Industry overview - Renewable Energy North America102
C.1 The renewable energy market includes electricity generated by geothermal, biomass and waste, solar, wind and hydroelectric methods.The North American renewable energy market has shown strong growth with a market value
compound annual growth rate (“CAGR”) of 8.4% from 2008 to 2012. Market value growth is expected to decline over the forecast with a CAGR of 6.5% from 2012 to 2017. Historical annual market value growth rates increased significantly in 2011 reaching 17.3% and then dropped to 4.4% in 2012. The United States accounts for 64% of the total North American renewable energy market value, with Canada and Mexico contributing 31% and 5%, respectively. The following charts illustrate the market segmentation in the Canada and US renewable energy markets.
Canada: MarketLine Industry Profile, Renewable Energy in Canada103; US: MarketLine Industry Profile, Renewable Energy in the United States.104
Canada105
C.2 The Canadian renewable energy market experienced a CAGR in value of 3.6% from 2008 to 2012 and anticipates a 2.8% CAGR from 2012 to 2017 which is lower than the expected overall North American growth. According to historical results, in 2011, growth increased to approximately 10% before slowing to
102 Investor’s Schedule of Exhibits C0253 (004388) MarketLine Industry Profile, Renewable Energy in North America, June 2013.
103 Investor’s Schedule of Exhibits C0251 (004387) MarketLine Industry Profile, Renewable Energy in Canada, June 2013.
104 Investor’s Schedule of Exhibits C0261 (004389) MarketLine Industry Profile, Renewable Energy in the United States, June 2013.
approximately 2% in 2012. The following chart shows historical market value growth:
Canada: MarketLine Industry Profile, Renewable Energy in Canada.106
C.3 The majority of the market, approximately 92%, is focused on hydroelectric means of electricity generation. Although hydroelectric means makes up the majority of the renewable energy market, wind power is growing quickly. Further, there is interest from politicians to increase the percentage of Canada’s total electricity generated by renewable energy methods.
C.4 Please refer to Section 2 of the report for a description of the OPA’s FIT program.
Wind energy Global107
C.5 Wind energy accounts for 2% of overall global electricity and is the global leading renewable technology due to its rapid development. The global wind energy market revenue has a compound annual growth rate of 23.8% from 2008 to 2012 and an industry volume (megawatts) compound annual growth rate of 24.2% for the same historical period. Both revenue and volume growth are forecast to decelerate over the forecast period from 2012 to 2017 with an estimated compound annual growth rate of 15.2% and 14.1% for revenue and volume, respectively. Asia-Pacific, Europe and the Americas make up 24.6%, 51.7% and 23.6% of the global wind energy industry, respectively in 2012. Middle East and Africa only make up 0.1% of the total industry.
C.6 China is the global leader in wind power with 77 gigawatts installed, followed by the US with 60 gigawatts. The UK is the leader in offshore wind deployment followed by Denmark and Belgium.108
106 Investor’s Schedule of Exhibits C0251 (004387) MarketLine Industry Profile, Renewable Energy in Canada, June 2013.
107 Investor’s Schedule of Exhibits C0246 (004386) MarketLine Industry Profile, Global Wind Energy, May 2013.
108 Investor’s Schedule of Exhibits C0230 (004384) The Guardian, Wind Power Capacity Grew by 20% Globally in 2012, February
Canada
C.7 Canada is the ninth largest wind producer in the world and wind power
represents 3% of total Canadian electricity demand. Wind power is forecast to supply 20% of Canadian electricity demand by 2025 with benefits including 52,000 jobs and a reduction of 17 megatonnes of greenhouse gas emission. Wind power grew 20% in 2012 and is expected to continue expanding in 2013 based on projects contracted across Canada. Total volume (megawatts) is expected to increase by 86% from 6,500 MW in 2012 to 12,000 MW in 2016 representing a compound annual growth rate of approximately 17%.109 As of
March 2013, there were 164 wind farms with a total of 3,762 turbines producing enough electricity to power over 2 million Canadian homes.110
C.8 Canadian wind projects contracted over the past five years that are seeking financing in order to start construction will result in increased competition for financing. Public bonds are an alternative financing option for wind energy projects normally used to raise amounts over $150 million. This structure was used for the first time to finance a Canadian wind farm by Brookfield Renewable Energy Partners in February 2013 for an amount of $450 million at an interest rate of 5.13% for term of 18 years.111
C.9 Canada’s leading wind energy market is Ontario with 2,043 MW of installed capacity in as of May 2013, followed by Quebec and then Alberta. Ontario grid capacity constraints and the uncertainty regarding the new competitive wind procurement process will result in a wind procurement slowdown over the next three years. Other provinces including Alberta, British Columbia and Quebec are expected to have wind investment opportunities going forward. 112
Economic overview Canada
C.10 The following is a review of the economic outlook for Canada, the geographic region in which Mesa Power’s projects were planned to operate. This summary is based on our review of the Economist Intelligence Unit (“EIU”) Country Forecast publications as at July 2011. The following contains excerpts and summaries of views expressed by the economists in this publication.
