Recent growth in wind energy projects in Canada could be undermined if a big federal tax break is not renewed when it expires next spring, industry watchers say.
After a shot in the arm for the industry last week, when Ontario announced more than 600 direct jobs would be created with the opening of two new wind turbine parts factories next year, the sector’s main lobby group hopes that incentives for the industry will continue to flow.
They’re concerned because the $1.48-billion federal ecoENERGY for Renewable Power program, which gives companies one cent per kilowatt hour as an incentive for renewable energy projects, is set to end in March.
The Canadian Wind Energy Association has lobbied the federal government to extend the incentive program past the March deadline, but says it believes Ottawa is unlikely to do so.
President Robert Hornung said the market is stabilizing as several provinces have stepped up on their own, but the federal incentive played a major role in encouraging wind energy in oil-rich Alberta.
“People are only going to build the projects if they can earn a rate of return,” he said, adding that there is big global competition for wind energy investment right now.
“The absence of the federal incentive just makes it that much more difficult for Canadian markets to compete,” he said.
Wind energy has been slowing growing in many parts of Canada — with big windmill power generators operating in windy parts of the West, in southern Ontario and Quebec a well as in Nova Scotia and other parts of Eastern Canada.
Industry experts say that Canada as a whole needs to follow the lead of provinces like Ontario, Nova Scotia and British Columbia, which have set up policies to encourage wind energy investment.
Ontario’s energy plan, for example, calls for $14 billion in spending on wind projects, and involves contracts with Korean giant Samsung to produce wind turbine parts over at least six years. It also offers a tariff incentive, which gives companies 13.5 cents per kilowatt hour for electricity generated by wind projects for up to 20 years.
Gerard Reid, a wind industry analyst with Global Clean Tech, part of Jefferies International Ltd. (NYSE:JEF), says Samsung is relatively new to the wind power business and is likely entering Canada for the long haul, hoping to get a foothold into the U.S..
Canada has big investment opportunities because of the country’s natural wind resources.
“In areas of Western or Eastern Canada, where you have good wind areas, you could be producing electricity there (with wind) as cheap as you would be if you were using coal,” Reid said in a telephone interview from Berlin, explaining this is the case in some parts of Scotland and Ireland.
Combining wind power with Canada’s vast hydro resources, the country could become a leader in renewable energy in general, but Canadian governments need to follow the policies of provinces like Ontario to attract those companies, he said.
Bill Paul, senior Investment Adviser for 2GreenEnergy and former Wall Street Journal energy reporter, said that without a uniform federal government policy to guarantee long-term contracts, those companies could leave Canada in 15 years and take jobs with them to places that are ahead of the game like some Asian countries.
“If you take a close look at the government policies in South Korea, Japan and China you find that the think-tanks are thinking with the help of the government and they are turning out pilot projects that will make your head spin, and that’s what we don’t have here in the U.S. or in Canada,” he said.
He said Ottawa can learn from public-private partnerships like those between with Samsung and Ontario.
But the wind projects in Ontario are coming at a price to consumers, who will pay more. The government has admitted that green energy programs are partly responsible for skyrocketing electricity bills, which are expected to double over the next five years.
The province’s Independent Electricity System Operator said wind and solar energy projects are becoming important contributors to Ontario’s electricity supply.
In its 18-month outlook published Friday, it predicted renewable energy projects will lead to 2012 being a watershed in the evolution of Ontario’s electric grid.