Canada’s extensive natural resources are the driver of its powerful economy, and energy is Canada’s single most important export. Yet policy makers across the nation are currently dealing with the consequences of a generation of under-investment in the electricity system and deciding what the new grid and supply mix should look like. Several provinces are competing to lead the charge in renewable energy and grid intelligence. Policy makers hope that such efforts will not only provide for Canada’s electricity needs but also create the green economy jobs that will drive the nation’s next generation of economic development.

The Canadian power system is almost entirely controlled at a provincial level, with each of Canada’s 10 provinces and four territories operating distinctive energy markets. Each jurisdiction displays different values, politics, and attitudes toward energy and power generation. “The Federation of Canada is not unlike the European Union in how the weight of responsibility lies. The decisions on power generation, transmission, or distribution are a provincial responsibility,” explains Dr. Murray Stewart, president of the Energy Council of Canada.

This provincial focus allows each province to work to the strengths of its resources. It does, however, limit the ability of the federal government to advance a single vision for the nation’s energy sector. Despite this fragmentation, common themes emerge as each province works to create a favorable environment for power investment.

In spite of its sparse population, Canada is the sixth-largest producer of electricity in the world, allowing vast opportunity for exports. “The electricity trade represents a few billion dollars a year. We sell more than we buy in the end, but there’s a lot of electricity that moves back and forth,” explains Pierre Guimond, president of the Canadian Energy Association.

In the post–global financial crisis environment, many investors are favoring long-term secure investments with minimal political risk, which Canada seems to offer. Its banks weathered the financial crisis comparatively well, and the country is well established as a hub for energy investment. Sandy Taylor, president and CEO of ABB Canada, adds that from an investment point of view, “Canada has incredible wealth in natural resources combined with a very stable and predictable government and economic environment.”

Power investment levels can generally be tied to the growth in demand, which in turn is typically a derivative of economic growth. However, market participants see added opportunities in Canada due to the fact that large portions of the system require refurbishment or replacement. This has been noted by Luc Benoit, global managing director for energy at AECOM. AECOM is an engineering consultancy that has been on a rampant acquisition trail in Canada, most recently acquiring RSW, an international engineering firm, in September 2010. “Energy is following the growth of the economy, but beyond that, we are replacing, and that is why energy is becoming an increasingly important business for us,” Benoit says.

John Brace, president and CEO of Northland Power, one of the earliest independent power providers (IPPs) in Canada believes that “The opportunities for our company have never been so great as they seem now with the movements towards clean and green power” (Figure 1).

1. Multi-use land. A farmer grazes his herd near Northland Power wind turbines that dot his farm in Matane, Québec. Northland negotiated more than 60 leases covering 6,000 hectares (nearly 15,000 acres) of private and public lands for the 127.5-MW Jardin d’Éole wind farm. Courtesy: Northland Power

His opinion is shared by William Smith, senior vice president, energy sector for Siemens: “Canada represents an energy superpower with excellent political and economic stability. It has grown dramatically in importance, particularly in the past two years. Through the financial crisis, we managed to maintain a reasonably steady level of investment from our customers. There was a need for investment, and the government ownership of utilities meant that energy was used as a form of indirect stimulus.”

This transition is creating opportunities throughout the industry. Engineering, service, and equipment companies that previously focused on the oil and gas or mining sectors are increasingly aware that the greatest opportunities now lie in power. Turgay Ozan, president of Atlas Copco Compressors Canada, states: “We see great potential as the entire power generation mix is investing in expansions or in new projects. The traditional thermal, hydro, and nuclear projects will continue to come on stream, as well as the new emerging renewable methods such as wind and solar.”

Generation Options

Across North America, jurisdictions are clamoring for green credentials and encouraging the establishment of wind, solar, and other renewable generation sources. Although a number of Canadian provinces can already boast impressive hydro generation capabilities, policy makers are targeting significant investment in other renewables. “The electricity sector right now is 75% clean, and the idea is that over a well-defined period of time we’ll be a 90% clean electricity sector,” explains Dr. Stewart of the Energy Council of Canada.

