Business in Vancouver November 6-12, 2007;

An investment runs through it

B.C.’s run-of-river power projects are drawing more and more big dollars from major global energy market players

Krisendra Bisetty

BC’s run-of-river power generation prospects are drawing a plethora of developers and an increasing flow of risk capital.

Hundreds of millions of dollars are flowing into B.C. as the provincial government increasingly turns to the private sector to help bridge the emerging gap between the supply and demand for power.

Two of the province’s largest run-of-the-river projects alone have garnered more than $600 million in risk capital.

With electric utility BC Hydro hunting for more power from independent producers, private equity is increasingly finding B.C. power generation attractive, despite the inherent risks of early stage projects, said Ron Ezekiel, a partner with the energy, environmental and regulatory practice group of Vancouver law firm Fasken Martineau ***.

“There’s no assurance you’re going to get permits, approvals, First Nations consent, departmental assessments, EPAs [energy purchase agreements] from Hydro,” said Ezekiel.

But he added that substantial risk capital is nevertheless needed to assemble decent bids for calls for power or to develop approved projects.

A new subsidiary of a Toronto-based asset management firm with a significant Vancouver presence recently pumped $500 million into a private power generation venture underway on the outskirts of the Lower Mainland. It’s also evaluating other projects.

“Much of our focus right now is on the B.C. market and helping developers in that market finance their projects,” said Matt O’ Brien, president of Connor, Clark & Lunn Infrastructure Ltd., a new business unit of Connor, Clark & Lunn Financial Group.

“The infrastructure sector, particularly in energy infrastructure, power generation and electricity transmission, is at its highest levels in British Columbia.”

The private firm made its maiden investment in a 150-megawatt set of run-of-the-river projects being built by a private consortium.

Harrison Hydro Limited Partnership’s Harrison Hydro will connect six separate hydro facilities into a single new substation at the north end of Harrison Lake, located approximately 95 kilometres east of Vancouver.

“It’s a unique project,” said O’Brien. “I would characterize the individual projects as being micro-hydro projects, but in an aggregate, they represent 150 megawatts, which will make this among the largest of its kind, certainly in B.C., when it’s built.”

The largest single run-of-the-river project is being developed by Vancouver-based Plutonic Power Corp. *** (TSX:PCC), which last week executed the first of a series of transactions that will partly fund its $660 million 196-megawatt East Toba River and Montrose Creek hydroelectric project.

The project, located 190 kilometres northwest of Vancouver at the headwaters of the Toba Inlet north of Powell River, will be funded by GE Energy Financial Services via a general partnership of the two entities.

GE ***, through a Canadian affiliate, is investing up to $112 million to acquire a 49% equity and 60% economic interest in the project, while another Canadian GE affiliate, together with Manulife Financial (TSX, NYSE:MFC), is arranging a $470 million line of credit for the partnership.

O’Brien, however, declined to reveal CC&L’s equity stake in the Harrison Hydro venture, which also has a 40-year power sales agreement with BC Hydro. He said that his unit and the private project developers would own all of the equity in the project, which is expected to begin operations by the end of 2010.

Most independent power developers, he said, while “long on industry expertise and entrepreneurial spirit,” are often short on capital.

“Our experience has been that there has been an abundance of capital available for existing operating projects, and that capital would come from pension plans, infrastructure income trusts and high-net-worth individuals, but there’s a shortage of capital to fund development related activates.”

The firm is also evaluating other power projects, including run-of-the-river, wind and biomass, with further announcements expected over the next six months.

Meantime, Quebec-based power producer Brookfield Power *** has snapped up two hydroelectric plants in northeast B.C. from East Twin Creek Hydro Ltd.

All the power generated by the two run-of-river facilities, which have a combined installed capacity of 7.4 megawatts, is sold under long-term purchase agreements with Hydro.

The purchase boosts the B.C. power generation portfolio of Brookfield Power, which comprises the power generating and marketing operations of Brookfield Asset Management Inc., to five hydro stations on five river systems. •

kbisetty@telus.net