Samsung-KEPCO Consortium Secures $6.7 Billion Green Energy Contract in Ontario

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Researched by Industrial Info Resources (Sugar Land, Texas)--The government of Ontario has awarded a $6.7 billion contract to build and operate wind and solar power projects to a South Korean consortium led by Samsung C&T (SEO:000830) (Seoul, South Korea). The contract includes development of the world's largest solar and wind power complex. Brad Duguid, Ontario's minister for energy and infrastructure, signed the deal last week with the heads of Samsung C&T and Korea Electric Power Corporation (KEPCO) (SEO:015760) (Seoul).

The proposed wind and solar power complex will be spread across 202.3 square kilometers, and will consist of power-generating clusters with a combined capacity of 2,500 megawatts (MW). Solar power will contribute 500 MW, while the remainder will come from wind power. The total generating capacity is expected to come online by 2016. The project will include installation of 1,000 wind turbines.

The complex will be developed in five stages. In the first stage, 500 MW of generating capacity, comprising 100 MW of solar and 400 MW of wind power, will be commissioned. Project implementation will take place in Haldimand County and Chatham-Kent.

KEPCO will undertake design and operations of the transmission system. Equipment required for the project will be manufactured and implemented by several international and Canadian companies. The Samsung-KEPCO team will operate the wind and solar power projects for a period of 20 years. The complex will provide power to 1.6 million households and address about 4% of Ontario's energy demand.

The Samsung-KEPCO consortium, which submitted its bid to the Ontario government in 2008, has also assured the government of its efforts to revive the regional economy and create new jobs. The government had earlier promised the creation of 50,000 new jobs in the green energy sector over a period of two years. The project is expected to provide 16,000 jobs in the next five to six years. The government has reportedly taken steps to simplify the approval process for this project and accelerate procedures relating to environmental clearances, project approvals and construction permits. Reports indicate that subsidies have also been sanctioned to the consortium to build and operate the project.

Domestic manufacturers and power producers have voiced protests about the selection of the South Korean consortium. The Canadian Wind Energy Association (Ottawa, Ontario) claims that the contract provides unfair advantage to international companies over local producers. Dalton McGuinty, Premier of Ontario, is also facing criticism for approving an untendered contract after making public promises to end single-source, untendered agreements.

Ontario is leading North America's efforts to adopt green energy policies. In May 2009, the province implemented the Green Energy Act and created a platform to support small, startup, and independent green-energy producers in the region. The province also put in place a competitive feed-in tariff structure. However, critics have observed that the Samsung-KEPCO consortium is likely to receive premier access to the region's transmission capacity and 4% additional feed-in tariffs for generating wind and solar power. Ontario's transmission capacity is in short supply and several domestic energy producers have been waiting to gain access.

The new project is also raising questions about the Green Energy Act and its assurance to provide parity to small domestic players. Pro-Power (Port Hope, Ontario) and CWind Incorporated (Owen Sound, Ontario) formed a consortium to manufacture wind turbines, towers, nacelles and blades. Pro-Power also signed a 10-year contract with Linamar Corporation (TSX:LNR) (Guelph, Ontario) to manufacture nacelles. Production of 350 nacelles per year is expected to begin by 2012. However, Pro-Power executives have expressed skepticism about the government's policy of funding and encouraging small players. The contract awarded to Samsung has overshadowed committed and focused efforts made by domestic companies.

Defending the decision, McGuinty indicated that the government's strategy was to obtain an anchor tenant, which will assist in accelerating the state's efforts to spur the export of green energy and create new jobs. While the state was committed to supporting smaller producers, a global player was necessary to help the province take advantage of the green energy market in the U.S., which is growing exponentially.

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