Hydro. Hydroelectricity is Canada’s number one source of power generation and, in 2009, it accounted for over 60% of the nation’s total electricity generation. The provinces of Manitoba, Québec, British Columbia (B.C.), and Newfoundland and Labrador all generate more than 90% of their electricity from hydropower.

The storage capability and dispatchability of its large hydro assets provide Canada’s greatest electrical trade advantage: “These provinces make half their profit by buying electricity at night, when power is very cheap, from jurisdictions that operate thermal plants, which must run continuously. They can then produce excess electricity during peak daytime hours, which can be sold at up to five times the price,” explains AECOM’s Benoit, an engineer with extensive experience in major hydro projects across those provinces.

Canada is said to have undeveloped potential of over twice the current hydro capacity, and every province and territory boasts some level of hydropower development potential. Although many large-scale projects, such as B.C.’s Site C and Newfoundland’s Lower Churchill Falls, have been mired in protest and delay, developments are being studied and planned throughout the country that range from major storage dam proposals to myriad smaller, run-of-river projects. “A huge market is developing in small and medium-sized hydro opportunities in Canada. Good regulation is being put into place, and due to the small environmental impact, it is much easier to get local acceptance,” says Denis Tremblay, president of the Power Division at BPR, a Québec-based engineering consultancy firm that has worked extensively in this field.

Canada has been associated with excellence in hydropower for more than a hundred years but continues to innovate in order to make better use of its hydro resources. Nik Argirov, business unit leader of MWH Canada Inc., the world’s leading wet infrastructure company, follows these developments closely. He says, “This is a very old industry, but while hydroelectric processes are already very efficient, we continue to invest in research and innovation. The most exciting technologies that I see now are coming from hydrokinetic research and its river and tidal application.”

Hydrokinetics is the harnessing of the energy potential from natural water flow in rivers or ocean currents using turbines that operate without the need for dams or penstocks. One such example is the TREK turbine, which is being developed by RER (Renewable Energy Research), recently spun off from engineering firm RSW during its sale to AECOM. The TREK turbine can generate up to 333 kW and guarantee 10 years of maintenance-free performance. The September 2010 installation of two of RER’s TREK turbine prototypes in the Saint Lawrence River, Québec, was the result of two years of in-house research and development.

Imad Hamad, general manager of RER explains: “Hydrokinetic technology sits on the river bed, has no visual impact, does not sacrifice land, makes no noise, and works 24 hours a day and 365 days a year. It is foreseeable, it is predictable, and it is repeatable. We have made resources assessments and, with the dimensions of our machine, we found 30,000 MW of technically, environmentally, and economically viable potential projects around Canada. In the U.S., we found another 77,000 MW in a small selection of rivers and estimate a total potential market of 200,000 MW in the U.S.”

Similar technology is being developed to utilize Canada’s rich tidal resource. The Bay of Fundy boasts one of the highest tides in the world and is gaining a reputation as a global center of excellence for tidal energy innovation. Emera, a private corporation that owns Nova Scotia Power, in addition to a broad range of generation, utility, and transmission assets across North America, has been a key player in this development. Christopher Huskilson, CEO, explains the potential resource available: “The Bay of Fundy actually affects Nova Scotia, New Brunswick, and Maine. More water flows in and out of the Bay of Fundy on any given day than all the rivers in the world. It has the highest tides in the world, in excess of 20 meters. It’s a huge resource. The testing here has been the most aggressive in the world, but you can deploy this type of technology in other locations, including those where tides are not as strong.”

Fossil. In addition to its vast renewable resources, Canada is also rich in fossil fuels, none more so than coal, of which it is estimated to possess more than 100 years of supply. Oil and natural gas are also abundant. Canada has 269 fossil fuel thermal generating stations that represent a combined installed capacity over 36,000 MW. 

These fuel sources remain economically competitive and play a vital role in grid reliability as dispatchable generation sources. However, politics and concerns over the risk of forthcoming carbon pricing legislation mean that new coal plants are likely to be limited in the near term.

Although coal-fired generation development seems unlikely in Canada, internationally it continues to pick up pace. Steve Snyder, CEO of TransAlta, one of the country’s largest diversified energy companies, believes that Canada should see this as an opportunity to protect the viability of one of Canada’s most important resources and industries. “Coal is not the problem; the emissions are the problem. If we want to solve the problem of CO2, we’re going to have to find somebody to develop the technology.”

