

With its guarantee of premium returns for producers of renewable power, Ontario’s FIT also dovetails with a business mandate to keep risks of deploying embryonic technologies on a utility scale low, he adds. Others warn the green deal could do more to deter new business in the region. The province’s vaunted Green Energy Act has drawn criticism for a job-protection wrinkle in the legislation that makes local procurement of goods and services a prerequisite to obtaining the program’s perks.

No Enbridge projects are currently benefiting from Ontario’s FIT program. But as the Calgary firm looks to expand its green energy portfolio in the province, Maniawski is confident the local content provisions can be met. “Our current operations and projects under construction position us well for future investments,” he says, “including those that are available under the feed-in tariff program.”

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