Curtis Matwychuk-Goodman

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“Ben Franklin may have discovered electricity – but it is the man who invented the meter who made the money”
- Earl Warren-

Introduction to the Issue

conomic growth and electricity consumption are directly correlated.  As a nation’s electricity consumption increases so does the gross domestic product.[1] It is generally accepted that access to electricity is a necessary element for a healthy economy; in today’s day and age electricity is required for production of both goods and services.  Without access to reliable sources of electricity the efficiency and productivity of the North American economy would tumble.

This paper seeks to investigate the current trade policy between Canada and the United States in the case of International Power Lines (IPL) and the international sale of electricity.  The specific case of the Montana-Alberta Tie Limited (MATL) project provides an excellent case study of the Canada-U.S. relations on electrical energy.  MATL will be the first direct merchant-based grid interconnection between the province of Alberta and the state of Montana and will provide context for the regulatory environment of each country.  This paper will present the case from the Alberta perspective.  It will, however, provide analysis of both the federal and sub-federal governments from both Canada and the U.S. and their related jurisdictional authority over the MATL project.  In doing so, this paper will discuss the context surrounding the construction of an International Power Line (IPL).  The recent final approval of the MATL project demonstrates the continuing harmonization of the North American electricity grid; which will briefly be discussed.

In addition, this paper will directly examine the popular notion that Alberta is an energy superpower in the North American marketplace; albeit perhaps not a leader in the electric energy industry specifically.  In fact, this paper seeks to demonstrate that Alberta has tremendous growth opportunities but currently lacks the adequate infrastructure to exert such influence even in the North American marketplace.  To begin our discussion, let us first explore exactly what electricity is.

Electricity is an interesting commodity.  Once electricity is generated it cannot be stored. The laws of physics declare that electricity will always flow through the path of least resistance.   This is the reason that when a light switch is turned on, the lights turn on instantly. In addition to this, electricity demand is very unpredictable.[2] As a whole the electricity market services residential, commercial and industrial purposes; which means electricity must be available at any time of day in many different locations.   Furthermore, electricity loses potential over great distances and with changes in temperature.[3] This presents an interesting challenge for the creation and maintenance of a reliable electricity grid.  A perfect mix of generation, transmission, and distribution (or retailing) must exist to efficiently service all customers in need.  As a result of this the electricity industry has traditionally been region-specific and usually exists as a vertically-integrated entity.  To increase the overall efficiency of an electricity grid it is best to have many interconnections between regions because it creates economies of scale, which in turn determines the most efficient price of electricity for all users. [4]

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The MATL Project

Montana Alberta Tie Limited (MATL) is a Calgary-based company that is currently in the progress of building Alberta’s first International Power Line (IPL).[5] This line is monumental, in that it represents the first merchant-based international project of its kind in Alberta.  This project is also unique in this province because the entire construction and financing is done by a private company instead of by the end-user who traditionally pays for such infrastructure through offset transmission charges.  Once constructed this IPL will be the first direct inter-tie between the electricity grids of the United States and Alberta.  The grid interconnection points will be located in Lethbridge, Alberta and Great Falls, Montana; crossing the border west of the Coutts crossing and spanning a distance of 345 kilometers.  The transmission power line will be privately owned and operated as a merchant system with a nominal rating of 300 megawatts of alternating current.  According to MATL, this is 240kV or enough power for 35,000 homes.[6] Even before construction, the entire line’s capacity has been auctioned off to private companies, including NaturEner, Wind Hunter and Invenergy.

The MATL transmission power line is a strategic addition to the electricity-grid and is ideally positioned for further development of local wind turbine generation projects.  The proposed IPL traverses some of the best wind energy potential locations in the western parts of North America.  In fact, the company estimates that in addition to creating 150 jobs and adding $10 million to the local economies during construction, the power line will enable up to $1 billion dollars in wind farm developments.[7] The MATL project provides a significant and necessary resource for both nations to move towards reducing their carbon footprint by providing access opportunities for renewable energy sources to join the electrical grid.  Most importantly, the MATL line will increase the overall efficiency of the Western energy grid.  If the MATL project promises such great benefits, who then has effective regulatory oversight over the IPL – Canada or the United States?

Regulatory Jurisdiction over MATL

The construction of Alberta’s first IPL provides an excellent case study of the symmetries and asymmetries of regulatory systems and trade policies of electricity as a commodity, on both sides of the border.  This paper will examine the regulatory regimes of both nations separately by looking at the jurisdiction of federal and sub-federal authorities.

The fundamental differences between Canada and the U.S. are manifested in the fact that significantly more opportunities for stakeholder input exists during all stages of the application process in the U.S.  The U.S. also has a more equal division of jurisdiction on the issue of IPLs and the international sale of electricity.  In Canada, on the other hand, authority is retained by the provincial government and there are not as many opportunities for public consultation.  In fact the provincial government is currently seeking to limit public input in essential transmission infrastructure.

After the context of each country’s regulatory regime has been established this paper will examine the move towards North American harmonization of both systems by means of joint intermediary institutions like the North American Electricity Reliability Corporation (NERC).

Canada

–>Federal Level

At the federal level there is relatively little direct control over electric power lines and related facilities, since these are under provincial jurisdiction.[8] However, the federal government retains quasi-jurisdiction and oversight through the National Energy Board (NEB).[9] The purpose of the NEB is to “promote safety and security, environmental protection, efficient energy infrastructure and markets in the Canadian public interest.”[10] In order for an IPL to be constructed the NEB must first issue a permit to construct and operate.  This provides some effective federal control over IPLs.  The NEB considers the “technical feasibility of the project, its effect on adjacent provinces and its environmental impact.” [11] In this way the NEB ensures that projects comply with the national standards set by the Canadian Electrical Code, the Canadian Standards Association, and the Canadian Environmental Assessment Act.  Additionally, the NEB has a mandate to ensure that IPLs are managed effectively to meet the needs of national security.  This requires an electricity reliability organization (ERO). The North American Reliability Corporation (NERC) has been appointed by the NEB as the best agency to ensure this electricity is reliable and can be counted on when needed.  NERC will be discussed further in the section on joint initiatives between Canada and the U.S.

The NEB does not regulate the import of electricity.[12] However, in addition to issuing construction and operational permits, the NEB can establish the limit of electricity to be exported.  This is determined by the total available electricity and the corresponding domestic demand.  Nearly 70 per cent of all energy exports to the U.S. are generated by hydro-electric facilities which are subject to dynamic environmental conditions.[13] This directly impacts the amount of electricity that can be exported to the U.S. at any given time.

–>Provincial Level

In Canada electricity is considered a resource and is therefore under provincial jurisdiction.[14] As a result of this, provincial regulations can vary by province.

In most provinces electricity is a public utility and is operated by a Crown Corporation.  In the cases of British Columbia, Manitoba, Quebec and New Brunswick excess electricity is exported through IPLs. The revenues earned from electricity exports are used to maintain “domestic electricity prices at levels that are lower than they would otherwise be.”[15] Each of the aforementioned provinces has substantial hydro-electric generation facilities and has nearly maximized their export potential.

Alberta is unique among all the provinces as it is the only privatized electricity sector in all of Canada.  The electricity industry was deregulated under the Electric Utilities Act (EUA) of 1995 which effectively privatized the electrical supply market.[16] Initially, this act mandated that all electricity generated would become part of a Power Pool which was regulated by the Alberta Energy Utilities Board (EUB).  However, as of 2001, retail competition was introduced effectively giving choice to consumers.  Presently in Alberta electricity generation is predominantly owned by private interests who sell the power to private retailers.  Through this process the retailers pay the owners of the transmission line for the intermediary use.  Electricity generation is separate from transmission, and separate from distribution. All three levels are private – yet must act in concert to ensure profitability of the entire system.

Although the power industry is privately owned there is still regulation oversight by three government created agencies: the Alberta Electric Systems Operator (AESO), the Alberta Energy Utilities Commission (EUC)^[17], and the Market Surveillance Administrator (MSA).  The first provincial regulator is the AESO; which is responsible for the reliability of the Alberta Interconnected Electric System (AIES).  The AESO is an independent not-for-profit organization that regulates access to the grid for generators and distribution companies so that electricity in Alberta is safe, reliable and affordable.  AESO facilitates a “competitive wholesale electricity market, which has more than 200 participants and about $8 billion in annual energy transactions.”[18] The AESO has a mandate to determine the need for expansion and infrastructure reinforcements.  Once a need has been determined, the AESO makes a recommendation to the second level of provincial regulation the: Alberta Utilities Commission (AUC).

The AUC is ultimately responsible for issuing permits to construct necessary transmission facilities and must conduct public consultation sessions to ensure all stakeholders have adequate input on new developments. The purpose of the public hearings is to assess local impacts, mitigate problems and accommodate solutions. As well, the AUC seeks approval of projects from the Alberta Ministry of Environment to ensure the project meets the requirements of the Environmental Protection and Enhancement Act.[19]

Currently there is great public debate in Alberta over the authority of the AUC to construct a domestic power line between Edmonton and Calgary.  A high-voltage line between these two cities has been recommended by the AESO to reinforce the power grid, as it has only seen one infrastructure upgrade since 1989.[20] Similarly, the AESO has recommended the construction of four other critical projects, together worth an estimated $8.1 billion, out of $14.5 billion dollars in total recommended system upgrades.[21]

The AUC and the Alberta Government face even greater criticism over the proposed Bill 50: Electric Statutes Amendment Act, 2009.  The intention of the bill is to provide unilateral authority of the Alberta government to approve critical transmission projects.  If Bill 50 passes, the provincial cabinet would have considerable power over the AUC, which would compromise the democratic nature of the intended system.  Tensions are exacerbated by both landowners and ratepayers.  Landowners are worried about the negative impacts of building a line over their land – including lost property values, health impacts, and a general belief of ‘not in my back yard.’[22] Rate-payers also have concerns because they will be responsible for paying for the transmission upgrades through increases in annual electricity bills.

The third provincial regulator of electricity is the Market Surveillance Administrator (MSA).  The main purpose of the MSA is to ensure fairness of the electricity markets in Alberta’s public interest.  The agency monitors, reports, investigates and is an advisory body that reports to the AUC.  The MSA does not have regulatory authority over IPL project applications.

United States

–>Federal and State Levels

In the United States the MATL project is similarly impacted by two levels of government.  In this case the regulatory process of approval required for an IPL provides effective control to many government departments related to energy and the environment.

The state of Montana has authority over matters of transmission under the Department of Environmental Quality (DEQ).  The DEQ has authority set under the Major Facility Siting Act of 2003 (MFSA) which effectively supersedes all other local government entities and regulations.[23] The federal executive level of government it is largely involved in the proceeds of the state level regulatory process, has the ability to make recommendations, or can effectively veto the project.  Under the MFSA act the Montana DEQ requires two authorizations for a developer of an IPL to proceed with construction.

