Power surge

It’s the latest reincarnation of British Columbia’s gold rush. But this time, the precious commodity being sought is less tangible as investors pour hundreds of millions of dollars into uninhabited islands and remote rivers.

The goal is to harness clean energy, and with the province’s electric utility willing to sign agreements to buy private power for up to 40 years, entrepreneurs see big potential to cash. B.C.’s aim is to achieve energy self-sufficiency by 2016.

Other provinces, notably Ontario, have also been turning to private companies to fill the alternative-energy void in recent years. In B.C., the government’s energy plan proposes to meet the 2016 target without nuclear generation. At the same time, all new electricity sources must have zero net greenhouse gas emissions, according to the plan.

A recent call by BC Hydro for clean-power proposals in November attracted 68 bids to produce electricity from sources including so-called run-of-the-river hydro generation, wind turbines, and biomass. Companies were so eager that proposals more than tripled the amount of power the utility is asking for BC Hydro called for 5,000-gigawatt hours of power, proposals came in for 17,000-gigawatt hours. “There’s no place in Canada that has the green power opportunities like British Columbia,” says Gene Vickers of the group B.C. Citizens for Green Energy, which has been pushing the government to tap the province’s vast potential for tidal, geothermal, wind, and small-scale hydro power.

One company jumping on the green-power bandwagon is a former casino operation based in Lithuania. After leaving the gaming industry following a dispute with a business partner, Creation Casinos Inc. was looking for new investments. The search took it to British Columbia, where it has since purchased and morphed into Orca Power Corp. As a result, it’s doing preliminary work to develop tidal power resources in the province. It had planned to submit a 15-megawatt bid to the BC Hydro clean-power call, a project the company has since put on hold due to the death of its chief operating officer, Anthony Duggleby, in October.

“I think many people see a potential here that there is a resource, and they’re trying to capitalize on it,” says Linas Antanavicius, Orca Power’s corporate counsel. “Another thing is that in British Columbia, so far, there’s not much electricity that’s produced by independents.”

Since taking over Orca Power, the company has expanded its portfolio to include Katabatic Power Corp., which has two fairly advanced wind projects in development near Prince Rupert. In the recent clean-energy call, it submitted a proposal for a 700-megawatt wind farm on nearby Banks Island under the guise of North Coast Wind Energy Corp., a joint venture with Germany’s Deutsche Bank AG.

So far, the company has made progress on the engineering and environmental assessment work needed to get the project off the ground. But Katabatic has run into roadblocks with its nearby Mount Hays wind farm, which was supposed to be built and generating power by the fall. “One of the issues, I think, was turbine supplies,” says Antanavicius, explaining the delay. The goal now is to finish Mount Hays by the end of 2009, he notes.

Katabatic’s challenges, however, look favourable compared to those of one of its competitors, EarthFirst Canada Inc. It is already building a 144-megawatt wind farm called Dokie 1 in northeastern British Columbia’s Peace River area, but a shortage of financing blamed on tight credit markets led it to file for creditor protection in November. According to the company, it doesn’t have enough cash to meet its obligations as well as its commitments to the Dokie project, and as a result it’s seeking a sale.

Antanavicius, though, says despite the financial crunch, he believes the industry and his own company’s projects are viable. “North Coast Wind Energy Corporation is kind of lucky at this point in time because the partner in the project is Deutsche Bank, so the project is financed. Until now, I’d say there’s no problem with financing. It’s a reliable bank, and they’re willing to proceed.”

At another private power developer, Plutonic Power Corp., senior vice president for legal affairs Rupert Legge says the company has enough financing to last through 2009. But after bidding for two small-scale, run-of-river hydro projects in B.C., the company could find itself looking for money by the summer if the proposals are successful. “Hopefully, the markets are going to be in a much better position then,” he says. “But if we had to go to the market right now, it would be tough. I don’t know that we would be able to raise the necessary funds to develop our projects.”

Despite the financial challenges, the biggest issue for corporate lawyers is native land claims. “Virtually all of these run-of-river sites are located in territory that’s claimed by one or more First Nation,” says Legge. “So you’ve got the whole gamut of aboriginal law that you have to deal with there. Our philosophy is to get the First Nations involved at the earliest stage possible.”

Typically, Legge says Plutonic begins consultations with First Nations communities once it identifies a site and applies for a water licence. From there, the goal is to negotiate an impact-benefit agreement that might include an upfront cash payment to the band, an access fee to allow the company onto the land during construction, and a royalty on the project’s eventual revenues. In many cases, the deals will include provisions for hiring and training a certain number of aboriginal workers, Legge notes.

For Métis lawyer Jeff Paquin, dealing with native communities has become ground zero for even starting clean-power projects in British Columbia, particularly given the 2004 Supreme Court of Canada ruling in Haida Nation v. B.C. (Ministry of Forests). While not giving an outright veto to the First Nations, the ruling requires government to uphold the honour of the Crown through consultation and, when necessary, accommodation with First Nations.

For years, he represented First Nations in legal dealings with mining companies in the province’s north. Now, Paquin has switched hats to become a proponent for biomass and run-of-river power projects in B.C. “I have a unique perspective [in] going from the other side of the table representing First Nations to being on the side of the table with the proponents coming to First Nations saying here’s what we’d like to do,” he says.

