1. Market Overview
Canada’s wind sector is attractive, thanks to a steady expansion of capacity and a solid investment environment. The following drivers and obstacles are currently determining the market environment:
- Decarbonization target drives diversification of the electricity mix
- Technological progress and strategic procurement of companies reduce production costs of wind power
- long-term PPAs also possible with conservative provincial governments (e.g., Saskatchewan)
- Hydropower dominates renewable power generation, strong lobbying for fossil fuels in some provinces
- Fragmented grid infrastructure, northern territories are often cut off
2. Political Objectives
Federal government relies on wind energy, but some provinces are hitting the breaks
For the Canadian government, wind energy is an integral part of the fight against climate change. Canada wants to generate at least 90% of its electricity emission-free by 2030. Already today, renewables account for 67% of the Canadian electricity mix, but most of it comes from hydroelectric power. If the 90%-target is met, the total share of coal, gas, and oil in electricity production will have to fall from currently around 19% to less than 10%.
Whether wind power capacities are going to be expanded will ultimately be decided primarily by the price. Current political developments point to an end of the active promotion of renewable energies.
Canada’s energy policy aims to counteract climate change regarding the generation and use of energy. In addition to an emissions tax and efforts to expand natural reserves and national parks, the measures include a commitment to renewable energies and energy efficiency. The liberal government is counting with support from the Canadian population.
However, since 2018, election results are pointing to a shift from the political center to the right in Ontario, Quebec, and Alberta. The growing conservative forces in the country stand for much less committed climate policy and are partially canceling renewable energy projects (Ontario) or ruling out competition-distorting, active promotion of emission-free energy sources (Alberta). Canada’s regional stop-and-go policy is clouding the so far secure political investment environment for renewables and has an overall negative impact on the expansion of renewable energies.
Authorities expect an expansion of 500 MW per year
Nearly 300 wind farms have been installed throughout Canada as of May 2019. Wind power capacities have doubled since 2012. Today, Canada has around 13,000 MW of installed capacity, making it the eighth-largest wind energy producer in the world – just behind Brazil and France.
Some 566 MW of installed capacity was added in 2018, with Quebec recording the largest increase with two-thirds of the new wind capacity. New Brunswick and Ontario also completed two wind projects each in 2018. With average annual growth of 20% since 2008, the industry is expanding at a consistently high level. Wind power already holds about 8% of the total installed capacity.
The National Energy Board, Canada’s energy regulator, expects wind capacity to increase by approximately 500 MW per year in the future. This would correspond to almost 30% of Canada’s forecasted need for new power generation by 2040.
The provinces of Alberta and Saskatchewan completed tenders for new wind capacity in 2018, which are expected to be connected to the grid in 2021. The winners feed their wind power into the grid at relatively low purchase prices (about 4 Canadian dollar cents per kilowatt hour). In mid-2019, the utility SaskPower plans to launch the next round of tenders for a wind power project in Saskatchewan. All tenders of public utilities in Saskatchewan are usually published via Platform Merx: https://www.merx4.merx.com/saskpower/solicitations/open-bids
Despite one of the longest coastlines in the world and great offshore wind potential, there are currently no offshore turbines installed. The government wants to change this and in 2018 created a subsidy program for renewable forms of energy production that are hardly established in Canada, such as tidal power plants, geothermal energy, and offshore wind.
The future of wind power will be decided at the provincial level
Active control of the expansion of wind energy in Canada, however, depends on the energy policy of the respective province. Provinces such as Saskatchewan and Alberta, which until now have produced relatively little energy from renewable sources, have been pursuing the expansion of clean power generation for several years. Nova Scotia, too, still has a high share of coal and gas in its electricity production and intends to increase its share of renewables from currently 25% to 40% by 2020.
Saskatchewan wants to generate 50% of its electricity from clean sources by 2030. Alberta, too, had set itself the goal of generating 30% of its electricity from renewables until now and to completely eliminate the current high level of coal-fired power generation (45% of the electricity mix) by 2030. The Alberta Renewable Energy Program (REP) was created in 2016 for this purpose. In the past three years, it has already implemented 12 wind power projects with around 1,350 MW in the form of long-term power purchase agreements (PPAs) through public tenders.
The recent change of government in Alberta will probably end the REP and thus the financial support for the coordination of these tender initiatives. The new rulers will also abolish the CO2 tax. The development of public programs for the promotion of green technologies was financed by the previous provincial government through this tax.