The first is step of constructing an IPL is an application outlining many factors.   In the MFSA application procedure a transmission developer must demonstrate the need for the project, justify its proposed location or alternative sites, and provide a baseline study (or a reliability analysis). Most importantly, the application must demonstrate a cost-benefit analysis of the project.  The Montana DEQ submits all relevant information to the DOE; in turn the DOE will issue a Memorandum of Understanding (MOU).  Based on each government’s findings and subsequent public hearings, the DEQ will issue or deny a Certificate of Compliance.  This certificate signifies that all conditions of the application process are met which permits the developer to proceed to the next level of the regulatory process.[24]

The first step of the MFSA application process involves communication with all relevant stakeholders from the beginning to allow maximum public input from the start.  This public consultation at the early stages of project authorization has allowed the local constituents most impacted to have a voice in the development.  In the case of MATL, local farmers were responsible for changing the pole type design on farm-lands most impacted by the line crossing.[25] The cost-benefit analysis of the MATL project suggested a local impact to farmers that would annually result in $210,000 in additional farming related costs.[26] This was out-weighed by the net benefit from tax revenue from MATL which is estimated to be $730,000 annually. [27] This does not include the potential gains from greater system efficiency and future wind farm development related tax revenue.

The second step of the authorization process to construct an IPL like MATL, is also a multi-level process involving the federal Department of Energy (DOE) and the Montana DEQ.  This step is mandated by the National Environmental Policy Act (NEPA).  Many levels of government have input in reviewing the project application through a report known as an Administrative Draft Environmental Impact Study (or agency comment stage) which is available first to related agencies impacted by the development for review.  This step of the regulatory process is intended to measure the level of environmental impact each project will have.  The implication of this is to ensure a more rigorous scrutiny process for projects that will have environmental impacts by way of national parks, critical habitat areas (reserved for endangered species), breeding areas, cultural areas, waterways, and areas of scientific, paleontological or anthropological interests.

In this way, the DEQ based their approval of the MATL project on the company’s adherence to the “Suggested Practices for Avian Protection on Power Lines: The State of the Art in 2006.” This document was created through a multi-stakeholder policy approach with input from the California Energy Commission, the Avian Power Line Interaction Committee (APLIC)[28], and the Edison Electric Institute (EEI).[29] In addition to meeting these standards the MATL project must also adhere to the National Electrical Safety Code, the Federal Aviation Administration, water quality statutes during construction, and local visual management plans.[30] This process enables simultaneously action by both the federal level (DOE) and the state level (M DEQ) and related agencies.  This fosters greater input on the proposed projects from a wider range of state and federal levels.

Once the agency comment stage is complete, the DEQ issues a Draft EIS which is released for public comment.  This provides the general public an opportunity to comment on the proposed project.  However, this stage is limited by time; within thirty days the DEQ will issue a Final EIS which legitimizes the IPL development as a real possibility.  Based on this report the DEQ has nine months to review it and draft and issue all permits not covered by the Major Facility Siting Act (MFSA) required by the proposed development.[31] This process occurs simultaneously at the federal level under the jurisdiction of the Department of Energy (DOE).  There is considerable cooperation between the state and federal levels during the second stage.  Within thirty-days of the DEQ issuing a Draft EIS the DOE may issue a presidential permit to continue with construction.  Once the DEQ and the DOE approve the application a Record of Decision is given which authorizes the construction of the IPL.

It is important to note that the federal level of government is also represented by the Federal Energy Regulatory Commission (FERC).    This effective authority over IPLs is retained by the Electrical Reliability Organization (ERO).  In the United States the designated ERO is the North American Electricity Reliability Corporation (NERC).  This will be discussed in the next section.

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North American Electricity Integration

Recently Canada and the United States have fostered a dialogue to create a Smart Energy Grid.  This would effectively lead to greater harmonization among all North American power generators, transmitters, and distributors.  Already this has occurred through a main joint coordinating agency that links the Canadian and American electricity market is through an Electricity Reliability Organization (ERO).  The designated ERO for both Canada and the U.S. is the North American Electricity Reliability Corporation (NERC).

Interestingly NERC was first designated as the main U.S. ERO in 2005 by the Federal Energy Regulatory Commission (FERC).[32] This was a result of the major blackouts of 2003 in the Northeastern regions of North America.[33] Subsequently, the NEB in Canada appointed NERC as the national ERO because it was required if Canada was to increase the trade in electricity with the U.S.  This suggests that NERC is a domestic policy tool that has been applied to Canada – meaning Canada was treated as a sub-set of American domestic policies.  It is arguable that Canada voluntarily joined NERC, yet was there an alternative option?  If Canada was not a part of NERC, then most transmission interconnection points with the U.S. would no longer be functional.  Before however, NERC was a voluntary authority that set out policies and standards for nine regional electrical councils within the U.S.  Now NERC has the ability to fine electrical generators and distributors for non-compliance with their standards and policies.  The regional council that has jurisdiction over the MATL project is the western Electricity Coordinating Council (WECC).

The effective jurisdiction of WECC is over the states and provinces of: Alberta, Arizona, British Columbia, California, Colorado, Idaho, Montana, New Mexico, Oregon, South Dakota, Texas, Washington and Wyoming. [34] WECC has effective control over the interconnection points between Canada and the eastern coordinating councils through many high-voltage power lines; once completed MATL will become another one of these interconnections.

In order for an IPL to be approved WECC must approve the technical aspects of the proposed project.  This ensures that any new transmission infrastructure is compatible with the entire electricity grid in North America.  MATL required a Phase III status on the transmission pathway rating in order to be eligible for connection with the WECC.[35] This means that the IPL is engineered to meet the standards specified by NERC.

NERC is also part of the North American strategy for national defense; the Critical Infrastructure Protection (CIP) program has developed Cyber Security Standards to protect assets deemed high risk but necessary for the reliability of the North American system.[36]

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Discussion

The case of MATL suggests there are many similarities between Canada and the U.S. in terms of regulatory processes of IPLs.  However, it is evident that the process in the U.S. is much better organized with greater chance of public involvement.

In Canada the regulatory process appears less well-organized.  Also, in Alberta there is less opportunity for public consultation, which under Bill 50 may diminish even more over time.  The MATL project has demonstrated that Alberta regulatory process of IPL’s is still in an infancy stage of development.  Before MATL Alberta did not have IPLs.  During the MATL approval process Alberta effectively changed the regulatory agencies responsible for IPLs – the Alberta Utilities Commission (AUC) was not the presiding agency in the approval of MATL.  In fact, the AUC was formed by the dismantling of the Alberta Energy and Utilities Board (EUB).  More investigation is required to determine if the MATL project played an influencing role on the change of the provincial government regulatory framework.

The MATL project has been very effective, especially in the U.S.  The company began the IPL development process in August of 2005 and in four short years was able to secure full regulatory approval from multi-levels of government from two countries.  The MATL project has also been successful in gaining funding by the federal U.S. government under the Recovery Act of 2009; made possible by the DOE through the Western Area Power Administration (WAPA).  In exchange for the conditional right to 50MW of the MATL line capacity, WAPA will cover the expected construction costs of $161 million.[37] MATL is the first project to be funded by WAPA under the Recovery Act of 2009.  This suggests that the project managers of MATL were keenly involved in the U.S. government regulatory process.  The Canadian company understood that in the U.S. regulation is a multilevel process that requires a coordinated and micro-policy approach.  The MATL project: aimed to harmonize the North American electricity system; is sectoral in character; and appealed to regulators because of the potential for renewable energy to be added to the grid.  It is for these three reasons that MATL was able to achieve project approval in the U.S. in just four years.

There is evidence that suggests greater integration of the North American electricity market will lead to a harmonization of regulatory oversight over matters of IPLs.  NERC is a perfect example of how Canada and the U.S. work together through an independent, sectoral-based organization to achieve common ends.  Interestingly, however, NERC was borne as a subset of domestic American policies.  This suggests that Canada could be considered the fifty-first or just another Northern state.  Given the enormous energy reserves in Canada, more specifically in Alberta, perhaps it should be the other way around.  After all, media has a unique ability to continually purport that Alberta is an energy superpower.

Is Alberta an energy superpower?  In electricity the straight answer is no.  Before the construction of MATL Alberta does have access to the United States electrical market through inter-provincial ties via British Columbia and Saskatchewan.[38] This has traditionally allowed for Alberta to engage in the import and export of power.  According to the National Energy Board, between January and February 2009 Alberta exported 167,412 megawatt hours (MW.h) of electricity. This was worth an estimated $5.6 million at an average cost of $35.32/MW.h.  During the same time period Alberta effectively imported 485,367 MW.h of electricity; worth an estimated $16.6 million at an average cost of $52.02/MW.h.[39] Based on this data it is evident that in 2009 Alberta has been a net-importer of electricity and has faced higher importing costs than those states that purchase Alberta electricity.

Alberta has paid a premium on electricity imports; paying on average $16.70/MW.h more to buy than is charged for the export of the exact same commodity.  This is most likely due to discriminatory pricing techniques involved in the electricity industry – wherein prices vary by demand and are influenced by complex financial derivatives.  However, it is interesting to consider that Alberta faces a trade deficit in electricity exports.  It is because of this that Alberta cannot be considered an energy superpower.  However, some may consider the development of Alberta’s first IPL marks an important development in the province’s energy-related economic growth strategy towards becoming an energy superpower.

It is interesting to consider that currently in Alberta most electricity is generated by burning coal.  In 2007 Alberta was responsible for the burning of a staggering 52 per cent of all coal in Canada for the purpose of electrical generation.[40] Coal is a reliable fuel source.  The economics are simple: as electrical demand increases more coal is burned so supply and demand are equal.  Subsequently, coal has a bad reputation based on the high levels of greenhouse gas emissions that result from how it is converted to energy.  If the MATL project enables Alberta to export electricity, then will impending government climate legislation detrimentally affect Alberta exports?  Will the Americans impose higher tariffs on energy from ‘unclean’ sources?  Or will MATL spur the development of renewable energy sources as promised?

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Figure 1: Chart of Electrical Line Losses by Load and Temperature

(DOE 2008)

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Figure 2: Major Western Canadian Electricity Transmission Interconnections – Domestic and International

(NEB January 2003, 9)

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Figure 3: IPL Regulatory Framework – U.S.A.

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Table 1: Key Regulatory Approvals Required by Jurisdiction

*Effective January 1, 2008 the EUB became: Energy Resources Conservation Board (ERCB) and the Alberta Utilities Commission (AUC)

**The amount of time MATL application process required for approval

***Designated the official federal Electricity Reliability Organization (ERO) by FERC in 2006; members include states/provinces from Canada, USA, Mexico

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Table 2: Summary of Alberta Electricity Imports and Exports by Company and Destination 2009

List of Acronyms

AESO   – Alberta Electric Systems Operator

AIES     – Alberta Interconnected Electric System

APLIC   – Avian Power Line Interaction Committee (USA)

AUC     – Alberta Utilities Commission

DEQ     – Department of Environmental Quality (Montana)

DOE     – Department of Energy (USA)

EEI       – Edison Electric Institute (USA)

FERC    – Federal Electricity Regulatory Commission (USA)

IPL       – International Power Line

MATL   – Montana Alberta Tie Limited Project

MSA     – Market Surveillance Administrator (Alberta)

NEB     – National Energy Board (Canada)

NERC   – North American Energy Reliability Corporation

NEPA   – National Environmental Policy Act (USA)

WAPA – Western Area Power Administration (USA)

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Bibliography

AESO. “About AESO.” Alberta Electric System Operator. December 2009. http://www.aeso.ca/ourcompany/ourCompany.html (accessed December 1, 2009).

Alberta Energy. Energy History in Alberta. 02 02, 2009. http://www.energy.alberta.ca/About_Us/1133.asp#2000_-_Present (accessed 12 01, 2009).

