Vision Quest Windelectric Inc.: Developing Markets for Wind Energy in Alberta, Canada

By Juan L. Espinoza, Luis Escobar, & Harrie Vredenburg

TCPL International Institute for Resource Industries & Sustainability (TCPL - IRIS)

2003 BELL Conference, Fort Lauderdale, FL, July, 17-19

OUTLINE

Introduction Background

– Vision Quest Windelectric– Green energy in Alberta

Green Power Market & Vision Quest (VQ)– Customers– Enmax (Greenmax)– “Ride the wind” project

How is the future coming for VQ?

Introduction

Objective: To describe the development of a local “green power” market. It is hoped that the case will provide a framework for national & international application

Methodology:– Literature review (Secondary data)– Personal Interviews (2001-2002)– Feedback

Outcomes:– Teaching case (descriptive); Paper (theoretical)– “Pilot” study for dissertation topic

Introduction

Rapid changes in the electricity sector are moving countries like Canada to consider green/RE alternatives:

– Economic factors (globalization, diversification, deregulation)– Technological factors – Environmental/social factors

In Alberta, despite its high dependence on plentiful and readily available fossil fuels, the acceptance of wind power appears to be growing

This study looks at the different aspects contributing to the creation of a green power market, with special focus on the strategic opportunities that it brings to one of the private wind power producers, Vision Quest.

Background: Vision Quest Windelectric

Privately-held Canadian company based in Calgary, Alta. Active in wind energy exploration, development and

production. It is the biggest owner of wind farms in Alta. “We were the first utility to put a wind turbine in Alberta

on a commercial basis in 1994. And we built Canada’s first wind farm in 1987 in the high Arctic” (Vision Quest executive)

VQ has been involved in several governmental and non-governmental task forces focused on electrical industry restructuring, environmental policy, tax and industry changes designed to create an efficient electricity market.

Green energy in Alberta

DRIVING FORCES The growing renewable energy/wind power industry Deregulation of the electricity sector (from state

monopoly-based to open markets) Government support for green energy development

(climate change issue)

*BARRIERS Alberta’s strong fossil fuel sector (economic,

technological, and institutional forces)

Sources of Power Generation in the electricity system of Alberta

1998

Hydro9%

Coal67%

Gas23%

Wind & Biomas

s1%

2000

Coal55%

Hydro9%

Gas35%

Wind & Biomas

s1%

2005

Coal51%

Gas41%

Wind & Biomas

s2%

Hydro6%

Wind Energy Installed Capacity (MW) around the World

Wind Energy Markets (Countries)

2000 Additions

2000 Year End Total

2001 Additions

2001 Year End Total

Germany 1,669 6,133 2,659 8,750

United States 53 2,566 1,695 4,261

Spain 713 2,502 835 3,337

Denmark 552 2,300 117 2,417

India 90 1,167 240 1,407

Canada (*) 10 137 61 198

World Total (Approx.) 17,300 24,000

Source: AWEA, Global Wind Energy Market Report-2001(*) In order to compare with the ‘big five’ wind energy producers

Wind power still represents less than 1% of global power production BUT it is the world’s fastest-growing energy source (30% annually)

DEREGULATION:How the Alberta’s electricity market works

Marketers

Importers and

Independent Power Producers

Hourly demand bids

Hourly supply offers

Generation Power Pool Transmission Distribution Consumers

DeregulatedMain utilities:Alberta PowerEdmonton PowerTransAltaVision QuestCanada Hydro

RegulatedIndependent entity appointed by the government -ESBI Alberta Ltd

Deregulated

RetailersMunicipalitiesENMAX

The Vision Quest opportunity for developing a Wind Power Market?

“In 1996, the Federal Government was looking at recommendations from the national round table on the environment and the economy from the previous year, which suggested that the federal government take the lead in Climate Change and environmental issues by buying something that nobody really had heard very much before, green power”

…“we saw it [deregulation] as an opportunity…it was a survey across Canada saying that 70% of the people want wind energy as part of their mix and a large percent (20%-30%) said they’d pay more” (VQ executive)

VISION QUEST’s PRODUCTS

VER: Verified Emissions (CO2)

Reduction

Efficiency:Reduction of

Voltage Losses

Electricity only:From wind

power

GREEN ENERGY ®

“We decided to invent the product (‘Green Energy ®’) that was different and break the rules. And we said it’s different and it’s better...”

