Ontario’s Renewable Energy Sector
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REFF Canada 2011: Q&A with Conference Manager Paul Clark
By Justin Yan
Representatives from the Renewable Energy Finance Forum open the market.
Hosted by Euromoney, an institutional investor based out of London, England, the Canadian iteration of the Renewable Energy Finance Forum was in full swing this month in Toronto. As part of Euromoney Energy Events, REFF sessions are hosted in major cities worldwide including London, New York (its largest attracting over 700 attendees last year) as well as in emerging markets such as China, India and South America.
At the center of attention of REFF Canada is Ontario's feed-in-tariff (FIT) program, a subsidy essentially guaranteeing significant returns on investment for operational renewable energy projects. Implemented by the Ontario Power Authority, the FIT program is designed to contract out the development of renewable energy capacity while encouraging the creation of “green” jobs and technology in Ontario through domestic content requirements. These requirements call for developers to source up to 60 per cent of equipment to be manufactured or assembled in Ontario.
The program, the most comprehensive in North America, guarantees long-term pricing contracts of up to 20 years and covers a wide spectrum of project sizes and renewable energy sources from wind to geothermal to biomass.
Paul Clark, Conference Manager of Euromoney Energy Events shares his thoughts on Ontario's FIT program and his outlook on renewable energy in Canada.
TMX: What led Euromoney to establish a renewable energy finance conference in Canada?
We're always looking for new markets to access. We saw Canada as the next market for us to go into. With the unveiling of the Green Energy and Economy Act, it seemed like the perfect chance for us to jump in. With that single piece of legislation, Ontario became the most forward-looking government in the world with regard to renewable energy, actively forcing development and deployment of it at scale.
TMX: What do you think of the financing environment in Canada for these types of projects?
The Canadian banks weathered the financial crisis incredibly successfully and so have capital to inject into this market. As well, having the electricity rate guarantees from the government ensured that there was going to be significant returns on investment. This made renewables attractive as an investment class in Ontario where they hadn't been previously.
TMX: What changes have you seen in this sector over the years?
Broadly speaking, renewable energy has become an asset class of its own. Economies which were very focused on coal-fired power generation, on oil and gas, are being exposed to a new wave of technologies. With the rising cost of fossil fuels, it brings renewables more into the mainstream. I think the world is moving in the right direction towards a much more renewable economy, albeit with significant challenges in place and very ambitious targets and still requiring an enormous amount of investment. The industry has become increasingly popular. We've got more manufacturers developing products that are getting more sophisticated all the time. The marketplace is therefore getting excited with more competitive pricing and more interest, but I think there's still a lot of uncertainty.
TMX: How does China fit into the picture?
I heard a great quote last year: “As a person interested in renewable energy, China is the best thing to happen in the world. As an American, China is terrifying.” In the last four to five years, China has become the biggest renewable energy market in the world. There is enormous support from the government with huge amounts of money being invested. They can also manufacture the equipment at a much lower rate than anywhere in the world. We are even seeing Chinese manufacturers and developers starting to look for projects to invest in. That being said, the sector still has an enormous number of challenges.
TMX: What are the industry's main challenges?
I think the biggest obstacle to renewable energy is it requires active government support to be financially viable. Ontario is a prime example of a government offering great support and really great returns. And then there is the case of Spain, which traditionally has had extremely good support mechanisms and feed-in tariff programs. When the austerity measures came in during difficult economic times, the first thing that went was the support for renewable energy. There were retroactive alterations in the feed-in tariff programs making it much less economically viable for investors – some of whom had already committed money and had their returns disappear. Government support is almost in a state of flux. I think there could be a real boom in the next few years but governments need to maintain their support if the sector is really going to take off. It needs to continue to remain attractive as an asset class for investors.
TMX: How do you think the nuclear disaster in Japan will affect the renewable energy sector?
I think in a roundabout way, the issue that we've just had in Japan could actually trigger a new wave of investment in renewable energy. Traditionally a lot of governments have seen renewable energy and nuclear as somewhat compatible. Nuclear plants are a huge capital investment, but they were also seen as a fairly safe bet – until very recently. I think now, given the events in Japan, nuclear isn't as attractive at the moment. There's an element of recent history that plays in investors' minds when they're looking at energy projects. The events in Japan will definitely have had an impact on investors' attitudes towards nuclear energy so this could almost trigger the start of a renaissance for renewables.
TMX: Do you think renewable energy projects can viably take center stage in electricity production?
We've still got some ways to go. Big pure play renewables such as wind and solar have not really taken off yet, but I think that there will come a time when they play a much greater part of the energy mix. The difficulty with renewable energy is that you're relying on extraneous sources. With wind power, you need the wind to blow. With solar power, you need the sun to shine. I think it will get there but there needs to be considerably more deployment at scale that shows investors that this is a valid investment.
TMX: What needs to change to achieve this?
Ultimately, it's a cost game. Everyone has this idealistic approach towards renewable energy that it's a great thing and that we need it. But when you tell them their electricity rate could triple, they're not so keen anymore. People want to be able turn on the lights, they want to be able to turn on the AC and they want it to come on at an economic price. If we can demonstrate that these projects can be built reliably and deployed commercially at scale offering reasonable rates, we can meet somewhere in the middle. I think there needs to be some consistency in government support as well. Governments say they support renewable energy but then funnel billions of dollars in the coal industry and offer the oil industry billions of dollars in tax breaks. Either you are supporting it or not because that has ramifications on the energy mix and the availability of that energy mix.
TMX: What is the response from the Canadian market at REFF?
The premise of REFF is to unite the money with the projects, be that on an equity front, debt front, institutional investor front. Last year we had about 160 people. This year we're going to have over 260 so I think the growth trajectory is very good. A lot of people are coming back and I think that shows the strengths of the market. Last year we didn't have as much interest from the big Canadian banks but this year they're nearly all going to be there. I think that shows a shift in attitude towards the renewable energy market.
TMX: What's next for REFF?
We've got a successful portfolio in place which we would like to consolidate and continue to grow. In terms of new markets, Asia is really starting to take off and I don't only mean China. There are many interesting projects taking place in Thailand and Indonesia is starting to get involved as well. Australia is starting to realize there's more to life than coal and gas. In South America, Argentina is starting to realize there they have a viable market. I think most emerging markets are really starting to jump on the renewable energy bandwagon. We will be consolidating our existing position and then looking to go into some of these uncharted territories to see where the next big deal is going to happen.
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