DOE. Department of Energy Announces Start of Western Area Power Administration Recovery Act Project . September 19, 2009. http://www.energy.gov/news2009/8017.htm (accessed December 3, 2009).

DEQ. “Federal Draft Environmental Impact Statement.” MATL Transmission Line EIS. 2008. http://gc.energy.gov/NEPA/nepa_documents/docs/deis/eis0399/vol2/Volume2g.pdf (accessed 12 1, 2009).

MATL. Our Project – Regulatory. 2009. http://www.matl.ca/project/regulatory.php (accessed November 1, 2009).

Mintz, Jack M. “The Power of Exports.” National Post. November 9, 2009. http://network.nationalpost.com/np/blogs/fullcomment/archive/2009/11/09/jack-mintz-the-power-of-exports.aspx (accessed December 1, 2009).

Montana DEQ. “DEQ Findings for Certification.” Tonbridge Power – MATL Project. October 22, 2008. http://www.tonbridgepower.com/Project/DEQ%20Findings%20for%20Certification.pdf (accessed December 1, 2009).

NEB. Canadian Electricity Exports and Imports. An Energy Market Assessment, National Energy Board, Calgary: Canada, January 2003, 66.

NEB. Electricity Exports and Imports. Monthly Statistics Repor, Calgary: Canada, September 2009, 31.

NEB. Global and Canadian Context for Energy Demand Analysis. Energy Briefing Note, Calgary: Canada, September 2008, 20.

NEB. International Power Line Security Management. 11 20, 2009. http://www.neb.gc.ca/clf-nsi/rsftyndthnvrnmnt/scrty/ntrntnlpwrlnscrtymngmnt-eng.html (accessed December 7, 2009).

NEB. Who we are, governance, and responsibilities. 11 16, 2009. http://www.neb.gc.ca/clf-nsi/rthnb/whwrndrgvrnnc/rrspnsblt-eng.html (accessed Dec 6, 2009).

Puckett, Carl. “Leaders celebrate the start of MATL work.” Great Falls Tribune. December 01, 2009. http://www.matl.ca/documents/2009/project/press/articles_pdf/2009-12-01%20%28Great%20Falls%20Tribune%29%20-%20Leaders%20celebrate%20start%20of%20MATL%20work.pdf (accessed December 04, 2009).

Reuters. “Alberta needs $14.5 billion in new power lines: agency.” National Post. June 2, 2009. www.nationalpost.com/story.html?id1655795 (accessed December 1, 2009).

Statistics Canada. “Electric Power Generation, Transmission and Distribution (57-202-X).” Statistics Canada. 2007. http://dsp-psd.pwgsc.gc.ca/collection_2009/statcan/57-202-X/57-202-x2007000-eng.pdf (accessed December 2, 2009).

“Summary of State Transmission Siting Law in the Western Interconnection.” Western Governors Association. http://www.westgov.org/wieb/transmission/other/siting_paper.pdf (accessed November 27, 2009).

[2] Recognizable trends exist where consumer consumption is based on time of day and time of year.  For example, most people are home and using electricity in the morning and in the evening; and there is more electricity consumption during the winter, especially in Canada, because there are less day-light hours.

^[3] See Appendix Figure 1: Chart of Electrical Line Losses by Load and Temperature

^[4] EEI – electricity 101 (NEB January 2003, 2)

[5] MATL is a wholly-owned subsidiary of Tonbridge Power Inc. (TSX: TBZ)

[6] MATL site

[7] (Puckett 2009)

[8] Constitutional division of powers

[9] As set out by: National Energy Board Act (1959); Canadian Electricity Policy (1988); Canadian Environmental Assessment Act (1995).

[10] (NEB September 2008)

[11] (NEB 2009).

^[12] (NEB September 2008)

^[13] (NEB 2009)

^[14] As per the constitutional distribution of powers

^[15] (NEB January 2003, viii)

[16] (Alberta Energy 2009)

^[17] Originally the Alberta Energy Utilities Board (EUB) which in January 2008 was dismantled into two separate agencies: the Alberta Utilities Commission (EUC) and the Energy and Resources Conservation Board (ERCB).  The EUB was the presiding agency over the MATL project.

^[18] (AESO 2009)

[19] (Alberta Energy 2009)

[20] (Mintz 2009)

[21] (Reuters 2009)

[22] As discussed in class and in So Near and Yet So Far: NIMBY or BANANA.

[23] (Summary of State Transmission Siting Law in the Western Interconnection n.d.)

[24] See Appendix Figure 3 IPL Regulatory Framework – U.S.A.

[25] This effectively changed some of the 1600 poles to be installed from just being of an H-type design to a monopole type design.

[26] These costs are as simple as a farmer being forced to combine around IPL power-poles that interfere with time-tested farming efficiencies.  These costs do not factor in the impacts of construction or lost potential land-values.

[27] (Montana DEQ 2008, 12)

[28] APLIC is a multi-level committee comprised of electric utility organizations and federal agencies.

[29] EEI is an association of shareholder electric companies that represents 70% of U.S. electric power industry.

[30] (Montana DEQ 2008, 9)

[31] (Summary of State Transmission Siting Law in the Western Interconnection n.d.)

[32] FERC is an independent regulatory agency within the DOE and is responsible to federal courts.

[33] NERC was created under the Energy Policy Act of 2005.

[34] WECC was formed in 2002 by the merger of three regional councils: the Western System Coordinating Council, the Southwest Regional Transmission Association, and the Western Regional Transmission Association.

[35] (MATL 2009)

[36] (NEB 2009)

[37] (DOE 2009)

^[38] See Appendix: Figure 2: Major Western Canadian Electricity Transmission Interconnections – Domestic and International

^[39] See Appendix Table 2: Summary of Alberta Electricity Imports and Exports by Company and Destination 2009

[40] (Statistics Canada 2007)

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FULL DISCLOSURE:

At the time of writing this I owned shares in Tonbridge Power (TVE: TBZ) the parent company of MATL.

Curtis Matwychuk-Goodman, Jeff Wilson, Ryan Gillanders, Wade Tywoniuk, and Will Woo Young Kim.

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Introduction to the Issue

This paper is intended to provide readers with an understanding of the wind-energy industry.  In order to understand the industry a holistic approach is necessary.  First, this paper will explain the historical development of wind-energy.  It will then explain the concepts of location advantages which are crucial for industry development.  Readers will understand how location can both be an advantage and disadvantage depending on how firm-specific advantages are leveraged.  Furthermore this paper will detail the stages of wind-energy project developments as well as the technological advancements that have given rise to the current wind turbine designs.   In the end readers will understand the basics about wind-energy; with a better understand how wind can be harnessed to produce sustainable and renewable power.

In terms of the global regions of the wind-industry our research indicates the largest players are found in the triad economic regions; including the European Union, North America and Asia-Pacific.  The second part of this paper will give a brief overview of some countries from each region.  From the EU, the focus will primarily be on Germany and Spain, with brief discussions of secondary players from Bulgaria, Italy, UK, France, Turkey and Poland.  This section will prove Europe’s historical dominance in the wind energy industry.  From Asia-Pacific we will discuss the emergence of China as a global player; and from North America we will focus on Canada and the United States.  Overall, from this regional overview readers will gain insight into key areas of: the role of governments from incentives to regulation; how a global shift has occurred from Europe to the world; and the ways in which a cluster-effect has occurred similar to other global industries.  This section will enable readers to understand the high –growth potential of wind energy.

To further understand the regional markets of the wind-energy industry we will provide a detailed overview of three major companies operating within each triad region.  The Irish company Mainstream Renewable Power provides an interesting case of the cooperation between European and Canadian markets.  From Asia we will examine Goldwind Science and Technology Company, an interesting case of state-owned enterprise and the role in developing local area-clusters.  We will also look to TransAlta Wind, one of Canada’s largest wind-energy producers; which will provide readers with insight how energy market deregulation has fostered economic growth in the wind sector.  In the end readers will better understand the current issues and barriers facing firms within the wind-sector as well as our predictions of the future of the industry.  Our discussion will conclude with our key recommendations for the industry.

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Theories and Concepts

In terms of major theoretical concepts used in this paper our primary focus is: the correlation of location and competitive advantage and the CAGE Framework; Michael Porter’s Diamond of National Advantage, and cluster development.

This paper will demonstrate how location plays one of the most important roles in industry development.  Through the regional discussions we will briefly explain how the CAGE Framework of Distance applies to industry.  CAGE stands for the four distances or hurdles often faced by transnational corporations: culture, administrative, geographic and economic.  This paper will show how the greater the distance of any of the variables – the weaker the transference of firm specific-advantages across borders.

Michael Porter’s Diamond refers to four major areas that contribute to national advantage, these include: factor conditions; demand conditions; related and supporting industry players; firm strategies, structure and rivalry.   Discussion on this concept will be thoroughly addressed in the regional overviews of the wind industry.  Our discussion will cover each of the four areas of national advantage and will describe how some countries are indeed leveraging these to become industry leaders.

In terms of cluster development our paper will demonstrate how clusters are forming in each of the TRIAD regions.  From Europe we will see how the German turbine and component manufacturing sector has maintained a competitive advantage through government incentives and policies.  From Asia we will see how China has developed a regionally competitive wind-producer capable of capturing increasing market share in the years to come.  From North America we will see how since 2007 an internationally-competitive industry cluster has developed in the United States.

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History of the Industry

Wind power was not the first non-human power source in the history.  The technique of grinding grain between stones to produce flour is similarly ancient as is processes powered by both animals and water.  Windmills were originally developed in European countries which contributed significantly to both economic development and civilizations’ advancement.  Development of windmills in European countries especially in England and Holland helped these two countries develop highly skilled labour forces concentrated on technology development.  During the seventeenth and eighteenth centuries as major European powers colonized remote areas of the world they spread the technology as well.

As steam power developed, however, windmills were thought to be defective in comparison working only when the wind blew at the average rate of 16 kilometers per hour.  New industrial advancements made wind seem unreliable and not the best source of energy.  European countries struggled to make use of wind power in an effective manner.  In North America, water-pumping wind turbines began appearing in the late 1800s used primarily to irrigate crops (Transalta).

The United States was the first country that saw the possibility that the wind motor could still render its benefits to the modern civilization.  Charles F. Brush (1849-1929) is one of the founders of the American electrical industry.  He invented a very efficient DC dynamo used in the public electrical grid, the first commercial electrical arc light, and an efficient method for manufacturing lead-acid batteries.  During the winter of 1887-88 Brush built what is today believed to be the first automatically operating wind turbine for electricity generation; however, his first turbine was not efficient due to the slowly rotating wind turbines.

It was the Dane Poul la Cour , who later discovered in Denmark that fast rotating wind turbines with few rotor blades are more efficient for electricity production than slow moving wind turbines.  Following Dane Poul la Cour, Johannes Juul, who was one of the first students of Poul la Cour, became a pioneer in developing the world’s first alternating current (AC) wind turbines.

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Location Effects

Within the industry of wind energy production, location is the most important factor because how many aspects of wind energy depend on it.  When talking about location itself, it can present itself as both the most important location advantage for firms, yet at the same time it is also the most difficult factor within the industry to actually take advantage of.  Aspects of location can also uncover many barriers to entry into the industry itself.

