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Sunday, December 02, 2007

Vancouver, Canada firms developing renewable power technology

The drive for clean energy sparks a B.C. gold rush
By Jeannine Mitchell
Publish Date: November 29, 2007
article from:

Long before Al Gore and the United Nations' Intergovernmental Panel on Climate Change collected this year's Nobel Peace Prize, venture capitalists set their sights on a different prize: the massive profits going to oil firms. With the Arctic icecap melting before our eyes, their day is coming sooner than expected, as the clean-energy sector just keeps growing hotter with global warming. It helps that BP's global research shows only one barrel of oil is discovered for every nine we consume. No longer just an issue pushed by environmentalists, clean energy is becoming a money-making business.

World investment in this sector soared almost 400 percent between 2004 and 2006. Last year, 18 percent of energy investment–more than US$100 billion–went to renewable sources such as wind and solar. Professional-services firm Ernst & Young predicts that favourable government policies and high oil prices will drive yearly renewable-energy investment to US$750 billion by 2016.

Suddenly, this once-struggling "alternative" sector is tapping profits. Since 2002, clean-energy stocks have beaten the MSCI World Index by 64 percent. Small investors eager to "green" their portfolios are seeing good returns from North America's small but growing selection of clean-energy funds, which sometimes score well above the S&P 500 index.

When forecasts for investment in oil alternatives are closing in on a trillion dollars, something big is happening. And it's happening here in Vancouver.

In their 2007 book, The Clean Tech Revolution: The Next Big Growth and Investment Opportunity, U.S. authors Clint Wilder and Ron Pernick list Vancouver among the world's top 10 Silicon Valleys for clean energy. They credit fuel-cell pioneer Ballard Power Systems with sparking a wave of related technology startups around Vancouver. They also cite local academic research, venture capital, and a quality of life that attracts talent. The other cities in their top 10 were Copenhagen, Shanghai, San Francisco, Chicago, New York, Portland, Hyderabad (India), Austin (Texas), and Freiburg (Germany).

But Vancouver's clean-energy sector isn't limited to fuel cells. Energy efficiency and "bridging" helped Greater Vancouver companies dominate the Deloitte Technology Green 15 this fall, where innovation must be commercially viable. Seven out of the 15 Canadian awards went to companies such as West Vancouver's Sempa Power Systems Ltd., whose hybrid heating system lets you switch energy sources, and Burnaby's Xantrex Technology Inc., whose products feed wind, solar, and other renewable energies into power grids or a portable "powerhub".

Philippe de Weck, the Geneva-based manager of Canada's first clean-energy fund, speculates that Vancouver has "the combination of environmental awareness and innovative tradition [that] led to California being a hot spot for clean-tech". The Criterion Global Clean Energy Fund launched this fall, and its holdings range from Denmark's Vestas Wind Systems to two Vancouver firms that also made this year's Deloitte Green 15.

One is Westport Innovations Inc., a world leader in converting engines to use cleaner fuels such as natural gas, hydrogen, and biofuels, including landfill gasses. Westport owns half of Vancouver-based Cummins Westport Inc.–whose 300 employees produce the world's cleanest natural-gas truck and bus engines–and five percent of Clean Energy Fuels Corp., North America's largest supplier of natural gas for vehicles. Last year, Deloitte named it North America's second-fastest-growing tech company.

De Weck's other local buy was Plutonic Power Corp., a run-of-river hydroelectric developer planning a "green-power corridor" in the south coast's Toba Inlet area. In October, the groundbreaking for Plutonic's initial $660-million East Toba and Montrose Project won ceremonial blessings from three local First Nations: the Klahoose, Sechelt, and Sliammon.

Government policies driving clean-energy investment can have rapid effects. Beijing's pre-Olympics push for cleaner air gave a huge boost to Cummins Westport: the sale of 3,000 liquefied-natural-gas–fuelled buses. The European Union's target of generating 20 percent of electricity from renewables by 2020 is transforming whole economies. Denmark and Spain are almost there already. Germany, now at 12 percent, is switching so fast it runs more wind, solar, and biogas systems than any other country, and its "eco-sector" provides 250,000 jobs.

