Blowing in the Wind
There are few places on Earth where the forces of nature are on such violent, chaotic display as Hecate Strait, the narrow stretch of shallow ocean that separates the Queen Charlotte Islands from the B.C. coast. Winter low-pressure systems born over Alaska can push winds to 160 km/h, driving waves over 30 metres high; opposing northeasterly winds gather similar speeds as they funnel across the strait hemmed in by the Queen Charlottes and the jagged mainland. When two such weather systems collide, amid tides that can rise and fall seven metres, anything in their path is trapped between a hammer and anvil.
More than a mariner’s worst nightmare, the malevolent weather is also a potential windfall source of clean and infinite electricity, capable of powering at least 120,000 homes in the near future, including those on the diesel-dependent Queen Charlottes. The NaiKun Offshore Wind Energy Project, in planning since 2001, could soon see up to 110 90-metre-high towers rammed into the seabed off the eastern shores of Graham Island, each supporting a 220-tonne turbine head fixed with rotors spanning 100 metres. The company envisions five phases in the next decade, with construction of the first 320-megawatt phase to commence in 2012.
Over the past six years, the project has emerged as a darling of environmentalists, First Nations and B.C. politicians. Parent company NaiKun Wind Energy Group Inc. has attracted a high-profile team of private- and public-sector talent to its executive and board. At the 2007 Pacific Economic Summit in Vancouver,
California Governor Arnold Schwarzenegger and B.C. Premier Gordon Campbell posed for a highly publicized photo op at NaiKun, one of only two B.C. businesses selected for a visit. Much more significantly, the project has progressed to the stage where a 40-year energy purchase agreement (EPA) from BC Hydro is now within view, pending a decision barely half a year away.
But despite the momentum, the gulf between NaiKun’s blueprint and build-out is today as wide as the white-knuckle boat ride between Prince Rupert and Sandspit. The prices of steel and fuel, as well as the scarcity of key components and specialty construction services, have dampened the fortunes of the wind industry globally. Capital costs have skyrocketed, and even in Europe, where wind power is a generation ahead of B.C., as much as $120 billion of offshore projects based around England, Germany and Denmark have recently been thrown into limbo. “Wind energy is something that has really caught people’s imagination, the idea that you put up windmills and get energy for free,” says John Calvert, political scientist, author and former policy analyst for the B.C. government. “But it’s not that simple. Wind is much more costly than most realize and can only be utilized if government and B.C. ratepayers are willing to accept a very significant cost premium.”
Former BC Hydro executive Michael Margolick first met Michael Altman in the late 1970s, when Altman was running a tiny Vancouver-based oil and gas exploration company called Uniterre Resources Ltd. (the precursor to NaiKun). In 2001 they got to talking about wind power. Both saw the potential of the resource in the Hecate Strait, which had the three prerequisites for viable wind power: a powerful, unobstructed wind resource; a shallow, sandy seabed that would minimize the cost of construction; and a nearby grid connection on the B.C. mainland.
It was not until 2002, however, that the company formed a partnership with Swiss industrial conglomerate ABB to develop a wind farm on the site – a deal formalized when then-prime minister Jean Chrétien led a Team Canada delegation to Berlin for the signing of a “ceremonial contract” announcing a provincial/federal feasibility study on the project. At the time, Uniterre (which was trading for 19 cents on the Canadian Venture Exchange) claimed the project would break seabed by 2004, at a total cost of $1.5 billion; company chair and Liberal senator Jack Austin cited Alberta, the U.S. Pacific northwest and even Alcan’s Kitimat smelter as potential customers. But many observers were skeptical, given the paucity of details about logistics and financing. “Unless this project draws in great amounts of government subsidies, it’s going to blow over,” Energy Probe’s Tom Adams told the National Post in the wake of the Berlin ceremony.
The projected 2004 build-out date came and passed, and by 2006 the company changed its corporate structure and name, from Uniterre Resources to NaiKun Wind Energy Group. Details of the project had changed too – construction of Phase 1 of a five-phase, 1,750-megawatt wind farm would now begin in 2010. Today the company is led by Paul Taylor, ex-CEO of ICBC, who joined NaiKun as president and CEO last spring; he is joined by former executives of BC Gas, BC Hydro, SNC-Lavalin and many other companies, and old guards as well, such as Margolick (vice-president, power and transmission planning) and Altman (director).
NaiKun’s power generation subsidiary NaiKun Wind Generating Inc. has also formed a 50-50 partnership for the first phase of the project with Calgary’s Enmax Corp., which brings wind project construction experience and sharing of risk. (This subsidiary is currently seeking a third partner.) Under this new regime, NaiKun is now focused on its most important milestone: the signing of a 40-year EPA with BC Hydro. Simply put, a successfully signed EPA guarantees that BC Hydro will buy the power generated by the project. “In B.C. today, the EPAs are the market,” says Calvert. “If you don’t have an EPA backed by Hydro, the banks would see the credit on these projects as being junk-bond level.”
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