Location Advantage

When discussing the types of competitive advantages which firms may use to gain an edge within an industry location advantage is the most important advantage that any firm within the wind energy industry can exploit.  Given that “since 1980, wind turbines have been becoming larger and more efficient at rates otherwise only seen in computer technology,” it does not make sense to depend exclusively on firm specific advantages such as innovation and technology to maintain a competitive advantage (World Wind Energy Association, 2006)[1].  This is the same dilemma that the computer and electronic industry has encountered: you simply cannot rely on technological advancement as your sole competitive advantage because of the extremely high rate of growth and innovation.  Therefore location advantage is the type of advantage that producers will need to exploit the most in order to maintain competitiveness within the industry.

Location advantage is easy to understand within this industry because not every geographic area within the world is suitable for wind energy production.  The difficulties of making location work for the firm as a competitive advantage will be described later, but what should be noted is that if an industry player has discovered and gained access to an area suitable for wind production then they already hold a tremendous advantage over other competitors.  Quite literally, any firm or nation interested in wind energy production can only enter the market if they have access to ideal locations.  This is the reason why location is the most important factor of competitive advantage in the industry and at the same time one of the most difficult issues for competitors within the industry which they could capitalize on and / or overcome.

Location as a Disadvantage

One of the most important factors that can determine the success or failure of wind energy generation is location.  Unfortunately for wind energy producers, location is often one of the most difficult obstacles to overcome.  For most wind industries development is dependent on windy areas and windy areas may still not provide optimal conditions for wind energy production.  Location of possible production areas may not have any geographical relation to areas that are requiring increased production of electricity.  This makes issues such as location, storage and transmission become serious concerns for new firms entering the industry.  Some locations may require excessive regulatory approvals which add to the time and cost of the project.

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Types of Wind Turbine Design

When people usually think of ‘wind turbine,’ they recall a high tower with three blades looking like a large fan.  Actually, there are so many different types of wind turbines as endless as the designers’ imagination.  However, we can differentiate the most common types in two ways: vertical axis and horizontal axis wind turbine.

Vertical Axis Wind Turbine (VAWT)

The principle advantage of Vertical Axis Wind Turbine (VAWT) is that they are omnidirectional – this means they accept the wind from any direction.  Vertical axis turbines also can be divided into two major groups: those using aerodynamic drag to extract power from the wind such as the cup anemometer, and those that use lift.

During 1920’s French inventor D.G.M. Darrieus patented a wind machine using curved bladed to the rotor instead of straight blades.  Darrieus’s concept eventually faded into obscurity. Canada’s National Research Council reinvented the design in the mid-1960s, and subsequently Canadian wind research focused on Darrieus turbines, which experimental Darrieus design was under developed near Picher Creek, Alberta.  There are some advantages for VAWTs:

1. It may place the generator and gearbox on the ground, and you may not need a tower for the machine equates to cost efficiency.
2. It does not need a yaw mechanism to turn the rotor against the wind, as mentioned above it is omnidirectional and should turn under any wind direction.

But the reason most VAWTs disappeared is they have more disadvantages:

1. Wind speeds are very low close to ground level, so although it may not need a tower, its wind speeds will be very low on the lower part of your rotor
2. The overall efficiency of the vertical axis machines is not impressive.
3. The machine is not self-starting
4. The machine may need guy wires to hold it up, but guy wires are impractical in heavily farmed areas.
5. Replacing the main bearing for the rotor necessitates removing the rotor on both a horizontal and a vertical axis machine. In the case of the latter, it means tearing the whole machine down.

Horizontal Axis Wind Turbines (HAWT)

Unlike VAWTs, conventional horizontal wind turbines are not omnidirectional.  To supplement this problem, wind turbine makers invented the yaw mechanism[2].Horizontal Axis Wind Turbines (HAWTs) can be largely divided depending on number of blades and yaw mechanism.

There are various numbers of blades in HAWTs: one blade, two blades, three blades and multi-blade turbines.  One and two blade turbines are hardly seen in new turbine installations.  Two-bladed wind turbine designs have the advantage of saving the manufacturing cost of one rotor blade as well as the weight savings on the overall structure design.  On the other hand, they require higher rotational speed to yield the same energy output. This is a disadvantage both in regard to noise and visual intrusion.

One and two-bladed machines require a more complex design with a hinged (teetering hub) rotor, which enable rotor to tilt in order to avoid too heavy shocks to the turbine when a rotor blade passes the tower. In addition, one-blade rotor requires a counterweight to be placed on the other side of the hub from the rotor blade in order to balance the rotor, which is not gave them a weight efficiency anymore compared to two-blade rotor. As a result, today it is difficult to find these one and two-blade wind turbines and several traditional manufacturers of two-bladed machines have switched to three-bladed designs. Most modern wind turbines are three-bladed designs with the rotor position maintained upwind using electrical motors in their yaw mechanism.

Components of wind turbine

According to the Canadian Wind Energy Association a typical wind turbine is made up of about 8,000 separate parts – containing everything from electronics to heavy metal components (2008).  Think of it like this: once wind hits the rotor blades hold by a hub, it rotates to life, which is the same concept used for airplanes and helicopters.  Though the low speed shaft, rotation transfers to gearbox that change low speed revolution to high speed.  Hydraulics system works with gear box to make it able to have proper revolution speed from inconsistent wind.  From the gear box through the high speed, rotation convey to electronic generator.  Controller unit like an Electronic Controller Unit (ECU) in a car engine which controls overall operation is also included in turbine unit.  It also has a cooling unit to prevent over heating of turbine.  Most turbine designs also have brake-components to prevent the unit from over-spinning in intense wind speeds[3].  Once a wind-energy project is installed and contributing to the electricity market of an area they also require regular maintenance to ensure all machine parts are functioning properly.

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Development

The first major hurdle that wind energy producers must overcome is finding an adequate location to establish a wind farm. According to the World Wind Energy Association, there is a multi step process in determining the location of a new wind farm.

First there needs to be an estimation of wind conditions, this can be ascertained through a combination of general meteorological weather statistics such as average wind speed and an analysis of the geography of the location.  Geography of the location is important because every obstacle such as hills, valleys, manmade structures, and trees can dramatically affect how the wind travels through the region.  Determining the wind conditions will then give developers an idea of what type of wind turbine they will need, how tall the turbine will need to stand to capture the optimal wind conditions, as well as where the turbines can be located.  Compilation of data is extremely important and must not be overlooked because there are so many influencing factors that can determine whether or not a wind energy farm is a viable project within that geographic area.  The importance of determining and knowing accurate wind conditions cannot be taken lightly, for example “if the wind speeds are 10% smaller than expected, the energy yield will fall short by more than 30%” (World Wind Energy Association, 2006).  Such a dramatic change in energy output could not only affect the determined success of the wind farm, it could cause serious distribution problems within the electrical grid that it is supplying.

Once establishing an estimation of wind conditions have been established developers will need to draft initial estimates of installed capacity and energy yield. Essentially this involves determining how much space is available in the area, where they can obtain access to the power grid in order to transfer the electricity produced and to determine what type and how many generators will need to be installed in order to reach a nominal level of power output. For large wind farms that produce more than 20 MW of electricity it is often necessary to set up a separate transformer station for the farm which can tie itself into the power grid instead of tying the farm’s production into an already existing transformer along the grid (World Wind Energy Association, 2006).  Access to the power grid itself can be a very large issue given that the geographic location of many wind farms (due to the need for ideal geographic and meteorological conditions) does not have a close proximity to either a power transmission grid or areas requiring electrical power.  In order to deal with this issue, the consideration of construction new power transmission lines should be taken into consideration as a possible necessity and cost to successfully construct a wind farm.

The next step is to draft a layout of the farm.  This may sound like a simple task but it is actually a very complex process. Drafting the layout involves contrasting productivity optimization factors of “looking for the optimal arrangement of wind turbines on a given site is the highest possible energy yield of the entire wind farm over its service life” against other attributing factors such as “the conditions and costs of installation — such as construction of power lines from the turbines to the transformer and interconnection stations or roads for assembly, maintenance, and service vehicles” (World Wind Energy Association, 2006).  The largest difficulty that is encountered by developers is determining the optimal trade-off between the two sets of factors as well as successfully securing permits and lease agreements (if necessary) to use the decided-upon land, all the while observing specified restrictions and barriers to entry which can arise (such as maximum building heights, minimum distances from other structures, and environmental protection regulations).

If all the factor requirements can be satisfied during this development stage, the planning for the wind farm can finally become a reality. What this process shows is that there is an incredible amount of time, energy and resources that will need to be expended just to determine a location in which a producer can actually set up operations. This process considers many different factors, all of which are essential and must be met, and if the factors do not present evidence that the location is optimal for wind energy production, it is often hard to continue on with that specific location. This alone should shed some light on why location can be the most important competitive advantage and at the same time be one of the most difficult aspects of wind energy production to incorporate into successful production operations.

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Global Location of the Industry

In terms of the global regions of the wind-industry our focus is on the triad economic regions including the European Union, North America and Asia-Pacific.  Our discussion will give a brief overview of the countries in: the EU, primarily Germany and Spain, with brief discussions of secondary players from Bulgaria, Italy, UK, France, Turkey and Poland; from Asia-Pacific we will discuss the emergence of China as a global player; and from North America we will focus on Canada and the United States.

This section draws from a few key sources.  The most valuable source of wind-industry information is the Global Wind Energy Council (GWEC).  We felt that GWEC provided us with the most accurate and unbiased information on individual countries and their production of wind energy.  For information on Europe’s wind-industry the European Wind Energy Association (EWEA) proved useful for timely information.

When finding information on solely Chinese wind energy, the Chinese Wind Energy Association, the Energy Research Institute.  When researching Goldwind Science and Technology, there was a scarce amount of information that could be found in English.  Because of this, we had to rely on the Goldwind website, where we realize has the potential to be a biased source.  However, we still felt that for the most part the information we found pertaining to Goldwind was accurate.

For the section on North America, information is derived from a variety of sources.  The American Wind Energy Association and the Canadian Wind Energy Association provided valuable sources for localized knowledge of the industry.  These sources are considered to be among the most reliable as they represent the major industry players.  In addition to this the North American section is supplemented by information from Price Waterhouse Coopers, the Canadian and United States government.

This regional overview of the industry readers will gain insight into key areas of: the role of governments from incentives to regulation; how a global shift has occurred from Europe to the world; and how a cluster-effect has occurred similar to other industries discussed throughout the course of the semester.

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The European Perspective

According to the European Commission, the European Union (EU) hosts only 3.5% of the world’s proven coal reserves, less than 2% of the world’s gas, less than 2% of the world’s uranium and less than 1% of the world’s oil (EWEA, 2009).  With such a lack of natural resources, it becomes obvious that the EU Member States must turn to alternative energy sources to meet the energy demands of their populations.  However the EU has taken this requirement of alternative energy sources one step further by focusing their efforts on sustainable and renewable energy sources.

At the opening session of the European Wind Energy Conference and Exhibition, EU Energy Commissioner Andris Piebalgs said “it makes good sense to invest in indigenous sources of power which hedge against unpredictable fossil fuel prices and in which Europe has a real competitive advantage” (EWEA, 2009).  Also at the session, Arthouros Zervos, European Wind Energy Association (EWEA) president, emphasized that

…the fight over the world’s rapidly depleting fuel resources is already intensifying… [and] it will only become more brutal with time and Europe will lose the battle. European companies have two-thirds of the €35 billion global market for wind power technology. Wind energy is Europe’s contribution to peace, progress and prosperity and we should urgently develop, promote and export it to the best of our ability. (EWEA, 2009)

The implementation of this strategy could vastly decrease, even eventually eliminate, the need for imported energy fuels, and in the process develop a great opportunity for increased export markets.