His experience, he argues, has been beneficial to his current work with Western Biomass Power Corp., a company he began with two other partners prior to its sale to Run of River Power Inc. last winter. “I can remember sitting on the other side of the table watching these proponents come in. You’d see these suits come in with their chests out, and they’d just raised $10 or $15 million on Bay Street or Howe Street. They’d come in with this notion that ‘Here is what we’re going to do, how we’re going to do it, where we’re going to do it, why we’re going to do it, and here is your token job and your token royalty.’ I sort of got the idea of how not to go into a First Nations environment that’s so sensitive today.”

In the Western Biomass case, the company entered into a joint venture with the Tsilhqot’in National Government to propose a 60-megawatt project fuelled by timber in the Williams Lake area. The idea is to use refuse left by logging companies after salvaging the small amount of wood that’s still usable following a mountain pine beetle infestation.

Consultations with native groups were key to getting them to sign onto the project, says Paquin. One example found that, in preparing the proposal, the company realized the community had major concerns with the amount of water required from nearby rivers, which prompted it to propose a $4-million added investment in condensers. “If we didn’t do this together, it was a non-starter,” says Paquin. “So when you talk about accommodation and consultation, you have to accommodate the interests of the people on that basis.”

So far, the company has submitted two proposals to BC Hydro through a separate bioenergy call in June. In a December announcement of winning bids, the company wasn’t on the list of successful applicants. But Paquin says the company is still hoping to be on the list when the power utility chooses another set of winners in phase two of the process. Already, investors have sunk about $2 million into developing the proposal for what would be a more than $200-million project. In 2008, those numbers sent Paquin and his business partners into the arms of Run of River Power, a public company that already has a small hydro project earning revenue with several more in the works.

It’s those upfront costs that can make getting into the business a risky proposition in B.C. As Antanavicius points out, many European countries reduce that uncertainty by guaranteeing companies that produce green power the ability to sell into the grid. In Canada, provinces such as B.C. and Ontario have so-called standing-offer programs that offer similar guarantees.

But in Ontario’s case, regulators are still working out the details, says Adam Chamberlain, the national leader for the climate change group at Borden Ladner Gervais LLP in Toronto. B.C. Hydro, meanwhile, pays a lower price under the standing-offer program than what many companies are likely bidding under the clean-power call, Antanavicius points out.

The biggest challenge on the West Coast, however, appears to be politics. While run-of-river proponents claim to be green, some environmental groups argue that by diverting waterways through a pipe for power generation, the small-scale hydro projects destroy fish habitat. One such project was the Pitt River power project. The public outcry from environmental groups led B.C.’s Environment Minister Barry Penner to a highly public cancellation of the project in March 2008.

Another project being discussed further up the Pitt River has met the ire of B.C. Citizens for Public Power, a group that decries any private power production. The group was formed in 2002 and the governing B.C. Liberals claim they are little more than an opposition-B.C. NDP splinter group. However, they do purport to promote public power in B.C., something that has kept costs low for generations.

Groups like B.C. Citizens for Public Power say that by paying private companies higher rates than electricity customers now pay for traditionally cheap hydro, the government is playing into the hands of big business. The fear, they add, is private business will end up exporting power to power-starved jurisdictions like California, leaving local customers paying escalating rates for electricity.

Antanavicius admits exporting wind power would be an option, particularly since electricity demand is lowest in B.C. in the summer, a time when Californians blasting their air conditioners create a surge in consumption. But proponents of private power say higher electricity rates are inevitable regardless of who builds new generation, particularly since demand is rising in the province at the same time as BC Hydro’s existing dam projects, many of which date back to the 1960s, age.

“Come on people, wake up,” says Paquin. “We need more power. That power is not going to be built at 1960 prices. It’s going to cost that much more. It’s inevitable that it’s more expensive.”

Vickers, of B.C. Citizens for Green Power, argues that B.C. Hydro, after letting years go by without building new generation projects, doesn’t have the ability to develop small-scale electrical facilities. “Quite frankly, we need them,” he says, referring to private power companies.

Much of the opposition to the new power players, he notes, comes from labour groups such as the Canadian Office and Professional Employees Union Local 378, which represents workers at B.C. Hydro. Labour, of course, has links to the provincial NDP, which itself has been skeptical of the clean-power process. In a recent press release and in public comments, the NDP has said it would impose a moratorium on new private power projects. “What we have said is that we’d go back to using BC Hydro to generate power,” the party’s web site quotes leader Carole James as saying.

At the same time, the NDP says it’s not ruling out partnerships between the public utility and private producers. As a result, Legge feels the upcoming provincial election in May represents the biggest threat to independent power producers, particularly as the current B.C. Liberal government, which has embraced the sector, struggles in the polls.

“The potential for British Columbia to be a major player in energy and electricity is huge,” he says, noting the movement towards electric cars will only bolster demand. “But if the NDP get elected, I think the future in British Columbia for IPPs could be quite gloomy for a while. I think IPPs could start looking elsewhere because there are a lot of other areas within North America where IPPs are welcome with open arms.”

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