Behold the power of green
National Post
06-Oct-2007
Page FP1

By Nathan Vanderklippe

As the 70-year-old Grumman Goose flying boat roars past the towering fjord walls that lead toward the Toba Inlet just north of Powell River, a brilliant rainbow arcs through the clouds.

"There's a pot of gold at the end of that rainbow," says someone in the vintage plane, filled with analysts and corporate financiers flying in to this remote corner of the province to witness local First Nations bless a new $660-million clean-energy project by fast-growing green power developer Plutonic Power Corp.

Plutonic is hardly the only company chasing renewable-energy gold in this province's rugged back corners. In the past year, Premier Gordon Campbell's commitment to making B.C. energy self-sufficient by 2016, and to producing 90% of its electricity from clean sources, has presented an enormous opportunity for small producers such as Plutonic and a growing coterie of publicly traded competitors, including NaiKun Wind Energy Group Inc., Canadian Hydro Developers Inc., Run of River Power Inc. and Finavera Renewables Inc.

They and dozens of smaller backyard producers are looking to cash in on a coming bonanza for independent power producers, as B.C. moves to triple the amount of privately generated power it buys over the next decade. That policy is a gift to energy producers, and part of the reason Canada has risen to seventh place in a global renewable power investment attractiveness index compiled by Ernst &Young LLP.

Favourable government policies across the globe are expected to drive renewable energy investment to US$750-billion by 2016, a huge rise from the $100-billion invested in 2006, according to that index.

Some of those billions are already earmarked for B.C., where the idea of grabbing a 30-year power agreement -- a guarantee of long-term revenue with the promise of little risk -- has lured in people from the mining sector, including Plutonic's own chairman and chief executive, and numerous others into the sector. Over the past year they have snapped up considerable new tracts of prospective hydro and wind territory.

Many are preparing ahead of a BC Hydro call for 5,000 gigawatt-hours of electricity planned for early next year -- a call that potentially became much more lucrative for wind and hydro developers when BC Hydro announced this month it would accept only applications for clean, greenhouse gas-free, power.

BC Hydro is also preparing a call for between 1,000 and 1,500 megawatts of bio-energy -- electricity produced from wood waste in an attempt to find commercial use for pine beetle-killed forests -- and a standing offer program that will provide set rates for small power projects.

"It's going to be a huge story over the next six to 10 months, definitely," says Cormark Securities Inc. analyst MacMurray Whale.

The story has already begun in the Toba Valley, where during the next two years, hundreds of construction workers will revive old logging roads and build a pair of run-of-river hydro plants that can together generate 196 megawatts -- enough to power 75,000 homes -- on some of the West Coast's wildest lands.

It is a bold landscape hemmed in by 3,000-metre peaks that plunge into steep cliffs striped by raging waterfalls. Below, the placid Toba River meanders in many kilo-metres from the coast. It is fed by numerous creeks and streams that drop from hanging valleys suspended nearly half a kilometre above into frothing rapids and waterfalls before taking a more leisurely route to the sea.

It is here that the gold is really found, in a landscape that is as powerful as it is dramatic. Those plunging streams are tailor-made for generating electricity, and this area has the highest elevations, greatest rainfall and most glacier cover of any in the province -- a trio of the most lucrative attributes for hydro development. Lots of rain means lots of water to generate from, a "steep and deep" terrain means the water tumbles with enough force to drive turbines and abundant glaciers means meltwater is available late into the summer and fall, lengthening the project's annual generating window.

It's why Plutonic settled on the Toba Valley as the heart of what it is calling a "Green Power Corridor," an ambitious plan that would see a total of 34 run-of-river hydro projects generate 1,700-megawatts of electricity at a price nearing $5-billion.

Like many other companies, it is planning for next year's clean power call, and the anticipation has already lit a fire under its shares, which have shot from $3 to more than $8 as it prepares to bid on a contract to supply 1,120 megawatts of capacity, a project that, if it succeeds, will cost $3-billion to build and quintuple the company's output. Similarly, NaiKun, which intends to bid 320-megawatts of wind power, has seen its shares rise from under $1 to more than $2.50 this year -- and analysts say both stocks could see significant growth if the bids are successful.