The EU remains the world leader in total installed wind energy capacity, and one of the strongest regions for new development, with over 8.4 GW of new installed capacity in 2008.  Cumulative wind capacity has increased by 15% reaching 64,949 MW by the end of 2008[4].  Wind energy is now the fastest growing power technology in Europe accounting for 35% of the approximately 24 GW of total new power generation capacity built in the EU in 2008[5].  A total of 160,000 workers were employed directly and indirectly in the wind energy sector, which saw investments of about €11 billion in the EU alone.  The wind power capacity installed by the end of 2008 will produce 142 TWh of electricity, equal to about 4.2% of the EU’s electricity demand. (GWEC: EU, 2009)

A major factor behind the growth of the European wind market has been strong policy support both at the EU and the national level.  In 2001 the EU put in place the Renewable Energy Directive which is aimed at increasing the share of electricity produced from renewable energy sources in the EU, as a whole, to 21% by 2010 (up from 15.2% in 2001).  EU Member States are given the freedom of choice regarding support mechanisms, but mainly feed-in tariffs, fixed premiums, green certificate systems and tendering procedures are utilized, complemented by tax incentives, environmental taxes, contribution programs or voluntary agreements (GWEC: EU, 2009).  However, major barriers to “growth and integration” of renewable electricity are present, including “delays in authorization, unfair grid access conditions and slow reinforcement of the electric power grid” (GWEC: EU, 2009).

In December 2008, the EU agreed to a new Renewable Energy Directive in which the EU’s overall 20% renewable energy target will be divided into legally binding targets for the 27 Member States, averaging out at 20% each by 2020.  In terms of electricity consumption, renewable energy sources should provide about 35% of the EU’s power by 2020, with wind energy set to contribute more than a third of all the power coming from renewable energy sources (GWEC: EU, 2009).  The directive legally obliges each EU Member State to outline the steps it will take to meet its target in a National Renewable Energy Action Plan and every two years Member States must submit a progress report to the European Commission, containing information on their share of renewable energy, support schemes and progress on tackling administrative and grid barriers.  Flexible measures have been built into the directive to help countries achieve their targets in a “cost-effective way, without undermining market stability” (GWEC: EU, 2009).  Acceptable measures include the transfer of a specified amount of renewable energy between Member States, joint projects involving private operators, or joint or partly coordinated national support schemes (GWEC: EU, 2009).  The directive also requires EU countries to take “the appropriate steps to develop transmission and distribution grid infrastructure, [develop] intelligent networks, [develop] storage facilities, [develop the] electricity system… [and] speed up authorization procedures for grid infrastructure” to help develop renewable electricity (GWEC: EU, 2009).  EU countries must “ensure that transmission system operators and distribution system operators guarantee the transmission and distribution of renewable electricity and provide for either priority or guaranteed access to the grid system or access” (GWEC: EU, 2009).

The new Renewable Energy Directive targets will translate into 230 GW of installed wind energy capacity, including 40 GW offshore, producing approximately 600 TWh per year in the EU by 2020; power equivalent to meet the demand of approximately 135 million average EU households (60% of EU households) and meeting between 14 and 18% of EU electricity demand (depending on total demand in 2020). (EWEA, 2009)

Major European Players

Germany and Spain remain the driving forces of the European wind energy industry, remaining Europe’s leaders for new installations in 2008 and cumulative installed capacity.

Germany is Europe’s largest wind energy market, both in terms of total installed capacity and in terms of new installations; ranking Germany second in the world in cumulative capacity installed, only trailing the United States as of the end of 2008, and placing them fourth in 2008 installations, behind the United States, China and India[6].  During 2008, 866 new wind turbines with a capacity of 1,665 MW were installed in Germany, bringing the cumulative total up to 23,903 MW[7].  Repowering old machines accounted for 24 MW in 2008, and 5 MW were installed offshore. The largest turbines currently operating in Germany have a rated capacity of 6 MW.  Wind energy generated 40.4 TWh of electricity in Germany in 2008, representing 7.5% of Germany’s net electricity consumption, with a number of states now providing more than one third of their electricity generation from wind energy: Saxony-Anhalt (42.6%), Mecklenburg-Vorpommern (39.4%), Schleswig-Holstein (38.3%) and Brandenburg (34.1%).  A reliable domestic market has allowed German manufacturers and suppliers to lead the way in developing wind energy worldwide. (GWEC: Germany, 2009)

A cluster in the wind turbine and component production industry appears to exist within Germany’s borders.  In 2007, turbine and component production worldwide by German companies amounted to €6.1 billion, a healthy 21% increase from 2006.  This translated into German manufacturers and suppliers contributing to about a quarter of the total worldwide turnover of €25 billion in 2007.  The percentage of exported equipment increased from 74% in 2006 to over 83% in 2007. (GWEC: Germany, 2009)

Strong governmental support and beneficial legislation implementation has been a key driver in Germany’s development into a world leader in the wind energy industry.  Under the Renewable Energy Sources Act (Erneuerbare-Energien-Gesetz-EEG):

• electricity produced from renewable energy sources is given priority for grid connection, grid access in both distribution and transmission grids, and power dispatch.
• fixed feed-in tariffs are stipulated for each kWh of power produced and fed into the grid from renewable sources.
• there are higher tariffs for on and offshore wind energy installations, incentives and regulations for improved grid integration technology of turbines and stricter obligations for grid operators in integrating wind power.
• an ‘initial tariff’ for wind energy is fixed for at least five and up to 20 years and is then reduced to a ‘basic tariff’ depending on how local wind conditions compare to a ‘reference yield’.
• grid operators are obliged to feed-in electricity produced from renewable energy and buy it at a fixed price within their supply area.
• grid operators must not only extend the grid, but also optimize and enhance the existing grid. Failure to comply with this can lead to claims for damages by anyone willing but unable to feed-in. (GWEC: Germany, 2009)

Spain is Europe’s second largest wind energy market, both in terms of total installed capacity and in terms of new installations; ranking Spain third in the world in cumulative capacity installed, fifth in 2008 installations, directly behind Germany in both categories[8].  With 16,754 MW of total installed capacity, new installations in 2008 totaled 1,609 MW[9], maintaining pace with previous years. The developments in 2007, with over 3.5 GW of new capacity installed, provided an exception as pending regulatory change brought about a higher than usual installation rate.  In 2008, wind energy generated more than 31TWh, delivering more than 11% of the country’s electricity demand. (GWEC: Spain, 2009)

Spain is home to the world’s largest wind farm owner, Iberdrola, as well as some of the most important turbine manufacturers and developers, who are now involved in wind energy operations around the globe.  The wind energy sector contributes more to the country’s GDP than any other industry, according to a study entitled The Macroeconomic Impact of the Wind Energy Sector in Spain, published by the consultancy Deloitte in 2008.  The Spanish wind industry exports equipment worth 2.5 billion Euros every year, invests around €200 million in research and development activities and has created more than 40,000 jobs, including indirect employment and employment create by a large Spanish export industry producing components for the global wind market. (GWEC: Spain, 2009)

Spain’s current tariff system offers different levels of tariffs depending on the technology and on the size of the installation. According to Spanish law:

• the power producer can choose between a fixed price and a premium added to the market price. The choice is revisited yearly allowing a switch if desired.
• the electricity distributor has an obligation to buy electricity produced by renewable sources at the defined price and the National Commission of Energy (CNE) performs the settlement of costs incurred by distributors.
• the costs of the renewable energy electricity generation are taken into account for the annual calculation of the electricity price, thereby ensuring that the additional cost to consumers is proportional to their electricity consumption. (GWEC: Spain, 2009)

New legislation entered into force in 2008 provide a structure similar to the old system, with a choice between fixed tariff and fixed premium, but with less favorable tariffs and a cap and floor mechanism for the fixed premium option.  This new system aims to protect operators of renewable energy installations from excessively low market prices, and, on the other hand, eliminate the premium when market prices are deemed high enough to cover generation costs. (GWEC: Spain, 2009)

The 2008 market was much more balanced than in previous years [with a] group of ‘second wave’ countries emerg[ing to] provide real momentum to the surge in wind energy. Italy added 1,010 MW to reach a total of 3,736 MW of installed capacity; France added 950 MW to reach 3,404 MW and the UK added 836 MW to reach 3,241 MW… Ten EU Member States – over one third of all EU countries – now each have more than 1,000 MW of installed wind energy capacity…

[In addition, a] distinct ‘third wave’ became visible for the first time in 2008 as the new EU Member States had their strongest year ever. Hungary doubled its capacity to 127 MW and Bulgaria tripled its capacity from 57 MW to 158 MW. Poland, one of the fastest growing younger markets, now has 472 MW up from 276 MW at the end of 2007. Outside the EU Member States, Turkey tripled its wind energy capacity from 147 MW to 433 MW. In terms of offshore wind energy, 357 MW of capacity was added in 2008, to reach a total of 1,471 MW. Nearly 2.3% of total installed EU capacity is now offshore. (GWEC: EU, 2009)[10]

Mainstream Renewable Power

Mainstream Renewable Power is a renewable energy company based out of Ireland that was founded in February 2008 by Dr. Eddie O’Connor, former CEO of Airtricity, and Fintan Whelan, former Corporate Finance Manager of Airtricity (Airtricity is an Irish based renewable energy company that sold its North American business unit in October 2007 and the remainder of the company in January 2008). (Mainstream: About Us, 2009)

[Mainstream’s] vision is of thriving economies and communities liberated from the restrictions of fossil fuels, using renewable energy as their mainstream source of power… [and their mission is t]hrough the passion and imagination of our people, we work together with partners and communities to deliver a successful business that accelerates global progress towards a sustainable future. (Mainstream: Vision and Mission, 2009)

Major accomplishments since 2008 include:

• Set up offices in Berlin, Chicago, Cape Town, Dublin, London, Santiago and Toronto.
• Identified and recruited some of the most talented and experienced teams in the industry.
• Established its board to include chairman, Fintan Drury, Sir Roy Gardner, former head of Centrica, Brendan Halligan of Sustainable Energy Ireland and Mark Brown of Barclays Capital.
• Raised €72 million in equity including €20 million from Barclays Capital in return for a 14.6% stake in the company.
• Raised €26 million in corporate mezzanine debt by private placement with Dolmen Stockbrokers.
• Identified potential partners in key markets. (Mainstream: About Us, 2009)

Notable business transactions since February 2008:

• Signing a $1 billion deal to build wind farms in Chile – November 6, 2008.
• Awarded 360MW offshore wind site in Scottish Waters – February 16, 2009.
• Signing CAD$840 million deal to build wind farms in Canada – March 12, 2009.
• To build 500MW in South Africa by 2014 with Genesis Eco-Energy – March 19, 2009. (Mainstream: News Releases, 2009)

Mainstreams third transaction announcement, regarding the future construction of wind farms in Canada was the major driver in selecting them as the company of focus for the European region.  For this business agreement is extremely close to home for staff and students of the University of Lethbridge.