This source of revenue will disappear and renewable energy will not receive separate funding but will prove itself in the marketplace, according to the new Prime Minister of Alberta, Jason Kenney. Ongoing and awarded projects will not be canceled, but renewable energies will have to do without financial incentives and long-term purchase contracts in the future, Kenney said.
Wind energy is becoming cheaper in Canada – expansion mostly via PPAs
That does not have to be an obstacle for new wind projects since Alberta has very good wind conditions, and wind energy can also survive on the energy market in terms of costs. The Canadian wind energy association CANWEA sees wind power today as the most cost-effective form of new power generation in the country. CANWEA projects the commissioning of 1,000 MW of new wind projects in Canada for 2019.
The capacity expansion will mostly be carried out via PPAs with independent power generators. Up to now, electricity supply and prices have been determined either through bidding competitions through tenders or through fixed feed-in tariffs (Ontario). Since the takeover of the conservative party in Ontario in 2018, however, the Green Energy Act including its feed-in tariffs for the promotion of renewable energies has been abolished, including 750 green energy projects.
In Saskatchewan, about 20% of electricity is generated by independent producers through PPAs. The energy supplier SaskPower is publicly announcing projects for this purpose. Alberta is currently working with a deregulated electricity market but announced in 2016, that a capacity market would be introduced in 2021 on the recommendation of the grid operator AESO. It remains to be seen whether this plan, including the associated tenders for reserve capacities, will continue to exists under the new government.
Canada’s electricity mix has shifted significantly in favor of renewable energies in the last decade, from just under 60% in 2005 to around 66% in 2016. Almost 80% of the electricity is also produced emission-free. The expansion targets set by the federal government and the individual provinces are realistic. Especially those provinces with a high share of coal-fired power generation (Saskatchewan, Alberta, Nova Scotia) have good growth prospects for renewables.
3. Market Organization
Organization of energy supply belongs to the provinces
The electricity market in Canada is organized at the provincial or territorial level. Mostly, large state-owned, vertically integrated energy suppliers produce, transmit, and distribute electricity. Two provinces (Ontario, Alberta) have deregulated their electricity industry (to varying degrees). In Alberta, there are currently more than 30 electricity producers operating in an energy-only market. The expansion by a capacity market is planned for 2021.
Private investments in Canada’s electricity markets are basically open to everyone, including foreign companies. Depending on the origin and amount of the investment, government audits are required under the Investment in Canada Act. If the investment amount remains below a certain limit, the same rules apply as for Canadian investors. The regional regulatory authority is often required to approve activities in the electricity industry.
Private, independent wind power producers can sell their electricity in almost all provinces and territories either directly to public utilities via PPAs or via the electricity market. For a comprehensive overview of Canada’s electricity markets and regulation, please refer to the Canadian Electricity Association survey: https://electricity.ca/wp-content/uploads/2017/12/Electricity101_December8_2017.pdf
Electricity price regulation takes place regionally
In price regulation, too, the sovereignty of the provinces applies. Each territory and province controls the generation, transmission, and distribution of electricity and the market structure within its boundaries. Consumer prices vary according to the electricity mix and the competitive situation in the regional markets. The cheapest electricity is available in Quebec, Manitoba and British Columbia, the provinces that obtain their electricity mainly from hydropower.
The provinces also have different discount systems for low-income households and certain discounts for industrial consumers with high electricity needs, setting price incentives for the industry not to consume during peak periods. In principle, industrial consumers pay significantly less for its electricity than private households.
4. Business Opportunities
Opportunities for foreign companies exist along the entire value chain
From project development, turbine and component manufacturing to the design, operation, and maintenance of wind turbines – there are opportunities for foreign companies along the entire value chain.
Opportunities exist especially for companies with expertise in building construction, civil engineering, road construction, excavation, cement, steel and metal production, welding, electrical work, and control engineering. There is also demand for transformer service, as well as the construction of transmission lines or cable laying.
There is little local expertise in the manufacturing of turbines and components in Canada. The value chains usually lead to foreign manufacturers. In the long term, local companies could use new technologies such as additive manufacturing to adapt rotor blades to regional characteristics and thus increase the local share of value added.
More than 6,500 wind turbines have already been installed in Canada. Operation and maintenance of them are also important services that are often procured locally. The Canadian wind association CANWEA currently estimates the market size at around C$ 300 million per year. According to the association, the share is expected to rise to C$ 450 million by 2020.
It is clear that the constant expansion of wind turbines will require a broader range of maintenance services. The demand for spare parts bearings, maintenance centers for turbines and qualified technicians will increase.