The relatively cleaner option of natural gas generation is enjoying an upswing due to the falling price of gas as well as the need for a reliable counterbalance to the enormous investments in inconsistent wind and solar capacity.

As the cleanest form of thermal generation available, natural gas plants—which are also quicker to construct than coal plants—seem likely to be a popular choice, along with renewables, in the short term for Canadian developers (Figure 2). “The new finds of shale gas brings the economics of natural gas projects much more into play. I feel that, especially in Ontario and probably Eastern Canada also, we’ll see natural gas play a more important part in the mix going forward,” says Stephen Somerville, director of development at Competitive Power Ventures, an IPP that has developed a number of renewable and natural gas projects across Canada.

2. New gas-fired cogeneration plant. Northland Power’s newest thermal energy plant, a cogeneration plant in Thorold, Ontario, opened on budget and on schedule in 2010. The 305-MW plant delivers power to the grid as well as electricity and process steam to a nearby Abitibi-Consolidated Co. of Canada paper plant. Courtesy: Northland Power

Peter Stalenhoef, president and COO, PCL Construction, the largest construction company in Canada, also sees gas-fired generation as the most likely replacement for coal: “In the U.S., I’ve heard of as many as 40 to 60 coal-fired plants that need to be retired now. Nuclear won’t come on quick enough to replace that generation. I think you’re going to see a lot of gas-fired generation filling the void on retiring coal-fired units.”

TransAlta’s Snyder is cautious about these possibilities: “Natural gas has potential to be an interim player, as you can build quickly and at a reasonably low cost. However, the challenge is that the cost of the electricity is 25% based on the cost of natural gas, which has historically been very volatile in price. Its viability also hangs on future CO2 regulations, and cost legislation.”

Nuclear. A number of factors tie Canada to the nuclear industry. Currently, Canada is the world’s leading supplier of uranium, and Canada’s nuclear capacity is eighth in the world. Ontario, New Brunswick, and Québec are the three provinces that produce electricity from nuclear energy.

Canada was the second country in the world to undertake a controlled nuclear reaction and has been building nuclear plants since 1945. Canada led the way in reactor design through the development of the CANDU (Canadian Deuterium Uranium) pressurized heavy water reactor. Today, 34 CANDU reactors, along with 16 other heavy-water reactors based on the CANDU design, have been built or are under construction on four continents.

However, the majority of Canada’s existing plants will reach the end of their service lives within the next 20 years, and many questions remain concerning Canada’s nuclear future. (For details on CANDU nuclear plant extensions, see “Bruce A Proves There Are Second Acts in Nuclear Power” in POWER’ s August 2010 issue.)

Kurt Strobele, chairman and CEO of Hatch, one of the world’s largest engineering companies, believes that nuclear development will triumph: “I see an increasing role for nuclear. It’s a necessity, not a choice, because of its reliability. There is a lot of inertia, however, and the new projects and new technologies and developments have not been as successful as hoped. Once we get past that first hurdle, I think there will be a very fast climb in nuclear build.”

This view is shared by Randy Karren, managing director of WorleyParsons Canada Ltd.: “Nuclear is now rejuvenating itself as a green, non-carbon-emitting option. Nuclear energy was not legislated out of play but priced out by the permitting that had to be put in place. Now, because of the increased technical understanding and control, it has reached a different level of acceptability. The renaissance is real, but the proof will be in how well projects can be delivered in terms of cost and schedule.” WorleyParsons is an international engineering firm that serves the hydrocarbons, power, infrastructure and mining industries; it hopes to become a major contributor to a Canadian nuclear renaissance.

A political tussle has developed between the provincial and federal governments regarding Atomic Energy Canada Ltd. (AECL), the steward of Canada’s nuclear technology. AECL is a Crown Corporation and, therefore, under the control of the federal government, which decided to put the AECL up for sale in December 2009. At present it is unclear how much of the corporation is to be sold and to whom. Until this restructuring is complete, AECL is unable to sell any more CANDU reactors.