On March 12, 2009 Mainstream Renewable Power announced the signing of a CAD$840 million joint venture deal with Canadian wind farm developer, Alberta Wind Energy Corporation (AWEC) to build an initial portfolio of over 400MW of wind energy plants in Alberta by 2013. The joint venture company plans to have the 46MW Old Man River project, located in the Pincher Creek area of Alberta, ready for construction in late 2009 with the goal of being operational in 2010, while the 62MW Windy Point Wind Farm is due to be fully operational by 2012. (Mainstream: News Releases: Mainstream signs…, 2009)

Mainstream’s Chief Executive, Dr Eddie O’Connor said, “Our strategy is to ‘think globally, deliver locally’ and I believe this is key to our success. We identify local partners with great projects and they leverage from our global strength in areas such as Project Finance, Construction and Procurement so that together we can deliver projects faster and more cost-effectively” (Mainstream: News Releases: Mainstream signs…, 2009).

Stewart Duncan, President and CEO of AWEC commented, “This is great news for Alberta. Demand for electricity in the area is growing, while fossil fuel generating stations are nearing the end of their life and will require decommissioning or refurbishment.  A recent forecast by Alberta’s Electric System Operator indicated that Alberta will need an additional 5,000MW of generation by 2017.  Furthermore, Southern Alberta has some of the best wind sites for power generation anywhere in onshore North America” (Mainstream: News Releases: Mainstream signs…, 2009).

Sherra Zulerons, Mainstream’s Country Manager for Canada commented, “Getting connected to the transmission system can be a major obstacle for new wind generation in Alberta.   All of our projects have already obtained, or are in the process of obtaining grid connection agreements. This is a major plus” (Mainstream: News Releases: Mainstream signs…, 2009).

This is a huge step in the progression of renewable energy in the fossil fuel dominated Province of Alberta, and thus the entire nation of Canada. In addition to the Southern Alberta corridor providing great potential for wind energy projects, Mainstream is also currently pursuing possible projects in Northern Alberta and Northern British Columbia.

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The Asian Perspective

The growth in Asian markets has been breathtaking, and nearly a third of the 27GW of new wind energy capacity added globally in 2008 were installed in Asia (Global Wind Energy Council)[11]. When it comes to wind power in Asia, there are two main countries that that are leaders in wind power – China and India.

China and India have a combined population of 2.5 billion people and are two of the world’s worst culprits when it comes to global pollution.  “The rapidly expanding economies of China and India are showing a swift increase in CO2 emissions.  China, which is already the second largest polluter, has increased its emissions by 33 percent… while India’s emissions have grown 57 percent” (World Bank). However, both China and India are making conscious efforts to reduce their impact on the global environment.  One of the ways to do this is by investing in wind-energy generation sites as a source of new electricity demand.

Another Asian country that is actively harnessing wind power is Japan.  Japan’s growth in wind energy has nearly equaled that of China’s; however, “severe weather conditions are constraining growth of the Japanese wind market” (Global Wind Energy Council).  It is for this reason that we will be looking at China as the major Asian market for wind power.

China – Wind Energy Potential

The greatest potential for wind power in China occurs in two major areas of the country.  Wind power projects are mainly distributed in the northern part of China bordering Mongolia and along the coastline.  “The distribution of wind energy resource and electric load are not well matched, the best areas with rich wind energy potential and plenty available land are in the north and west China, but also no electric load centers close to wind sites, wind farms [are] usually located at the end of weak power grid. Along the coastal areas and offshore, load centers are close to the wind site, but due to the high density of population, available land for wind project is limited” (Pengfei).

The China Academy of Meteorological Sciences estimates that China has a potential of 253 GW at 10m height.  Also, offshore wind energy resource along the coast of eastern China, may be three times higher than that of mainland. The total estimated potential is 750 GW.[12]

China’s government is actively trying to reduce their conventional means of producing electricity. The Chinese government has set a National Mid and Long-Term Development Plan, which the goal is to increase non-hydro renewable electricity production to 3% by 2020.  In order to obtain this goal, China has created the 10 GW-Size Wind Base Program. The 10 GW-Size Wind Base Program is as follows: “The bureau [National Energy Administration] selected six locations from the provinces with the best wind resources: Xinjiang, Inner Mongolia, Gansu, Hebei and Jiangsu. Each site will have more than 10 GW of installed capacity by 2020” (Global Wind Energy Council).  Because one of China’s goals is to significantly increase wind power, incentives to join the wind power revolution are directed to local manufacturers. Policies to stimulate domestic manufacturing have been set in place:

In August 2008, the Ministry of Finance issued another incentive policy on funding support for the commercialization of wind power generation equipment. According to this regulation, for all the domestic brands (with over 51% Chinese investment) the first 50 wind turbines over 1 MW will be rewarded with RMB 600/kW (60 Euro) from the government. The rule specifies that the wind turbines must be tested and certified by China General Certification (CGC), and must have entered the market, been put into operation and connected to the grid. The regulation further requires that the rewarded turbines must use domestic manufactured components and share the awards proportionate with component manufacturers.

This new policy has two ground-breaking implications. It is the first time that the government gives subsidies to renewable energy manufacturers and the first time that there is a link between a stimulus policy and a testing and certification system. This policy will have a significant impact on the future promotion of China’s domestic industry’s technology innovation, improving competitiveness and building domestic branding in the long run. (Global Wind Energy Council)

With this incentive to stimulate domestic manufacturing, it in itself is also a barrier to foreign firms trying to enter the market.  With the various incentives for entry into the market, competition is inevitable leading to a decrease in the supply deficit.  The largest constraint that is faced by the Chinese government is the ability for wind generated electricity to be tapped into the existing grid system:

Among wind farms currently in operation, a great number have only limited access to the grid. According to the Renewable Energy Law, renewables should be given priority access to the grid, yet the rule is not being followed due to the physical constraints of grid capacity. In the past, new wind projects were spread throughout the country and close to grid connections. In recent years however, with the boom in wind development, most of the new wind farms are located in north-west China, where the existing grid structure is weak. (Global Wind Energy Council).

Goldwind Science and Technology Company

Goldwind Science and Technology is the largest domestic turbine manufacturer in China and one of the ten largest in the world.  Goldwind is located in the Xinjiang autonomous region produces various sizes of wind turbines in batch production.  Goldwind uses 95% Chinese made key components including: blades, gearbox, generator, yaw mechanism and control system. “We [Goldwind] are engaged in manufacturing and marketing large-sized wind generator sets; introducing and applying wind generating technology; making and selling parts of wind generating sets; providing consulting service in building and operating wind generating plants; building and operating middle-sized wind generating plants” (Goldwind).  Goldwind’s mission is to “preserve white clouds and blue skies for human beings and preserving more resources for the future”.

Since Goldwind is fully Chinese-owned with about 55% ownership being from the state, they possess a key firm specific advantage compared to foreign firms trying to enter the market. This allows the company to receive the government incentives and subsidies mentioned above. Goldwind also has bright plans for their future. Their vision is to make the transition from “Goldwind of China, to Goldwind of the world”. They plan to have worldwide international cooperation as well as to have an international research and development organizations arrangement. They also believe they can manage an international wind turbine supply and distribution chain.

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The North American Perspective

North America is among the world’s largest consumers of electricity – since the turn of the millennium over 4,000 billion kilowatt hours are required annually to power one of the world’s largest-trio of economies (Energy Information Administration 2008).  In fact, between 1970 and 2000 “total electricity demand grew by 3.3 per cent annually, very close to the actual GDP growth of the OECD nations” (Hunt 2007).  Due to such incredible demand for electricity there has been incredible growth in the region’s energy industry.  This section is dedicated to exploration of the wind industry within North America with specific focus on the countries of Canada and the United States of America (USA).  Mexico does not currently have a meaningful wind energy sector and therefore will not be discussed at any great length.

It has only been within the last ten years that North American has embraced the capabilities of wind energy that are abundantly available.  According to the Global Wind Energy Council (GWEC) in 2008 North America experienced the largest growth in new grid capacity from wind generated sources[13].  Onshore development has been the largest growth sector in North America.

In terms of recent industry growth 2007 has been the most productive to date for bringing renewable energy sources online.   This is confirmed by Price Waterhouse Coopers, one of the big-four accounting firms, who reported that in 2008 wind power had been the principal focus of deal activity^[14] in the North American energy sector “accounting for the majority of the value (57%) of all renewable energy deal making” (PWC 2008).  The report indicates the total overall value of such deals has dropped to total number of deals has increased; a 40% drop in the overall value but an increase of 74% in total deals^[15].

Canada

In terms of potential for wind energy it has long-been known that Canada is one of the top countries with such an ability to capture “free energy” – however Canada has not leveraged such location advantages to become a world leader in the industry.  In fact, according to CanWEA only about 1% of all electricity produced in Canada comes from wind (2008).

According to the Global Wind Energy Council Canada is now among the top twelve nations to diversify their energy sources to include wind.  In 2008 the total installed capacity finally exceeded 2000MW almost the equivalent of one-percent of total national electricity demand. (GWEC 2009)

Traditional sources of energy in Canada have been coal, natural gas, nuclear and hydro-electric – each of which still has considerable influence on energy markets’ procurement strategies.  There is proof of this in the fact that until recently Alberta had a cap on total wind-energy production at less than 1000MW.  However, the environmental implications of coal, natural gas and nuclear are making alternatives like wind-power much more appealing for new generation facilities.

Recently the federal government has offered production incentive payments under the ecoENERGY for Renewable Power program.  The program provides a production incentive of 1 cent/kWh for the first 10 years of production on new energy technologies such as wind.  The program was brought into effect at the beginning of 2007 and was budgeted to run until 2011 – however, due to such strong demand for the program all of the funds will be fully allocated by mid-2009. (GWEC 2009)  This suggests the need for greater regulatory stability in such programs to ensure consistency for companies who seek to invest in Canada.

The Canadian Wind Energy Association (CanWEA) released a strategic plan, Wind Vision 2025 – Powering Canada’s Future, which suggests wind energy could supply 20% of the country’s electricity demand by 2025.  The plan outlines approximately 55,000 MW of wind generation capacity which would in turn generate close to $79 billion in investment through 2025.  Due to the recent economic fallout CanWEA has lowered their expectations for wind energy sector growth in 2009, but still expects 650 MW of new capacity to be added.  The five year outlook for the industry expects an additional five-thousand mega-watts to be added to the grid which should help achieve the GWEC’s expected minimum of 12,000 MW of installed wind energy capacity in Canada by 2015. (CanWEA 2008)

There are numerous hurdles to achieving such ambitious targets.  These range from the varying-degree of regulation across provincial jurisdictions to the weak transmission infrastructure.  The ten provinces of Canada comprise different regulatory jurisdictions; many provinces do not have a clearly defined long-term procurement strategy for electricity (GWEC 2009).  Where crown corporations are in charge of electricity procurement they often leave the process to competitive tendering.  In the case of wind-energy such a tendering process can range from hundreds of thousands of dollars well into the millions (CanWEA 2008).  This makes it especially difficult for smaller wind-energy producers to successfully penetrate the market.  Since each province is a separate jurisdiction this also means a long and often redundant permit process.  This duplication and excess regulation makes Canada’s wind power generation sector difficult to enter and does not add to outsiders of the transparency of the system.

In addition to this, many provinces lack adequate transmission infrastructure to transport wind from favourable geographic regions to those with high-demand for electricity.  According to the Canadian Electricity Association there are more cross-border connections with the United States than there are across provincial boundaries.  This makes it especially difficult to develop large national-projects.  Since economies of scale are required to stabilize investment and offer adequate long-term returns such hurdles make Canada a less appealing destination for transnational corporations to invest.

