Playing The BC Hydro Clean Power Call
At a time when many people see clouds on the horizon for US wind, one Canadian jurisdiction is moving full-swing ahead with a procurement for renewable power. British Columbia (BC), Canada's westernmost province, announced in June the launch of its Clean Power Call, an initiative aimed at sourcing 5,000 GWh of clean power.
The structure of this process is distinctly Canadian and similar to what has occurred in the provinces of Quebec and Ontario. Like a US RPS, the government sets a target for renewable or clean power that the utility meets through procuring the electricity from private developers. The utility initiates a call for tenders and the most competitive projects are retained. Unlike the US, Canadian utilities are generally government-owned, so politicians tend to be more involved in the process than is the case for an RPS-based round of tendering.
Although the Clean Power Call calls for "clean and renewable resources" in general, wind is likely to feature prominently in the final mix of PPAs awarded.
This initiative is interesting for investors because, unlike in the US, the Canadian market features a number of publicly-listed pure-play wind developers, several of which are active in British Columbia. You can think of them as you would junior mining or oil & gas exploration plays: they go around acquiring rights to promising wind areas and if they can't develop the projects on their own, they sell their rights to a bigger player at a nice premium. A number of such firms are currently participating in the BC Clean Power Call, and stand a decent chance of getting a power purchase agreement (PPA) from the provincial utility, BC Hydro. These companies are:
Finavera Renewables (FNVRF.PK) - We've discussed Finavera and its travails in the past. The company is bidding five projects for a total of 300 MW (PDF). Should Finavera be awarded contracts by BC Hydro, this could lift the stock substantially.
EarthFirst Canada Inc (EF.TO) - I'm not sure if a US listing exists for this one, which is unfortunate for people whose brokers don't allow them to trade Canadian stocks because this is one of the cheaper plays on this. The company already holds a PPA for 144 MW of wind in BC, and has a good project portfolio in the province as well as in other parts of Canada. The stock was recently battered by investors following an announcement that development costs for one project had increased substantially, although it rebounded somewhat when the firm announced it had engaged a couple of investment banks to figure out what to do about this (people are speculating the project might be sold, unlocking some near-term shareholder value).
Naikun Wind Energy (NKWFF.PK) - Naikun specializes in developing offshore wind, and the BC coast is thought to have great offshore wind resources. The company is currently bidding 320 MW into the Clean Power Call.
Sea Breeze Power Corp. (SBEZF.PK) - This company is involved in wind and run-of-river hydro. I quickly glanced at the website and could not find anything about the Clean Power Call, although I would be surprised if they were not participating.
In all cases, we're talking about companies without earnings and whose stock price may have experienced a fair bit of volatility over the past few months. The biggest risk these firms face at the moment is the spiraling out of control of capital costs for new wind projects. This is especially acute in certain parts of British Columbia where a boom in gas exploration is pushing up the price of labor. You therefore want to go through the latest financial statements to ascertain what the cash and financing situations look like.
DISCLOSURE: The author is long Finavera Renewables
DISCLAIMER: I am not a registered investment advisor. The information and trades that I provide here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.
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