A small farm on the north shore of Lake Erie, just west of Port Burwell, was the scene for the official opening of Ontario's largest wind farm last month. While the field where Marnie and John Sebok normally plant corn may seem an unlikely spot to make a major energy announcement, it represents a new cash crop for some farmers - land leases for wind turbines.

Ontario Energy Minister Donna Cansfield joined regional politicians, industry representatives and area landowners, along with Stephen Probyn, president and CEO of the Clean Power Income Fund (CPIF), to launch the 66-turbine project, the third such ceremony she attended in little over a month.

The wind farm south of Tillsonburg is the latest addition to the CPIF portfolio of 44 renewable energy projects throughout North America. The 99-megawatt (MW) project, which cost $186 million, is CPIF's largest to date Generating enough electricity to power 32,000 homes, the Erie Shores project joins the 40-MW-capacity Kingsbridge I wind project near Goderich (owned by Edmonton-based Epcor, which went online just a week earlier), and the 67-MW-capacity Melancthon wind project near Shelburne, owned by Canadian Hydro Developers Inc. of Calgary, which came online in early March.

The projects, along with several others, are the result of an earlier call by the provincial government for 350 MW of renewable energy generation. The province has agreed to 20-year power purchase agreements to buy electricity generated at an average rate of eight cents per kilowatt hour (kWh).

Photo courtesy of CNW Group/Ontario Ministry of Energy
Ontario Minister of Energy Donna Cansfield, and Minister of Labour and MPP for Elgin-Middlesex-London Steve Peters, right, join Clean Power Income Fund CEO Stephen Probyn for the opening of the Erie Shores wind farm.

Otherwise, electricity generators must sell any power generated on the spot market, which is good when the rate is above 12 cents but literally a waste of energy when demand is less than what can be generated by the province's nuclear, hydro, coal and gas-fired plants.

Second and third requests for proposals should bring Ontario up to 1,350 MW of "green energy" through wind, small hydro and biomass developments. Although this is still a small portion of the 20,000 MW average demand the province's independent electricity system operator must supply to users throughout the province on an hourly basis, it represents a significant increase over previous years' figures.

Last year, the buzz at the Canadian Wind Energy Association's annual conference was sparked by Ontario's call for 1,000 MW of wind-generated power and Quebec's similar call for 2,000 MW.

In the past, governments have funded some projects and created incentives for others, hoping to spur private investment to come to the table.

Up until 2004, the result was mixed. Since then, however, Canadian companies representing various renewable energy technologies have been working overtime to catch up to what the world is already experiencing - a boom in electricity generated from fuels other than hydrocarbons. The challenge for the energy industry is to predict which technology will emerge as the leader in Canada.

Between 1982 and 2002, Ottawa invested more than $179 million to help build a fuel-cell industry in Canada. Despite this investment, the federal government has grown impatient waiting for commercialization and has increasingly turned its attention to wind, biomass and, to a smaller extent, solar technologies.

The solar industry got a boost when, as part of its standard offer contract (SOC) program, Ontario recently announced it would pay small generators (10 MW or less) 42 cents per kWh for photovoltaic solar electricity. Wind generators and biomass producers will receive 11 cents, reflective of current costs to produce electricity from these sources.

Consumers pay 5.8 or 6.7 cents per kWh for electricity, depending on their consumption level and the time of year All renewable energy projects tend to be capital intensive, meaning most of the money has to be spent up front on surveys, technical studies, wind assessments, down payments on capital infrastructure, land leases, interconnection fees and environmental assessments.

Currently, no government assistance is provided for any pre-generation expenses. The developer must pay the full cost before the first watt of electricity is produced.

"I've got $186 million invested in this one wind farm," CPIF's Probyn says, "and I need to know that there is a stable source of income coming into this project. The economics are all pegged around projected capacity factor, and if you make that, typically, you then have a set rate of return. We look at it as an income fund. Different technologies have different efficiencies and if you go into it knowing that, then there shouldn't be any surprises."

The 29-km-long Erie Shores facility straddles 46 farms spread across five small municipalities in Southern Ontario. While it has a nameplate capacity of 99MW, the average Ontario wind regime can only be expected to generate 35 per cent of that figure on a consistent basis. If all goes well, Erie Shores could generate more than 300 gigawatts (300,000 megawatts) annually.

With each of the huge wind turbines costing approximately $2 million, profits may not begin until the seven- to 10-year mark. The good news though is that after the initial cost, some minimal ongoing maintenance and land leases paid to the farmers, the electricity generated from the wind is virtually free for the developer.

Glen Estill, CEO of Sky Generation Inc., a small privately owned generator of wind energy located in Ferndale on the Bruce Peninsula, says it is hard to raise money in the pre-development stages of a project.

"If I have a long-term contract in hand, however, that's a comfort to my lenders. Before I begin, I have to have a market, a price-taker. Right now I sell into the provincial power pool."

Estill's financing so far has come from family, friends, a financial institution and, more recently, electricity retailer Bullfrog Power.

Bullfrog has not only invested in Sky Generation but has also signed a contract to purchase a portion of the electricity generated that, in turn, it sells to customers at a premium for the privilege of saying that they use "green power."

Estill applauds Ontario's SOC program, which is unique in North America, and plans to add two more turbines to his existing 1.8-MW system.

Calgary-based Canadian Hydro Developers Inc., a publicly owned company operating in B.C., Alberta and Ontario, owns 18 generating facilities including windfarms, small hydroelectric plants and biomass facilities with a total capacity of 229 MW.

"It's taken us 17 years to become an overnight success," CFO Kent Brown says. "Investors should be selective when choosing a company to back. Fundamentally, this industry is a long-term investment.

"Our children's children will be the beneficiaries of what we do," he says, adding that hydro plants can have a 100-year assessment and wind turbines a 30-year timeline. "If people are looking for a one- or three-year return rate they may be disappointed. The advantage of our projects is that our energy sources are unlimited.

"All the signals are there (for investment) - federal incentives, provincial renewable mandates, long-term sales combined with power purchase agreements, so there's a lot of room for growth," he says.

(Lawson Hunter can be reached at hunter@businessedge.ca)