Falling costs and efforts for emission-free electricity are pushing wind energy
The main drivers for wind energy in Canada are the increasing competitiveness of wind power technology compared to coal-fired and gas-fired power plants as well as the concrete efforts of some provinces to expand emission-free electricity generation.
The adaption of the Levelized Cost of Electricity (LCOE) in Canada’s wind energy sector is positive. A survey conducted by the Canadian Energy Research Institute (CERI) in 2018, which compares the production costs in the provinces for new electricity capacities by technology, identified wind power as the cheapest option among non-base loadable energy sources. The last tender rounds for wind capacities in Alberta and Saskatchewan achieved the lowest bidder prices for wind power in Canada to date with about C$ 0.04.
Onshore wind power plants in Canada have lower electricity production costs than coal or hydroelectric power plants and are roughly on a par with gas-fired power plants. CERI estimates the average electricity production costs for wind projects at between C$ 0.051 (Saskatchewan) and C$ 0.07 (British Columbia) per kilowatt hour. These costs were calculated for wind turbines without backup systems for base load protection. For offshore wind farms, CERI calculates average electricity production costs at C$ 0.083 (New Brunswick) and 0.089 (Nova Scotia) per kilowatt hour.
Tenders often open to all technologies – wind usually makes the race
Projects for renewable energy supply are tendered both technology-specifically and open. For example, the three major calls for proposals under Alberta’s REP program (400, 300 and 400 MW) were open to all renewable technologies but only attracted wind projects. PPAs with a term of 20 years will be concluded with the tender winners. The winner of the latest tender for 200 MW of wind power from Saskatchewan’s public utility SaskPower signed for 25 years.
Canada: Wind power projects
|Project||Capacity (MW)||Company||Status||Investment (in US$ million)|
|Sharp Hills Wind Farm, Alberta (Onshore)||300||EDP Renewables Canada Inc.||Completion 2019||392.3|
|The Windrise Wind Project, Alberta (Onshore)||207||TransAlta Corporation||Start of construction June 2020, Completion May 2021||n.a.|
|Apuiat Wind Farm, Quebec (Onshore)||200||Les Innus, Boralex, RES||Completion 2023||538.5|
|Nation Rise Wind Farm, Ontario (Onshore)||200||EDP Renewables Canada Inc.||Completion 2019||n.a.|
|Blue Hill Wind Energy Project, Saskatchewan (Onshore)||177||Algonquin Power||Completion Ende 2020||n.a.|
|Yorkshire Renewable Energy Centre, Nova Scotia (Onshore)||155||EDF Renewables||Start of construction 2021, Completion 2022||n.a.|
Sources: CANWEA, North American Wind Power Magazine
5. Market Barriers
Uncertainties in political support hamper expansion
According to a study by the National Energy Board, Canada’s energy demand is decoupling more strongly from economic growth. The forecasts for additional energy demand do not currently justify a massive increase in electricity capacity. Efforts to decarbonize and use fewer fossil fuels are the key driver.
However, current policy in the provinces with great potential for wind (Alberta, Ontario) is no longer (explicitly) interested in promoting renewable energies. The federal elections in October could also lead to a weakening of Canada’s climate protection policy in the event of a change of government and thus to a slowdown in the expansion of climate-friendly energy supply.
6. Local Industry Structure
International manufacturers dominate
The Canadian wind energy market is highly competitive and is served by well-known international equipment manufacturers. Almost a quarter of the installed wind capacity is accounted for by turbines from Siemens Gamesa, the market leader with more than 3 GW.
At the end of April 2019, Siemens Gamesa announced the delivery of 43 additional turbines for a 194-MW wind project without the customer’s naming. The SG 4.5-145 turbine, with its 71-meter-long rotor blades, will be the most powerful turbine on Canadian soil to date. General Electric, Vestas, Acciona Energy, Enercon, and Senvion are also present on the Canadian market.
In provinces with strong oil and gas expertise (mainly Alberta and Saskatchewan) there exist many EPC companies. With little additional training, a sufficient number of specialists can usually be mobilized for wind projects.
|Natural Resources Canada||http://www.nrcan.gc.ca|
|National Energy Board||http://www.neb-one.gc.ca|
|Canadian Wind Energy Atlas||http://www.windatlas.ca|
|Wind Energy Institute of Canada||http://www.weican.ca|
|Canadian Wind Energy Association||http://www.canwea.ca|
|Canadian Electricity Association||http://www.electricity.ca|
|CANWEA Annual Conference||http://www.windenergyevent.ca|
|North American Windpower||http://www.nawindpower.com|