This delay is of particular concern in Ontario, where the authorities have been waiting on these decisions in order to build two new reactors at the Darlington site. Ontario Minister for Energy Brad Duguid remains committed and hopeful that the process will be completed soon and that the province’s new build plans can go ahead: “We believe Canadian nuclear technology is among the best in the world, and our preference is to purchase these two new units with AECL. We’re in a vigorous process now to find a way to do that.”

Brad Duguid, Ontario energy minister

It is calculated that the nuclear industry supports 70,000 high-tech jobs in Ontario alone. Babcock & Wilcox Canada (B&W Canada) provides high-tech services to a range of nuclear plants, mostly from its large manufacturing facility in Cambridge, Ontario. Michael Lees, president of B&W Canada, highlights the concern that many market participants feel over the future of AECL: “Canada has a robust service community dedicated to servicing CANDU plants. The real risk is that if new builds do not move ahead, we may lose that capability. Any nuclear industry relies on the domestic market to sustain it, from which an export market can be built.”

However, some market players believe that the most effective way of protecting Canada’s nuclear industry is to move away from CANDU technology and adopt light water reactors.

Jean-Francois Béland is executive vice president of Areva, which hopes to develop Canada’s first light water reactor as part of the Clean Energy Park that it is planning with NB Power and the provincial government of New Brunswick. He says, “The Canadian nuclear industry learned the CANDU language 50 or 60 years ago. However, light water reactors now represent 92% of the market and heavy water is only 8%. For Canada’s nuclear service providers, taking a share of this 92% is better than being the dominant player in an 8% market. It’s a global industry now; national players no longer exist. It is a worldwide market, and it is focused on what is the most reliable and economically viable technology for the taxpayer.”

Some Canadian companies, such as B&W Canada, have already made the leap toward servicing non-Canadian technologies in order to reduce exposure to AECL and CANDU as well as to access the U.S. market: “B&W Canada fortunately stopped relying on new build, moved into international refurbishment, and started working not just with CANDU equipment. This leaves us better protected than some of the other domestic suppliers,” explains Lees.

As the industry does ramp up again, the issues of nuclear waste and plant decommissioning are additional challenges. Facilities for low-level radioactive waste are under development at Port Hope, and the potential for deep geological deposits at Tiverton and Chalk River, Ontario, remain under discussion. However, final decisions on these projects are still to be made.

Carol Wilson Hodges, president of Energy Solutions Canada, a firm that specializes in nuclear services, feels the management of waste is key to the success of the industry: “We have some amazing host communities that are very supportive of nuclear development. As the nuclear renaissance gets under way, it’s important that people see that the aging plants and their waste are properly managed.” (See “Canada Moves to Rebalance Its Energy Portfolio” in POWER’ s June 2009 issue for details of Canada’s current and planned nuclear spent fuel storage systems.)

Wind. Wind power is expected to lead the growth of newer renewable generation technologies. Industry Canada estimates that by 2015 there could be an installed capacity of 8,000 MW of wind turbines. According to the Canadian Wind Energy Association (CanWEA), Canada has a total of 92 wind farms and the leading three provinces for investment are Ontario, Québec, and Alberta.

RES Canada is the local arm of the German renewable energy company RES. It sees good opportunities in both developing and constructing wind projects. Peter Clibbon, vice president, says, “In the near term, I am very optimistic. It took Canada 15 years to build its first 1,000 MW of wind power. RES has now got plans to build 1,200 MW in Québec and Ontario in the next three- or four-year period.”

Another generation opportunity for Canada that is yet to see construction is offshore wind. The country has potential capacity on both its extensive coast lines and within the Great Lakes. Offshore wind obviously comes with increased cost pressures and the need for large transmission investments. “There is a strong, consistent wind resource with a low diurnal fluctuation,” points out John Kourtoff, CEO, Trillium Power Wind Corp. “There are 95 million people that live around the Great Lakes. Relative to other international hubs of offshore wind development, the distance to get the power into the grid for usage is very short, and there is good interconnection between these jurisdictions.”

He sees this as a potential coup for Ontario’s power exports: “The transmission that is required for offshore will significantly lower the hurdle of connecting the U.S. and Ontario grids. This means that, through offshore wind, Ontario has the opportunity to position itself to be a provider of clean power from the East Coast to the Midwest of the U.S.”