In terms of cluster development – there is evidence to suggest generating regions are in order of largest developments: Quebec, Ontario and Alberta.  In terms of component manufacturing there is little evidence suggesting a strong domestic industry or cluster development of related industries in any one area.  Most corporate headquarters are based out of Ontario because of the Toronto Stock Exchange (TSX) and the related access to capital.

The United States

The current electrical system in the United States is comprised of “approximately 200 investor-owned utilities, 70 large municipal and federal or state systems, and 50 rural generation and transmission cooperatives supply power for more than 3,000 local distribution companies across the country.” (DOE 2008)  Such a large energy industry is required to power the world’s largest economy.  It has only been recently that the United States has rapidly increased the size of their wind energy industry.  In fact, 2008 was the biggest year in wind energy with an increase of almost 50% in one year – which represents over 8000MW of new capacity potential (GWEC 2009).

Since the beginning of 2009 the United States has taken an impressive stance towards renewable energy sources under the Obama administration.  To encourage demand for clean electricity twenty-six state governments have implemented Renewable Portfolio Standards (RPS) which set minimum levels for ‘renewables’ in the electricity system.  The federal government has also just set a National Renewable Energy Standard in which 25% of demand will come from wind energy sources by 2025 (USA 2009).  In fact, under the American Recovery and Reinvestment Act (ARRA) there are numerous measures aim at developing and expanding the wind energy industry.  Under the ARRA numerous incentives have been created making it especially favourable for some wind companies to invest in new projects.

According to the American Wind Energy Association the ARRA extends the existing Production Tax Credit (PTC) for wind energy for three years, through until 2012 and offers the temporary option to claim 30% investment tax credit in lieu of the PTC.  This is an important development, as it will allow developers of wind energy to lease or sell such facilities without losing the potential for tax credit (AWEA 2009).  The new regulatory environment also mandates the creation of close to two-billion dollars in Clean Renewable Energy Bonds to encourage the creation of electricity from renewable sources including wind.

According to PWC there were 15-utility scale wind turbine manufactures in the USA in 2008 – this represents significant jump from only five in 2005.  PWC also reports the average wind turbine installed in 2007, was on average 1.6 MW of capacity almost twice as powerful as the average wind turbine installed in 2000 which was 0.76 MW.  According to the Global Wind Energy Council the USA wind industry employs more than 85,000 workers[16].  They also report that since 2007 over “70 manufacturing facilities have opened, been expanded or announced, including 55 in 2008 alone.”  This allows for almost fifty percent of all turbine components used in the country are made in the USA.  This is evidence that a wind-energy cluster has developed in recent years.

TransAlta Wind

To further understand the North American context, this paper seeks to provide readers with an overview of one major company that is considered an industry leader.  This section will describe Transalta as a firm operating within the North American wind industry.  This will include a detailed overview of Transalta as a firm; from company history to their current vision and strategy.  Consideration will be given to the firm’s operating environment –including industry alliances, the regulatory environment and barriers to commerce.

The company Transalta provides an excellent case example of a firm that operates throughout North America offering both traditional energy sources, like coal and natural gas, and renewable energy sources like wind and hydroelectric.  With a founding history as an integrated and regulated Alberta energy supplier Transalta has principally had a core focus on coal-generation.  Since 1996 Transalta has successfully transformed their generation portfolio to include wind – and has grown to become Canada’s largest investor-owned wholesale power generator and marketing company.  In 2008 the firm had approximately CAD$3 billion in annual revenue, $7 billion in assets, with power plants in Canada, the U.S. and Australia.  In 2008 alone the company generated close to 50,000 GWh of energy enough to power over seven-million homes. (Transalta 2009)

The Transalta Wind division is a result of mergers and acquisitions in the Alberta sustainable energy market.  The principal assets of Transalta Wind were originally formed after the acquisition of Vision Quest.  The company had 67 wind turbines in southern Alberta and held licenses in provinces across the country. The wind division grew further after a successful joint venture between The Chinook Project Inc. and Canadian Enhanced Energy Development Ltd. which was acquired by Transalta in 1996[17].

Vision and Strategy

Transalta would be considered a vertically integrated firm involved in host market production.  The entire company operates through two principal entities: TransAlta Generation Partnership, a general partnership, and TransAlta Energy Marketing Corp.  This means they are involved in almost every step of the energy generation process and caters directly to the needs of the market in which it is located.  In the case of traditional energy generation this means the firm is involved in the mining of coal reserves, the conversion of coal to alternating current (AC) energy, and the marketing of energy.  This is not to suggest Transalta is responsible for every step of the process to the end consumer.  In fact there is energy retailers involved in electricity transmission and end-customer delivery such companies includes Fortis and Enmax.  In the case of wind energy Transalta commissions local projects which then set up power-purchase agreements that sell to such electricity retailers.

Currently Transalta has a diversified portfolio of assets in both North America and Australia.  In terms of wind resources the firm has more than 200,000 acres of land that are currently under lease, option, or negotiation which hold potential for more than 1,000 megawatts of wind energy development.  In Canada alone properties currently in production include the provinces of British Columbia, Alberta, Saskatchewan, Manitoba, Ontario and Prince Edward Island.   As Transalta continues to grow they are adding more turbines to their portfolio that are larger with greater energy potentials.

It is evident that Transalta Wind has principally held Canadian assets in the province of Alberta, but as they continue to grow they have acquired assets further abroad in the United States, Mexico and Australia[18].  It is important to note, Transalta has not acquired any wind-related assets outside of Canada and recently Transalta sold all assets in Mexico.  It is no wonder that Transalta has chosen Alberta as the principal location to develop their wind energy portfolio.  It is generally accepted that Alberta has one of Canada’s best wind resources with a potential greater than 60,000MW.  However, Alberta currently only generates about 2% of its annual electricity supply from the wind (Energy Information Administration, p.3).

Industry Alliances

Transalta has recognized the importance of aligning the interests of energy producers in order to have an adequate voice in regulatory matters.  In terms of sectoral involvement Transalta is active in many ways:

• Canadian Wind Energy Association (CanWEA) which represents the wind energy community across Canada.   TransAlta Wind involvement with the association stems back to the association’s founding and continues on today. All three founding members of TransAlta Wind served as CanWEA Presidents.  CanWEA provides leadership and support to all wind energy producers; in addition CanWEA helps guide the industry by further developing its leading edge members.
• The Clean Air Strategic Alliance (CASA) is a non-profit organization of stakeholders committed to developing and applying a comprehensive air quality management system in Alberta.
• Independent Power Producers Society of Alberta (IPPSA) and British Columbia (IPPBC) are provincial organizations that were established prior to deregulation (in Alberta) and work to maintain an open energy market supporting by multiple buyers and sellers; and to develop a cost-effective independent energy service in BC.  Transalta Wind has been involved with the IPPSA since its inception.

Transalta is involved in the North American wind-energy industry principally in the province of Alberta – but has power-generation assets throughout Canada and the United States.  This diverse portfolio of energy-sources gives Transalta the ability to expand their wind capabilities relatively easily across North America.  This is because the CAGE distances have already been bridged by the firm in many ways.  Since they are already operating in both jurisdictions they have covered the administrative barriers to commerce.  The United States division is capable of handling new wind-energy generation assets especially under the new favourable investment conditions that have been unveiled under the APPA.

As discussed earlier, wind is based on location and therefore the closer generation projects are built to their intended source of consumption to more efficient they are – this means Transalta must be willing to expand beyond just Alberta.  Geographically Transalta is able to leverage their strategic position in the North American market in many ways.  For one, there is greater north-south connection between Canada and the USA when compared to interprovincial connections; which indicates willingness for electricity export from Canada to the USA.  However because of the lack of infrastructure this would require great initial investment to bridge such a gap.

Regulatory hurdles remain among the largest concern for Transalta’s expansion into new areas.  Areas like British Columbia and Saskatchewan are regulated energy markets and are prone to fluctuations in wind-energy market growth because power-purchase agreements (PPA’s) with the regulated providers are negotiated on a staggered basis.  This means the firm must be ready to tender for projects in a fashion that does not allow for controlled and strategic growth.

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Conclusions and Industry Outlook

This paper has demonstrated the power of the wind-energy industry.  We have covered many things – beginning with the historical development of wind as a viable electricity source.  We have seen the origins of harnessing wind power for milling flour and irrigating crops.  We have discussed the different types of wind turbines currently in use in commercial applications.  In addition we have demonstrated how location advantages play a crucial part of industry development.

The main focus of this paper has been on the TRIAD economic regions – including the European Union, Asia-Pacific and North America.  This discussion has offered valuable information from countries within each region and has demonstrated a fundamental global shift in the industry over time.  Historically the wind energy industry was based in Europe, but in the last ten years this has shifted to include both North America and Asia.  Now there seems to be consistent growth in all three economic zones representing an overall stability in the industry.  We found that governments play one of the most important roles in the wind energy sector.  Each regional perspective demonstrated the importance of government involvement in the industry – from creating a regulatory framework for which firms operate within to providing incentives to encourage wind-energy production and investment.

Europe has enjoyed the benefits of being the first-mover into an industry with endless potential.  The EU countries alone continue to place Europe as the world leader in cumulative installed capacity, however this position is at risk.  2008 showed a strong emergence of domestic wind energy suppliers in nations worldwide that Europe had once enjoyed the dominant or only position in the market.  In some of these countries intellectual property rights are less rigorously upheld, which means European exporters must continually increase innovation in order to stay ahead of the market and remain the global gold standard for the wind energy industry.

China has the fastest growing wind energy market in Asia.  Incentives given for domestic firms (51% Chinese owned), however the wind turbines must be tested and certified by China General Certification and requires that the rewarded turbines must use domestic manufactured components.  The largest barrier is being able to tap into the existing grid system – new wind farms are located in north-west China where the grid structure is weak.  Goldwind is the largest domestic turbine manufacturer in China and one of the ten largest in the world. Goldwind is 100% Chinese owned, with 55% state ownership therefore they able to receive government incentives and subsidies.  The government involvement in Goldwind has allowed the firm to capture significant domestic market share.

North America has been one of the largest growth areas since the mid 2000s.  Both the United States and Canada have added close to 9000MW in 2008 alone – this represents close to a doubling in capacity in the USA.  Because of the new wind-generation capacity USA finally surpassed Germany in terms of annual growth for the first time ever.  This represents a major global shift in the wind-energy industry.  The domestic environment has also been conducive to new industry growth.  In the USA under the America Reinvestment and Recovery Act (ARRA) incentives have been extended to offer either production or investment credits for up to 30% the total project value.  In Canada the ecoENERGY for Renewable Power program is a federal initiatives designed to provide a production incentive of 1 cent/kWh for the first ten years of production on new wind technologies.  Such incentives provide valuable ways to spur investment in the industry.  However these programs must provide stable long-term funding for firms to avoid boom and bust cycle of the industry as such programs expire.  In terms of industry growth in North America the potential is virtually endless as the region is home to some of the best wind-power areas on the globe.

Transalta Wind provided a unique example of a former Albertan regulated energy-provider that has grown to become the largest wind-energy provider in all of Canada.  Transalta is an example of how traditional energy players can transform to become competitive wind-energy providers.   As a vertically-integrated firm Transalta provides an example of how regulatory jurisdictions can impact firm strategy.  In this particular case Transalta has been limited to providing Alberta with wind-energy and has been reluctant to expand to different geographical areas because of the varying regulatory hurdles and requirements of transmission infrastructure by province.

