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Québec Publishes Final Regulation Regarding 450-MW Wind Power Block

Date

November 13, 2013


On August 28, 2013, we reported that the Quebec Government had published a draft regulation under An Act Respecting the Régie de l'énergie setting out the framework for the procurement of an initial 450-MW block of wind power of the previously announced 800 MW of wind power to be procured. A link to this blog post can be found here.

Earlier today, the Government of Quebec published the final form of the Regulation respecting a 450-megawatt block of wind energy which will come into force on November 28, 2013.

Noteworthy Differences Between Draft and Final Regulations

The noteworthy differences between the draft August 2013 Regulation and the Regulation in its final form can be summarized as follows:

  • Local Communities Interest. The draft Regulation provided that local communities had to hold an interest equal to more than 50% of the control of the project. The Regulation in its final form now provides that local communities will be required to hold an interest representing at least 50% of the control of the project.
  • Timing of Deliveries. For this 450-MW block of wind power, Hydro-Québec Distribution will obtain 100 MW of capacity by December 1, 2016 and an additional 350 MW of capacity by December 1, 2017 (the draft Regulation was initially contemplating 225 MW of capacity by December 1, 2017 and 225 MW of capacity by December 1, 2018). This addresses a concern expressed by various industry stakeholders that first deliveries in 2017 would create a gap in the supply chain of the turbine manufacturing industry established in the Province of Quebec as there would be no project in 2016 (the last projects to be commissioned under the previous call for tenders are scheduled for December 1, 2015).
  • Price. Hydro-Québec Distribution will pay for electricity at a price not to exceed 9¢/kWh in 2014 dollars, to be increased annually on the basis of changes in the CPI, excluding costs for transportation and for the balancing and complementary power service. The draft Regulation was initially providing for a 9.5¢/kWh price including costs for transportation and for the balancing and complementary power service.
  • Cooperatives. The final Regulation now also contemplates cooperatives as potential community partners in addition to regional county municipalities, local municipalities, First Nations and inter-municipal boards, as such was the case for previous tenders.

Additional Information Pertaining to the Upcoming 450 MW Call for Tenders

The Government of Quebec also published today an order in council (available in French only at this time here) identifying economic, social and environmental concerns pertaining to this block of 450 MW of wind power for the Régie de l’énergie (Québec’s energy board) to consider when approving, among other things, Hydro-Québec’s supply plans.

The concerns expressed by the Government in this order in council mainly aim at supporting the wind turbine manufacturing industry of the Matanie regional county municipality and the Gaspésie-Îles-de-la-Madeleine administrative region, and maximizing the economic benefits associated with this new 450-MW block of wind power capacity. In light of those concerns, the order in council provides for the following requirements which we expect to find in the call for tenders documentation to be issued by Hydro-Québec Distribution.

  1. All project sponsors will have to pay annually to the regional county municipality, local municipality or First Nation an amount equal to $5,000 per megawatt installed on the territory of such regional county municipality, local municipality or First Nation.
  2. Project sponsors will be required to guarantee to Hydro-Québec Distribution a 60% Québec content, meaning that 60% of the global costs of the wind project, including costs associated with the installation of wind turbines, must be spent in the Province of Quebec. Wind project costs spent in the Province of Quebec above this threshold will award additional points to the project sponsors in the context of the call for tenders selection process. This is in line with previous calls for tenders.
  3. Project sponsors will be required to guarantee to Hydro-Québec Distribution a 35% regional content, meaning that 35% of the costs of wind turbines (excluding the costs associated with the installation of wind turbines) must be spent in the Matanie regional county municipality and in the Gaspésie-Îles-de-la-Madeleine administrative region. Previous wind power call for tenders in the Province of Quebec were imposing a 30% regional content guarantee on project sponsors.
  4. Project sponsors will have to ensure that the turbine manufacturer with whom they are associated will manufacture more added-value strategic components in its plants than the wind turbine components currently manufactured by turbine manufacturers in the Province of Quebec. In order to achieve this, we understand that the project selection criteria for the call for tenders will ascribe significant value to the commitment of the turbine manufacturer to produce wind turbine components from a list of strategic wind turbine components (including electric converters, generators, control systems, breaking systems and speed multipliers) in the Province of Quebec.

Key Takeaways

  • Final Regulation now entertains the possibility of implementing structures pursuant to which each of the local community and the project sponsor could own 50% of the control of the project.
  • It will be interesting to see how the increased Regional content requirement as well as the increased focus of the Government on the manufacturing of added value strategic components in the Matanie regional county municipality and in the Gaspésie-Îles-de-la-Madeleine administrative region, will be addressed by turbine manufacturers and other suppliers.
  • Final Regulation still reflects a significant decrease in the price of electricity in comparison to the previous call for tenders.

Next Steps

Pursuant to the Regulation, Hydro-Québec Distribution is required to issue a call for tenders for this 450-MW block of wind power by December 31, 2013. This document should provide more guidance to project sponsors, financiers and other stakeholders on key parameters of this new wind power procurement.

Do not hesitate to contact our Energy Group lawyers to assist you and your business in connection with this important development in the wind energy industry, including to discuss and identify the opportunities which may arise in connection with the proposed wind power procurement.