C.11 GDP is expected to grow by 2.6% in 2011 due to continued investment in the mining sector. The US economy growth is also expected to positively impact GDP growth for Canada as the US takes in approximately three quarters of Canada’s exports. A slowdown in the US economy is a significant risk to the forecast. GDP growth is expected to remain relatively stable over the forecast period averaging 2.5% from 2011 to 2015.
109 Investor’s Schedule of Exhibits C0204 (004382) CanWEA, Wind Facts, January 2013.
110 Investor’s Schedule of Exhibits C0203 (004381) CanWEA, The Secret is Out, Wind is in.
111 Investor’s Schedule of Exhibits C0238 (004385) KPMG, Wind Energy in Canada: Realizing the Opportunity, July 2013.
C.12 Consumer price inflation is expected to average 2.9% in 2011 which is above the Bank of Canada’s target rate of 2.0%. Inflation reached 3.5% in May 2011 mainly due to increasing commodity prices and changes in sales tax regimes. Inflation is forecast to decrease over the forecast and stabilize at a rate of 2.3% in 2014 and 2015.
C.13 In July 2011, the exchange rate was strong at C$0.97:US$1.00 and is expected to weaken slightly to an average of C$0.98:US$1.00 in 2011. The rise in oil prices in February and March of 2011 strengthened the Canadian dollar as Canada is an energy exporter but global oil prices are expected to fall in the second half of 2011, decreasing the value of the dollar. The currency has also stayed strong since mid-2010 due to the Bank of Canada’s monetary tightening compared to less-stringent monetary conditions in the US. The exchange rate is expected to average C$0.99:US$1.00 from 2011 to 2015.
C.14 Canada’s first current-account deficit in 11 years occurred in 2009. The EIU expects the deficit to decrease to 2.7% of GDP in 2011 compared to 3.1% of GDP in 2010. A decrease in oil prices is expected to result in an increase in the current-account deficit in 2012 before continuing to decrease over the forecast. C.15 The table below provides a summary of key economic indicators for Canada
from 2010 to 2015:
Key Economic Indicators 2010a 2011b 2012b 2013b 2014b 2015b
Real GDP growth (%) 3.2 2.6 2.4 2.5 2.5 2.6
Consumer price inflation (av;
%) 1.8 2.9 2.0 2.2 2.3 2.3
3-month prime corporate paper
rate (av; %) 0.8 1.5 2.6 3.6 5.3 6.0
Unemployment rate (%) 8.0 7.4 7.1 6.8 6.4 5.9
Exchange rate (av; C$:US$) 1.03 0.98 1.01 1.00 0.98 0.97
a Economist Intelligence Actual.
b Economist Intelligence Unit Forecasts.
Ontario
C.16 The following is a review of the economic outlook for Ontario, the geographic region in Canada in which Mesa Power’s projects planned to operate. This summary is based on our review of the Conference Board of Canada Provincial Outlook, Summer 2011. The following contains excerpts and summaries of views expressed by the economists in this publication.
C.17 Economic growth is expected to slow due to the Japanese earth quake and global supply-chain disruptions, including the easing of fiscal stimulus related spending. Ontario was impacted by the earth quake, specifically in the
automotive industry as production for Honda and Toyota dropped by 37.0% in the second quarter. Recovery is expected to be fast resulting in strong
manufacturing growth of 4.9% in 2012. GDP is expected to grow by 2.2% in 2011 due to growth in the US and government incentives to increase business in
Ontario. GDP growth is expected to increase to 2.5% in 2012 based on recovery in the manufacturing sector.
C.18 Consumer spending increased due to the Ontario government’s three payments to ease the transition to harmonized sales tax (HST). Labour markets are also improving as the unemployment rate is expected to decline to a rate of 6.9% in 2012. Industrial average wages and salaries are expected to increase by 3.6% in 2011 and 3.0% in 2012 due to tighter labour markets.
C.19 Ontario is expected to have a trade deficit for the next five years due to the strong Canadian dollar promoting imports and slowing exports. Exports are expected to grow by 4.5% in 2011 and 6.4% in 2012, both below the 11.3% growth in 2010.
C.20 Investment in Ontario has a positive outlook as business investment is expected to grow by 9.0% in 2011 and 4.3% in 2012. Ontario introduced a long term energy plan including more renewable-power generating plants that has resulted in Samsung investing $7 billion (over the life of the project) in Ontario wind and solar power projects. Increased spending in exploration due to high commodity prices has resulted in increased investment in Northern Ontario and potential development opportunities include mines and infrastructure products.
C.21 The table below provides a summary of key economic indicators for Ontario from 2010 to 2015:
Key Economic Indicators 2010a 2011b 2012b
Real GDP growth (%) 3.0 2.2 2.5 Consumer price index (%) 2.4 3.3 2.3 Unemployment rate (%) 8.6 7.7 6.9 Personal disposable income 5.9 4.1 3.9
a Conference Board of Canada Actual. b Conference Board of Canada Forecasts.