“...we were able to quantify the green power energy, and because we were through this auditing process we call that the

Verified Emissions Reduction (VER). So, that was also one of the first ever domestic reduction trades in Canada too”

VQ Installed Capacity

Vision Quest's Installed Capacity

1200 12009660

2838040440

01000020000300004000050000

1997(2)

1998(2)

2000(16)

2001(47)

Total

Year (& number of units)

Inst

alle

d P

ower

pe

r yea

r (kW

)

Some customers: Enmax (Greenmax), TransAlta, Suncor Energy

The retailer: ENMAX

Enmax is an electricity transmission, distribution, and energy supply & services company, and is wholly owned by the City of Calgary.

“Being Enmax a retailer, the company is the ‘middle-man’ between electricity producers and clients. Enmax realized that the environmental impacts from the electricity sector could lead to a carbon tax penalty to either the producer or customers, but not to Enmax itself. However, the company saw a role to play about this environmental problem. They created in 1998 an educational and marketing program as the starting point for Greenmax” (Enmax Executive)

Greenmax Program

It was the first program in Canada offering residential customers the opportunity to support “green power” “Greenmax offers customers a choice to support wind-generated electricity production through the payment of premiums ($5, $10, or $ 15 option) to offset the costs associated with sourcing wind power” (Enmax executive)

Two ways to encourage clients to pay more:– Educational program & “the green club program”

CLIENTS– 3,000 residential customers (1% of Enmax’s market)– Federal Government (NRCan & Environment Canada)– “Ride the Wind” project – AUMA and commercial clients

Clients of the Greenmax Program

Greenmax Clients

10 2.226 28.8

67

10 2.226

83.8

122

0

50

100

150

NR

Can

Env

.C

anad

a

Cal

gary

Tran

sit

Oth

ers

Tota

l

GW

h-y

ear

Sep-01

Jun-02

(*) Others include residential, commercial, and municipal clients

“When in 1998 the program was launched, Environment Canada and Natural Resources Canada facilities were the

first clients” (Enmax Executive)

Ride the Wind

Established in September, 2001. It’s a 100 % pollution-free project to power the LRT system (C-Train)

First public transit system in North America using wind power

Collaborative project: VQ-Enmax-Calgary Transit It contributes significantly toward the City of Calgary’s

goal to reduce its CO2 emissions. (It avoids the generation of 26,000 tonnes of CO2 annually).

“The City of Calgary has a particular interest in environmental issues at both corporate and community level...people saying to us: ‘if you do whatever change to be environmentally responsible, we’ll pay for it’” (City of Calgary’s executive)

x

Ride the Wind…

Comparison of electricity prices

1 2 3 4 5 6 7 8 9 10

Time (e.g., days or years)

Pri

ce

(c

en

ts/k

Wh

)

Power Pool

Wind powercontract

Long-term contract (10 years) with a fixed price

a

b

Alberta power Pool Prices ($/MWh)

Sources: Power Pool of Alberta Canadian Hydro Developers Inc.

What should VQ’s strategic direction be? Toward a ‘sustainable’ green power market (Beyond

Greenmax?)– Economies of scale (e.g., “socially responsible” investors)– Role of large energy firms such as Shell, BP, Suncor, Transalta

Regulation (based on government-subsidies) vs. Deregulation (based on consumer-premium)?

Geographical focus (Alberta, Canada, US)? Competition within the wind power industry (e.g., CHD) Competition in the electricity industry: product

differentiation and cost leadership at once?

Vision Quest II: The Sequel

October 2002: Vision Quest became a wholly owned, independently operated subsidiary of the TransAlta Corporation, Canada’s largest non-regulated power generation company.

2003: Constructing Canada’s single largest wind farm (75 MW) at McBride Lake. With this, VQ is becoming Canada’s largest wind power producer

Vision Quest presently owns and operates 68 wind turbine power plants with over 46 megawatts of total peak capacity (to meet the demand of 21,000 homes)

THANK YOU

MERCI

GRACIAS