September 20, 2009 / 3:09 PM / 9 years ago

Economy, policies energizing Canada's wind sector

TORONTO (Reuters) - Canada’s wind power companies are getting a lift from rising oil prices, a healthier economy and energy-friendly government policies, even as tight capital markets continue to curb the recovery of the fledgling sector.

A view of a wind turbine (L) as it spins at the Melancthon I Wind Farm, the first of several commercial sized wind farm projects in the province of Ontario, in Shelburne, approximately 125 km (77 miles) north of Toronto March 9, 2006. REUTERS/J.P. Moczulski

A C$654 million ($611 million) takeover bid by TransAlta Corp for Canadian Hydro Developers, the country’s biggest wind energy producer, has also boosted investor sentiment and signaled wind power is both viable and here to stay, analysts say.

“If you think the coal-fired business is a declining business, the TransAltas of the world are not going to just sit there and watch themselves shrink and die,” said Rob Mark, an energy analyst at MacDougall, MacDougall and MacTier.

“They’re going to adjust and adapt, and the quickest way to do that is buy the guys who are coming to eat your lunch.”

Made up largely of early-stage juniors, many parched for cash or heavily indebted, Canada’s green energy group is gradually recovering from an investor exodus sparked by the financial crisis and the recession.

Tiny Catch the Wind, which makes laser wind sensors, has seen its stock nearly double since December 2008 to C$1.55 on Friday, for example.

Stock in Canadian Hydro has jumped 150 percent in that time to C$5.03 on Friday, boosted by the TransAlta offer, even though it has been rejected by Canadian Hydro as too low.

TransAlta, Canada’s biggest investor-owned power producer, has bid C$4.55 a share to buy Canadian Hydro, which owns the country’s two biggest wind farms.

“TransAlta’s attempt to acquire Canadian Hydro has energized interest in the sector,” said Paul Taylor, chief executive of NaiKun Wind Energy Group Inc, which is developing Canada’s first offshore wind farm.

As the green energy sector flourishes, companies will likely be absorbed by the large, stable utilities dominating power production, MacDougall’s Mark added.

FINANCINGS TRICKLING IN

That prospect has helped revive a sector hit hard when the financial crisis cut off access to debt and equity markets.

While caution continues to keep many bankers on the sidelines, a trickle of financing deals is starting to flow. Last week Boralex Inc secured debt financing for its C$105 million 40-megawatt Thames River wind project in Ontario.

Under that deal, Boralex kicked in 45 percent equity and its bank contributed 55 percent in debt. That typifies an industry trend, said Clarus Securities analyst Carolina Vargas, where companies put up 40 to 45 percent of the project cost, compared with just 20 to 30 percent before the credit crunch.

The few financing deals being done are reserved for advanced projects, with secured power-purchase deals, for example, while exploration work is largely shut out.

Still, investors at the Canadian Wind Energy Association’s annual conference in Toronto September 20-23, expected to draw 2,000 attendees, have plenty to cheer about.

In addition to the Canadian Hydro bid, political backing and rising oil prices are blowing new life into the industry.

This year, wind-generation capacity is expected to grow by nearly a third in Canada to more than 3 gigawatts, enough electricity to power almost 1 million homes.

Canada, like the United States, has lagged Europe in sourcing electricity from wind, and currently ranks 11th in the world for installed capacity, despite having the second-largest wind energy potential after Russia.

Kristopher Stevens, executive director of the Ontario Sustainable Energy Association, said Ontario has learned a lesson from European countries that have brought significant renewable power on line. The province will offer long-term contracts and attractive tariffs for renewable power.

“Incentive structures that are created by government are probably the single most important factor within a Canadian context,” said Bob Mann, head of clean-tech indexes for Jantzi Research Inc, an independent investment research firm.

Policy support comes as oil prices continue climbing, casting a favorable light on renewable power.

After U.S. crude hit a high above $147 a barrel in July 2008, prices sank below of $34 in mid-December as the financial crisis and recession crimped demand. Crude had rebounded to about $72 on Friday.

Many argue that wind power may never compete with the economics of traditional fossil fuels or nuclear power, but analyst Mark said that is irrelevant.

“If there’s a huge demand for it from taxpayers and politicians, which there certainly is, this is going to continue to be a growth industry, and they’re going to be able to make money on it because we’re willing to pay extra for it,” he said.

Editing by Rob Wilson and Jeffrey Hodgson

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