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Recommendations

1. Wind energy is an intermittent power source.  This means that because wind is an erratic and unpredictable energy source, it is not possible to generate a steady level of production.  This can sometimes be perceived as a major downfall to wind energy production as a competitive technology but the fact is “while single wind turbine can be quite intermittent, a large wind farm spread over a geographically diverse area will as a whole rarely stop producing power altogether” (Diesendorf 2007).  The best solution of this problem is to determine some form of average output and to develop the project accordingly so that in normal, expected varying weather conditions, the wind farm will be able to meet at least the minimum power production levels needed to serve demand.  Alternatively, this issue could be solved by developing innovative ways in which to store the produced energy thus eliminating the problem of wind energy being intermittent and unreliable.
2. One area where we hope wind energy can grow is to have the ability to correlate their operations with all other sources of electricity production.  Since wind can be sporadic and unpredictable we feel that Supervisory Control and Data Acquisition (SCADA) would be extremely beneficial to the wind industry.  “SCADA refers to a system that collects data from various sensors at a factory, plant or in other remote locations and then sends this data to a central computer which then manages and controls the data”  (TechFAQ 2009).  We hope that in the future, when wind speeds in one area become strong, through SCADA, a message will be sent out to all energy producers (including coal, hydro and natural gas), to coordinate their production accordingly.  This will ensure maximum efficiency while minimizing the impact on the environment.  This will allow for the best combination of energy generation sources. As well, SCADA will allow for real-time production, in the most efficient way possible.
3. Another area of importance is the sharing of intellectual property with developing countries.  It is important for developed countries to promote the benefits of wind energy globally to ensure new generation capacity has a minimum input from wind-sources.  Research and development for wind energy is quite costly, and by sharing such information it will allow for all countries to take a proactive approach – even though wind may not be the most affordable means of producing electricity it does provide a renewable and essentially free source once implemented.  We feel that the most effective way to encourage growth in these countries is by using joint initiatives.  This way the developing countries have a stake in the project and their economies will experience some positive economic fallout as a result.
4. Another recommendation that we have is to implement funding for education programs. We believe local conferences, seminars and dedicated education programs would be most beneficial.  We would focus these programs on educating the population on why wind energy is a good alternative, how it works, what can you do to become a user of wind energy, and how this alternative can eventually lower your energy costs.  Another important way to advance to industry would be to educate people on the requirements of specialized knowledge in the wind industry. The wind industry employs micro-climatologists, engineers, construction, maintenance people, retailers, and the list goes on.  Government funding for education programs as well as research and development initiatives will no doubt aid in the overall industry growth.
   

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Appendix 1: COMPONENTS of a Wind Turbine

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Appendix 2: Increasing Size and Capacity of Wind Turbine Size

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Appendix 3: Global Regional Wind-Capacity Breakdown  – 2008

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Appendix 4: Chart on European Union’s Energy Mix in 2008

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Appendix 5: Total Installed Capacity (MW) of TRIAD Regions 2000 – 2008

Source of information: (Global Wind Energy Council, 2009)

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Appendix 6: Average Wind Speeds in TRAID Regions

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Appendix 7: Wind Energy Jobs in the USA

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Appendix 8: TransAlta Wind Milestones

• 1997: First new power generation on the Alberta electric grid, two – 600 kW turbines
• 1998: Added two additional 600 kW turbines
• 2000: Installed 16 additional 660 kW turbines
• 2001: Installed 12 additional 660 kW turbines to power Calgary’s “C-Train” under the Ride the Wind program and installed 46 additional 660 kW turbines
• 2002: Transalta purchases 100% interest in Vision Quest and installed two 660 kW exploratory turbines
• 2003: Constructed Canada’s single largest wind farm of the time, 75 MW at McBride Lake, Transalta officially becomes one of Canada’s largest wind power producer
• 2004: Installed 38 new 1.8 MW wind turbines at the Summerview wind farm in southern Alberta
• 2007: Installed 32 – 3.0 MW wind turbines at Kent Hills in New Brunswick adding 96 MW to the grid
• 2008: Announces 66 MW Blue Trail wind farm project in southern Alberta and announces a 66 MW expansion to its Summerview wind farm
• 2008: The Kent Hills, New Brunswick wind farm begins commercial operation supplying up to 96 MW of power.  This is the first wind-generated power delivered commercially in New Brunswick.

Table 1: Transalta Wind Generation

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Appendix 9: Complete Map of Transalta Operations

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Works Cited

History of the Industry and Technology

Gipe, Paul. “Wind Power; Renewable energy for home, farm, and business” Copyright 2004. Editor: Chealsea Green Publishing Company, Vermont

Europe

(EWEA) European Wind Energy Association. “Wind Energy Gives Europe a Competitive Advantage, Says EU Energy Commissioner.” 18 Mar. 2009. 9 Apr. 2009 <http://www.ewea.org/index.php?id=60&no_cache=1&tx_ttnews[tt_news]=1465&tx_ttnews[backPid]=1&cHash=29a0316e5b>.

(GWEC) Global Wind Energy Council. “Regions: (EU) European Union.” 2009. 9 Apr. 2009 <http://www.gwec.net/index.php?id=127>.

(GWEC) Global Wind Energy Council. “Regions: Germany.” 2009. 9 Apr. 2009 <http://www.gwec.net/index.php?id=129>.

(GWEC) Global Wind Energy Council. “Regions: Spain.” 2009. 9 Apr. 2009 <http://www.gwec.net/index.php?id=131>.

Mainstream (Renewable Power). “About Us.” 12 Mar. 2009. 9 Apr. 2009 <http://www.mainstreamrp.com/pages/About-Us.html>.

Mainstream (Renewable Power). “New Releases: Mainstream signs CAD$840 million deal to build wind farms in Canada.” 12 Mar. 2009. 9 Apr. 2009 <http://www.mainstreamrp.com/pages/Mainstream-signs-CAD%24840-million-deal-to-build-wind-farms-in-Canada.html>.

Mainstream (Renewable Power). “New Releases.” 12 Mar. 2009. 9 Apr. 2009 <http://www.mainstreamrp.com/pages/News-releases.html>.

Mainstream (Renewable Power). “Vision and Mission.” 12 Mar. 2009. 9 Apr. 2009 <http://www.mainstreamrp.com/pages/Vision-And-Mission.html>.

Asia

Brower, Micheal, Bruce Bailey, and John Zach. “New High-Resolution Wind Resource Maps of China.”

Global Wind Energy Council. 10 Apr. 2009 <http://www.gwec.net/index.php?id=28>.

Goldwind. 11 Apr. 2009 <http://cn.goldwind.cn/en/index.asp>.

Haiyan, Qin. “Large Potential Market of Wind Power in China.” Chinese Wind Energy Association. 11 Apr. 2009 <http://www.adb.org/Documents/Events/2005/Prega-Subregional-Workshop/day1-presentation-haiyan.pdf>.

Pengfei, Shi. “Booming Wind Power Market and Industry in China.” Chinese Wind Energy Association. 11 Apr. 2009 <http://www.ontario-sea.org/Storage/26/1825_Booming_Wind_Power_Market_and_Industr_in_China.pdf>.

World Bank. China and India show rapid increase in global warming emissions. 10 Apr. 2009 <http://news.mongabay.com/2006/0510-worldbank.html>.

Yanqin, Song. “Renewable Energy in China.” 5 June 2008. Energy Research Institute. 11 Apr. 2009 <http://www.juccce.com/documents/Facts/Energy/YANQIN_Session19_ACEF2008.pdf>.

North America

AWEA. “Summary of the American Recovery and Reinvestment Act (ARRA) of 2009:Provisions of Interest to the Wind Energy Industry.” American Wind Energy Association . March 2009. http://www.awea.org/legislative/pdf/ARRA_Provisions_of_Interest_to_Wind_Energy_Industry.pdf (accessed April 10, 2009).

CanWEA. “Windvision 2025 Powering Canada’s Future.” Canada Wind Energy Association. 2008. http://canwea.ca/images/uploads/File/Windvision_summary_e.pdf (accessed April 05, 2009).

DOE. “Report.” 20 Percent Wind. Edited by Department of Energy. Oct 2008. http://www.20percentwind.org/report/Chapter6_Wind_Power_Markets.pdf (accessed April 05, 2009).

Energy Information Administration. “International Energy Annual 2006.” World Net Energy Consumption 1980-2006. December 2008. www.eia.doe.gov/pub/international/iealf/table62.xls (accessed April 10, 2009).

GWEC. Global Wind Energy Council. 2009. www.gwec.net (accessed April 05, 2009).

Hunt, Colleen. “Electricity in the 21st Century.” Canadian Nuclear Association. 2007. http://www.cna.ca/english/pdf/Articles/Electricityinthe21stCentury.pdf (accessed April 02, 2009).

PWC. “Renewable Deals 2008 Annual Review: Mergers and acquisitions activity within the global renewable energy market.” Price Waterhouse Coopers. December 2008. http://www.pwc.com/extweb/pwcpublications.nsf/docid/40403CD74245F764852575520060DF25/$File/RenewablesDeals2008.pdf (accessed April 05, 2009).

Transalta. Transalta Wind. March 2009. http://www.greenenergy.com/ (accessed April 05, 2009).

USA. “Wind Energy for A New Era – An Agenda for the President and Congress.” New Wind Agenda. 2009. http://www.newwindagenda.org/ (accessed April 10, 2009).

Other Sources

Diesendorf, Mark. “The Base-Load Fallacy.” Institute of Environmental Studies. August 2007. www.sustainabilitycentre.com.au/baseloadfallacy.pdf (accessed April 09, 2009).

Jacobson, Archer and. k1-Hybrids: The Power of Wind. 2009. http://www.k1hybrids.com/reference/powerofwind.htm (accessed April 13, 2009).

TechFAQ. What is SCADA? April 2009. <http://www.tech-faq.com/scada.html>. (accessed April 13, 2009).

[2] Almost all horizontal axis wind turbines use forced yawing, i.e. they use a mechanism which uses electric motors and gearboxes to keep the turbine yawed against the wind.

[3] See appendix 1 for a complete picture and diagram of a wind turbine assembly

[4] See appendix 3 for a table on world regional wind-capacity breakdown

[5] See appendix 4 for a chart on European Union’s energy mix in 2008

[6] See appendix 3 for a table on world regional wind-capacity breakdown

[7] See appendix 3 for a table on world regional wind-capacity breakdown

[8] See appendix 3 for a table on world regional wind-capacity breakdown

[9] See appendix 3 for a table on world regional wind-capacity breakdown

[10] See appendix 3 for a table on world regional wind-capacity breakdown

[11] See appendix 5 for a table of capacity growth between 2000 and 2008

[12] See appendix 6 for a map of average wind speeds in the TRIAD regions including mainland China

[13] See appendix 5 for a table of capacity growth between 2000 and 2008

[14] According to the PWC report this includes deals relating to manufacturers and developers of wind technologies (for example, wind turbine manufacturers and wind technology firms).

[15] According to PWC in 2008 the average deal value was approximately $85 million; average number of deals was 74.

[16] See appendix 7 for wind energy jobs in the USA

[17] See appendix 8 for a detailed timeline of the major corporate milestones of Transalta Wind.

[18] See appendix 9 for a complete map of Transalta operations