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Time right for Canadians to harvest the wind

|Written By By Bill Rogers

With Canada’s political attention firmly focused on alternative energy and clean fuel sources, the opportunity has never been greater for Canadian energy companies that want to harvest the wind.

Wind power is becoming more popular in Canada and with it comes a variety of work and issues for law firms. Photo: Courtesy TXU Corp.

But wind power offers a vast set of challenges for law firms. For example, wind farms - unlike traditional electrical generating facilities - are spread out over a massive area and require land leases from multiple property owners. That means when a wind project is created, the real estate component alone is significant.

 Add in all the other diverse legal dimensions of a wind project, and you have one juicy file.

“You need a real multidisciplinary spectrum of legal talents,” says Michael Shadbolt of Borden Ladner Gervais LLP in Toronto, who has worked with wind developers in Ontario and Quebec.

Obtaining land rights usually starts with option contracts, Shadbolt explains. This is because a potential site must be tested before anything can go ahead. “First you get the rights to put up the test turbines. If there’s enough wind, you exercise your option. So there’s a big role for real estate lawyers to develop options and leases.”

There’s also an extensive permit process, requiring environmental lawyers’ expertise. Municipal approval, zoning, and building permits come into play. Construction law becomes important when you’re erecting turbines that are 30 storeys tall. And, of course, banking and finance lawyers join the fray to set up the deal. There is also a potential federal tax credit in the offing.

Last but not least, there may be First Nations land claims involved. Shadbolt notes that some wind projects in Ontario have been stalled because of such claims.

In Canada, the wind power hot spots are British Columbia, Alberta, Ontario, and Quebec. Manitoba is also exploring the idea.

Angelo Noce, who is with the Montréal office of Blake Cassels & Graydon LLP, notes that Quebec has taken remarkable strides with wind technology. If you combined all the existing wind generators with the projects that are currently being proposed, the province would have seven per cent of the world’s wind power.

“Quebec is big on wind power,” Noce says. “The government’s goal is to have 10 per cent of its energy derived from it.”

The latest initiative is a 2,000-megawatt request for proposals, which was launched last October and will conclude in May.

“There’s been a lot of interest from financial institutions to back the bidders,” Noce says. “Wind energy projects resemble a public-private partnership. There’s usually a state-owned utility contracting out to the private sector. That means our firm’s public-private partnership teams tend to work on these projects.”

One of the key legal issues stems from the fact that Quebec wants to spur the growth of local industry.

“Quebec requires that certain things that go into a wind project must be 60 per cent ‘Quebec content’ as they define it. It’s quite complex to navigate. For instance, if a turbine tower is assembled in Quebec from components made elsewhere, is that ‘Quebec content?’ We’ve got to make sure the consortium we’re representing is going to satisfy these requirements.”

Dismantling wind farms after they’ve reached the end of their life cycle is another significant issue, particularly in Quebec, Noce adds.

“What they want to avoid is what happened in parts of California where wind farms outlived their usefulness and were just abandoned. It’s not the nicest thing on the landscape.”

Wind power developers can also face difficulty obtaining the necessary equipment, according to Ron Deyholos of Blakes’ Calgary office.

“Wind power developers are concerned with the ability to secure the supply of turbines on a timely basis,” he says. “Suppliers seem to be increasingly in the driver’s seat with respect to dictating agreement terms. This has been somewhat frustrating.”

Nevertheless, there has been an upsurge in interest in wind technology.

Robert Power, who works out of the Calgary and Toronto offices of Blakes, says, “In the last five years, wind power has gone from nothing to being a significant niche area of energy development. Some law firms and developers are doing quite well.”

Before a client bids on a wind power RFP, which typically involves a deal worth $100 to $200 million, one of the key legal issues is making sure there’s a long-term agreement in place to purchase power.

“That’s the underlying ‘bankability’ of the development.” Power says. “If there isn’t a 20-year contract in place, there’s a real question of the economics of the project. You can’t finance it without a long-term deal.

You can’t just speculate on the future of selling power into the grid. So the first issue is whether there’s an underlying power purchase agreement, and what are the terms and conditions? And what about the costs of connecting to the power grid? They can be significant, and are not necessarily covered in the power purchase agreement.”

Another major issue arises from the reality that it’s very hard to plug wind power into an electricity grid, simply because some days it’s windy, some days it’s not. That means the voltage output is unpredictable. Alberta now says it can’t take any more wind onto the transmission system for this reason.

“This cap has certainly dampened investment activity,” says Deyholos.

Another obstacle is some people see wind farms as eyesores. “A lot of people say they like the idea of wind energy. But they don’t necessarily want to see wind farms from their cottage,” Shadbolt says.

Still, wind power is a hot topic at the moment. “There’s a real push politically for renewable fuels,” he says. “It’s the flavour of the month.”

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