A5

By MICHAEL TUTTON
The Canadian Press

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HALIFAX - Independent wind producers are facing big hikes in debt costs, raising doubt on whether ambitious construction goals will be met over the next few years, say financing experts.

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The Canadian Press

WINDS OF CHANGE: A single wind turbine produces clean renewable energy in Brookfield, N.S., recently. Financing experts say that many independent wind producers are facing big hikes in debt costs, casting doubt on whether ambitious construction goals will be met over the next few years.

Chris Gifford, a vice-president with Allied Irish Banks in Toronto, said worrisome signs for the industry came recently when EarthFirst Canada Inc. - the proponent of a major wind farm in British Columbia - declared it was seeking creditor protection.

"I think it's a warning sign, what happened to them (EarthFirst) could happen to other people," he said in a telephone interview.

The German bank WestLB AG has said it intends to "enforce security" on its $131-million loan to the Calgary-based wind firm.

Meanwhile, a news release issued recently by EarthFirst says attempts to find fresh financing had been "severely hindered by the unprecedented crisis in the global financial markets."

In addition to the Dokie 1 wind farm in British Columbia, and the smaller Nuttby wind project in Nova Scotia, the company also has permits for further projects in B.C. and Ontario.

EarthFirst was unavailable to provide an updated comment on the projects, but has said in news releases it has retained its staff and is continuing to work on projects.

Scott Urquhart, the vice-president of corporate finance at Jennings Capital in Halifax, said the problem facing Canada's independent wind producers is they are often heavily reliant on debt, raising between 70 to 80 per cent of their financing by borrowing.

He has assisted small Atlantic Canadian energy and mining firms to find lenders and investors in the past few years. However, he said when he was recently approached by two wind firms in Nova Scotia, he advised them to wait out the storm.

"Some of the banks are ... not doing deals at all, and it's going to be into the new year before you can talk to the banks about doing some of these projects," he said.

Urquhart said last year banks and life insurance companies were interested in financing the projects at rates in the range of 6.5 per cent. But he estimates the interest costs are now over eight per cent, and the lenders are offering shorter terms for smaller amounts of money.

Meanwhile, Gifford said the Canadian industry has also provided European investors with a series of unpleasant surprises as projects experience cost overruns, delays and lower-than-expected energy output.

In the case of EarthFirst's Dokie project, costs went to $360 million from $325 million, according to Windpower Monthly, an industry publication.

In addition, said the magazine, the Canadian company was one of a number of projects that saw a "general revision" of its energy output by industry consultant Garrad Hassan.

"The firm decided to change the wind energy estimation method it applies to North American projects after it found a consistent pattern of overestimation of wind resources compared to actual operating results," said the magazine.

The challenges are unwelcome news in provinces where wind is viewed as a key source of future energy.

For instance, in Nova Scotia, Emera subsidiary Nova Scotia Power Inc. had contracted for 247 megawatts of capacity - enough power for 87,000 homes - which when added to its existing wind farms would be 10 per cent of the province's electricity by 2013.

The utility is required to hit roughly half that amount of power by 2010 as part of the province's efforts to reduce greenhouse gas emissions.

Margaret Murphy, a spokeswoman for Nova Scotia Power, said the utility remains optimistic it will meet its minimum goals.

"In fact, when you look at these projects there's much to recommend them. The contracts are in place and the developers have our support," she said.

However, at least one of the wind companies says the rising cost of debt is creating question marks on whether the utility will achieve its goal.

"Unless things correct, it's very hard on the owners," said Reuben Burge, president of RMSenergy Ltd. of Westville, N.S.

He predicts that fewer than half of the anticipated projects in Nova Scotia will come to fruition.

"I'd be surprised if Nova Scotia Power barely meets its deadline for 130 megawatts," he said.