Alternative Energy Sector Note

January 22, 2007
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Note: The information below is an excerpt from “At the Opening”, an industry commentary released by Mark Pencak and Lisa Brown of GMP Securities.


Canadian Government Announces ecoENERGY Program

  • Pledges $1.48 billion over 10 years
  • Available for renewable power projects based on wind, small hydro, biomass, solar photovoltaic, geothermal, tidal and wave technologies
  • Provides $10/MWh of electricity generated over a ten year period, for projects to be constructed over the next four years
  • Will benefit BLX and KHD specifically; supportive for ATA, CMH and XTX as well

Long Awaited Replacement for WPPI and RPPI Programs Announced

On Friday January 19th, the Canadian Federal Government announced its ecoENERGY initiative. The Conservatives have pledged $1.48 billion over the next 10 years to support renewable power projects. This is a long awaited development. Prior to the last federal election, the Liberal party’s Budget had provided $200 million over five years and a total of $920 million over 15 years for the expansion of wind projects under the Wind Power Production Incentive (WPPI). The WPPI funding had been awaiting Treasury Board approval when the Conservatives won their minority government, and the program was on hold until the Conservative put forward their own version.

Additionally, the Renewable Power Production Incentive (RPPI) was also in the 2005 Budget. RPPI was created to encourage the installation of up to 1500 MW of new renewable energy electricity generating capacity other than wind. $97 million had been allocated in the budget over the next five years and a total of $886 million over 15 years. This program was also awaiting Treasury Board approval.

Thus, while the ecoENERGY program provides less total funding, $1.4B vs $1.8B for WPPI and RPPI combined, and is over a shorter time frame (10 years vs 15), in our view it provides a positive boost to the renewable power industry in that uncertainty relating to the lack of formal policy has been alleviated.

Broad Array of Technologies can Benefit

The funding will be made available for renewable power projects based on wind, small hydro, biomass, solar photovoltaic, geothermal, tidal and wave technologies. The funding will be provided to projects constructed over the next four years and provides $10/MWh of electricity generated over a ten-year period.

Will Benefit BLX and KHD Specifically; Supportive for ATA, CMH and XTX As Well

We believe that each company in our Alternative Energy coverage will benefit from this initiative. Both Boralex (BLX-T, Buy) and Canadian Hydro Developers (KHD-T, Buy) are expected to benefit in a significant fashion. We believe that both companies will be submitting bids to the upcoming calls for tender by provincial utilities in Quebec and Manitoba. The availability of the federal funding enhances project economics and will be factored into the bids.

We believe that the other companies in our coverage will benefit as well, although perhaps in not as significant a fashion. ATS Automation Tooling System’s (ATA-T, Buy) solar division Photowatt will benefit for potential projects, but the company’s market presence in Canada is currently insignificant, and therefore, we do not expect any material impact. Carmanah Technologies (CMH-T, Buy) should see a boost in demand for their solar power systems division given its position as Canada’s largest PV systems integrator. Additionally Xantrex Technologies (XTX-T, Hold) should benefit as increases in demand for renewable power systems should provide a positive demand boost for the company’s inverters which are integrated into renewable power systems.