Policies at the provincial level are driving a rapid expansion of the Canadian wind turbine market and creating export opportunities for U.S. producers of wind turbine nacelles and blades. Companies that have nacelle production facilities in the U.S. – such as Acciona, GE, Siemens and Vestas – have large project pipelines in Canada.
Many of these firms have produced nacelles in the U.S. and have exported them to Canadian projects – and they intend to continue to do so. There is also potential for companies with U.S. production facilities to export blades to Canada. For example, Vestas is increasingly supplying the Canadian market with blades produced at its Colorado plant.
Canada installed 1.3 GW of wind energy in 2011, making it the second-largest wind energy market in the Americas, after the U.S. Three provinces – Ontario, Quebec and Alberta – accounted for 72% of Canada's cumulative installed wind energy capacity as of the end of 2011, with Ontario alone accounting for 37%. These provinces also account for the largest share of new project development activity in Canada, though installations are also rising in other provinces.
Canada's national energy policy is market oriented, so wind installations in Canada are driven by renewable energy goals and provincial policies. In order to increase the power generated from renewables, most of the provinces have established renewable portfolio standards (RPS), and Ontario has even introduced a feed-in-tariff (FIT) program.
RPS programs are often used in combination with other strategies and policies, such as calls for tenders and FITs. Ontario has the most comprehensive FIT in North America for renewable energy.
In September 2009, Ontario launched its FIT, which was enacted as part of the province's Green Energy and Green Economy Act of 2009. Among the program's goals is to help Ontario phase out coal-fired electricity generation by 2014 and create jobs in the renewable energy industries. By the end of September 2011, more than 3 GW of wind projects were being developed under the Ontario Power Authority's FIT program.
Domestic-content requirements
Quebec and Ontario have included domestic-content requirements in their wind energy programs in order to encourage economic development. However, some wind turbine producers contend that such requirements act as barrier to entry and raise costs. In turn, these local-content requirements could also limit export opportunities for U.S. manufacturers.
For instance, in its first wind energy call for tenders in 2003, Quebec-based utility Hydro-Quebec required 40% to 60% regional content for wind energy projects. In its second and third wind energy call for tenders – issued in 2005 and 2009, respectively – Hydro-Quebec required that a minimum of 30% of the content of the wind turbines be produced in manufacturing plants in Quebec's regional county municipality of Matane and administrative region of Gaspesie-Iles-de-la-Madeleine, and that a minimum of 60% of the costs of the wind farms come from Quebec.
Under Ontario's FIT program, wind projects larger than 10 kW that started commercial operation between 2009 and 2011 were required to have a minimum provincial domestic-content level of at least 25%, and projects that begin operation this year or later have a 50% local-content requirement.
Minimum domestic-content percentages are set out for 18 manufacturing inputs or activities areas carried out in Ontario. The largest domestic-content percentages are for the wind turbine blades, gearboxes or generators (depending on whether the turbine is direct-drive); steel for towers; grid connection transformers; and construction costs and on-site labor.
U.S. export opportunities
Wind energy companies with manufacturing facilities in the U.S., such as Siemens and Vestas, are increasingly looking to expand their reach in the Canadian market.
The project pipeline for firms with production facilities in the U.S. totals about 3.6 GW. GE, Siemens and Vestas each have project pipelines of more than 700 MW, and Acciona and Gamesa each have pipelines of more than 100 MW.
Most export opportunities for U.S. produces are in Ontario, Alberta and British Columbia. Although Ontario's local-content requirements present some challenges, there are ways to overcome the obstacles. For instance, even if the nacelles are not produced in Ontario, the requirements can be met, as long as the blades or at least some components are sourced locally.
Although Quebec has a large market, there are no current export opportunities to this province for nacelle manufacturers, because GE supplies that market from its plant in Canada. Moreover, the winning suppliers in the last two wind tenders – Enercon and Repower – do not have U.S.-based nacelle plants.
Companies with project pipelines in Canada are likely to source at least a portion of the nacelles from U.S. production facilities. For instance, both GE and Acciona exported nacelles from the U.S. to Canada from 2007 to 2011 and could again export nacelles for some of the projects in their pipeline.
GE's U.S. production facilities have traditionally supplied a larger share of demand outside of Quebec and will likely continue to supply some Canadian projects. In addition, both DeWind and Gamesa indicated that they will export turbines for 10 MW projects.
Meanwhile, Vestas intends to export nacelles produced at its Colorado plant to the Canadian market for at least three upcoming projects totaling 345 MW, and Siemens plans to meet a substantial portion of its Canadian demand from its U.S. nacelle plant in Hutchinson, Kan.
Canadian imports of "parts of wind mills" – which could include blades, hubs and nacelle components – amounted to less than C$5 million annually during the years 2007 and 2008, but they skyrocketed to an average of C$50 million in each of the years from 2009 to 2011.
There are further export opportunities for blades, but it is not clear whether exports will be widespread. As with nacelles, Vestas invested in U.S. production in Colorado with the intention of also serving the Canadian market from these plants, and it has indicated that it plans to export blades for at least three projects totaling 345 MW.
Beyond these examples, however, little information is available on U.S. export potential. LM Wind Power is a supplier to multiple original equipment manufacturers that have contracts in the Canadian market, but it also has a plant in Canada and is likely to supply many Canadian projects from this plant, including the REpower projects in Quebec, where there is a local-content requirement.
Siemens has a blade plant in Iowa, and the company has indicated that with the potential expiration of the production tax credit, it may source more blades for the Canadian market. The company is building a blade plant in Ontario in order to comply with the province's local-content requirements.
Andrew David and Dennis Fravel are international trade analysts at the U.S. International Trade Commission (ITC). David can be reached at (202) 205-3368 or andrew.david@usitc.gov, and Fravel can be reached at (202) 205-3404 or dennis.fravel@usitc.gov. This article was adapted from "U.S. Wind Turbine Export Opportunities in Canada and Latin America," a report released by the ITC. The full report is available here.