Yet if past energy calls are any guide, the bonanza may be filled with a lot of fool's gold. A call for green energy in 2003 awarded 16 energy contracts.

Only four have produced any power to date. In part, that was because BC Hydro set a maximum electricity price of $55 per megawatt hour, a price that proved too low for many of the projects as construction rates began to rise.

But even with the new call, which could see the average price bid up as high as $115 or $125 per megawatt hour according to Mr. Whale, BC Hydro expects an attrition rate of 30%, as over-eager bidders fail to realize the significance of what they are attempting.

"You don't get rich quick in this industry," says Steve Davis, president of the Independent Power Produces of B.C. "Projects often take between two and six-to-seven years to develop, and another two to three years to build."

Plutonic's own experience serves as a cautionary tale.

"Just because you've got a water licence application doesn't mean there's any gold in the bottom of that pan," chief executive Donald McInnes says.

That became painfully clear this summer, when Plutonic was forced to withdraw from a power contract for its 15-megawatt Rainy River development in Gibsons, B.C., after a surprise discovery that the river they planned to tap for hydro contained several fish.

"In year one, we did our studies, and no fish. Year two we did our studies, no fish. Year three, two fish. Year four, six fish. Now we have a fish issue," Mr. McInnes says. "So the regulator is saying, 'You can't put your powerhouse here. You have to go upstream until you get above a waterfall so you're not impacting fish.' But every time you go upstream, up in elevation, you're losing energy and it changes the economics of the project."

Eventually, they abandoned Rainy River. They had already spent $1.5-million in pre-development work, and were charged another $200,000 for withdrawing from the contract.

All future projects now focus on streams with waterfalls that block fish.

Jason Bak, chief executive of Finavera Renewables, says the experience of the past few years-- including BC Hydro's 2003 green call, and another open call in 2006 -- should help more projects succeed in future calls. Finavera plans to bid in 366 megawatts of wind projects in the province's Peace River district.

"I'm hoping a new level of maturity is going to reach the bids that are going to be put forward in this round," he says.

That maturity has become evident as major companies enter the fray. ENMAX Corp. has entered into a professional services agreement with NaiKun, while GE Energy Financial Services provided $100-million in equity financing and an undisclosed amount of debt financing toward Plutonic's Toba Valley development. It was its first such investment in Canada.

Plutonic has also created a model for working on native territory by brokering employment and royalty deals with local First Nations, a move that has made fervent believers of the 300 Klahoose people on whose land Plutonic is building.

"We've spent probably the last 20 years managing poverty and because of this power project we are going to spend the next 20 managing opportunity. And that's pretty exciting," Klahoose Chief Ken Brown says.

Still, the new private power is vulnerable to rising interest rates and falling natural gas prices, as well as to public opposition, which is mounting. Research sponsored by the Canadian Office and Profession Employees union has questioned whether the new power is justified. Author Marvin Shaffer, a consultant, has written three papers arguing that BC Hydro is overpaying for power it doesn't need.

"The energy plan is geared to providing an attractive market for independent power producers. It's not geared to minimizing costs for ratepayers," he says.

But the province's Premier has defended the new power as necessary for other reasons -- even if it means rising power bills.

"What I have heard from people is they're willing to pay a little bit more to make sure that we have a long-term and sustainable future for our kids and our grandkids," Mr. Campbell said.

At the Plutonic blessing ceremony, he joins Mr. McInnes, GE Energy Financial Services team leader Mark Tonner and dozens of others who march behind a First Nations drummer to celebrate the opening of a new bridge. It's part of the construction work that will, little more than two years from now, deliver the current from this remote location into the province's houses.

Mr. Tonner looks up at the verdant landscape and the financial opportunity it represents.

"Green," he says, "is green."