Solar. Photovoltaic (PV) solar power is another newer generation source that is being encouraged in the hope of creating vibrant domestic supply chains (Figure 3). According to the Canadian Solar Industry Association (CanSIA), the solar industry consists of more than 400 companies, employs more than 1,000 people in Canada, and grew at an annual rate of 25% between 1992 and 2006. It ranges from the residential to the utility scale, and solar players are pursuing opportunities across that spectrum. The world’s largest solar park (97 MW) opened in Sarnia, Ontario, in October 2010.

3. Winter sun. Canada’s first 250-kW rooftop solar installation, in Cambridge, Ontario. Courtesy: AECOM

The cost of PV-generated solar energy has plummeted over the past three years. The price of inputs (panels, invertors, and balance of plant) is going down, and installation know-how, as well as the efficiency of panels and new technologies, is improving. “If we continue this rate, we’re going to be competitive with peak grid energy in parts of North America within the next two to four years,” believes Jon Kieron, director, solar, for EDF EN Canada Inc. and chair of CanSIA. “That would have been unheard of four years ago.”

“I never dreamed that solar technology would ever be at the cost it is today,” agrees Milfred Hammerbacher, president of Canadian Solar, one of the largest solar panel manufacturers in the world, which is opening a manufacturing operation in Ontario. He cites the government’s involvement as the key driver: “The government has shown willingness to make it an attractive market for manufacturing by lowering our corporate tax rates, which are scheduled to go down over the next several years. The truth of the matter is that it is very hard to compete with China for manufacturing. Without an incentive, we probably wouldn’t have been able to complete our projects here. As long as there’s a market driver, it’s an easy decision to make.”

Financing Generation Investments

In the aftermath of the global financial crisis, attracting finance to projects has become an even greater concern for developers. Power investment in Canada stems from a number of sources, both traditional and less conventional.

Although Canadian banks weathered the crisis fairly well, James Harbel, a partner at Canadian law firm Stikeman Elliott LLP, believes that the banks have yet to fully engage in the renewable sector: “They are learning about the technology, training their people, and educating their credit committees in a time frame where there is an unprecedented demand from them for financing. International players, particularly European financiers, are more comfortable with the technology but lack the financial depth. We are finding that consortiums are being formed and groups are learning to work together. It is taking a little while for these relationships to be formed.”

In addition to the banks, Canada’s pension funds play a large role in financing projects, explains Aaron Engen, managing director of Investment & Corporate Banking at BMO Capital Markets, one of Canada’s leading investment banks: “There’s a Canadian phenomenon going on with pension funds becoming involved in direct investing. In the U.S., the pension fund model is that investments are channeled through private equity firms. In Canada, pension funds can bypass these channels and have become world leaders in direct investing. They are very interested in power, as they are focused on assets that have long-term contracts with transparent earnings and cash flow profiles because they are trying to match long-term reliabilities.”

The role of pension funds in the industry is something that David Williams, managing director of Investment Banking at CIBC and head of the Power and Utilities Group, also sees as critical: “We see pension funds as a continuing theme in the marketplace. It makes sense, as pension funds can invest in infrastructure without taking currency risk and put long-term money against long-term liabilities. They might not be as helpful to the small developer, but we see this as appropriate, particularly for the larger-scale projects.”

Capital is hardest to acquire for the smaller developer, particularly at the earliest stage of a project, explains Frank Carnevale, president and CEO of Bridgepoint Group: “There is a huge void in the development capital space. An investment of a few million dollars in development capital can get a large chunk of a project at its early stage. The pension funds are not looking at opportunities of this size; they need to place large amounts daily, and it’s just too small.”

Bridgepoint Group is a boutique investment bank that specializes in these deals. It sees opportunities for both developers and lenders: “There is clearly a risk, but as long as this is mitigated and well managed, the returns are significant. It is the most profitable stage of the investment dollar. It’s not intended for large movers in the industry, but there are plenty of small and midsize players that need a friendly investor that won’t look to take over their company.”

Tom Willatt and Sharon Saylor ([email protected]) are with Global Business Reports.