That kind of job and wealth creation encouraged California Governor Arnold Schwarzenegger to sign a deal in August 2006 with his Democrat-controlled legislature. The Global Warming Solutions Act requires California to cut greenhouse-gas emissions back to 1990 levels by 2020.

Three months after the act was passed, the ports of Los Angeles and Long Beach said they would convert from dirty diesel by buying 5,000 cleaner and cheaper-running Cummins Westport LNG trucks. The Vancouver firm is now preparing its first 150 trucks–for $22 million.

So there must be cheers in Vancouver's clean-energy boardrooms now that British Columbia will be jumping on California's bandwagon. After years of environmental cutbacks, Premier Gordon Campbell told the Union of B.C. Municipalities this fall to expect imminent legislation cutting B.C.'s greenhouse-gas emissions to 33 percent below current levels by 2020. B.C. will adopt California's tailpipe-emission and low-carbon-fuel standards and mandate that all government operations, including schools, be carbon-neutral by 2010.

Although Campbell's plan may rely on some carbon-trading–in which polluters buy business-as-usual credits–California's legislation boosted clean-energy investment, so expect that here. And continued "hydrogen highway" buzz from Campbell and Schwarzenegger may pump up Vancouver's fuel-cell companies, including Ballard Power.

Of course, the dot-com boom of the '90s proved that even when a sector takes off as predicted, small investors can get burned. And going green can be complicated. Both Vancouver companies in de Weck's new fund illustrate key issues facing would-be green investors.

With Plutonic, it's the tradeoff required with energy transitions. Plutonic founder and CEO Donald McInnes seems taken aback by criticism of run-of-river hydroelectricity, including that contained in recent articles in the Georgia Straight. Instead of flooding habitat, he said, the diverted water is soon returned to the river "without heating or cooling or adding chemicals or anything; we're just borrowing it". Old logging roads are reused, he said, power-plant footprints are small, and water is tapped above steep waterfalls so no fish are harmed in the projects.

"Fear-mongering" is McInnes's answer to reports that B.C.'s run-of-river projects lack oversight. "There are 18 different federal, provincial, regional, and local government agencies you must engage with." Approval for East Toba and Montrose, he said, took three years of wildlife surveys, a 700-page application focused on environmental risks, seven public meetings, and 77 conditions on their application to build.

Asked if public rivers are being stolen, McInnes said licences are time-limited and water isn't free. "About 15 percent of revenue, straight off the top, goes right back to government for property, school, and water taxes." Additional contracts with First Nations are confidential, but the industry typically pays a "one- to two-percent gross-revenue royalty". Local jobs and training are also in the mix.

"We don't want a [Sumas-type] gas plant," McInnes said, "We're not having coal plants, not having nuclear. That leaves large-scale hydro dams or renewables; we have to settle on something. Right now, we're importing 15 percent of our electricity, and most of that's coming from coal plants in Alberta."

"Another thing," he added heatedly. "Some people are calling this a gold rush, which is absolute horse shit." Plutonic's Rainy River application near Howe Sound, he said, shows how some of the current 500-odd water-licence applications will fall by the wayside. After spending $3.15 million on preliminary planning, Plutonic pulled out this summer because fish showed up in the project area. "If we can't build something with minimal impacts on the land, then we're just not going to," he said.

According to McInnes, some projects will die, even after approval. "These guys," he said of critics, "would have you believe there's going to be 500 power plants built next week…It's nonsense. There's 16,000 mining claims existing in this province. How many mines do we have? Twelve?"

Powell River Mayor Stewart Alsgard praises Plutonic for "doing all the right things" with local stakeholders.

The habitat impacts of hydro power, de Weck noted, are a "complex issue" needing public debate. Climate change, he said, will shift our focus "from local pollution to global pollution", with inevitable tradeoffs.

"We see similar debates on wind power with respect to its impact on birds. Even solar power has detractors on grounds of altering landscapes…Our current lifestyle consumes a tremendous amount of power. While the best measure is to become more energy-efficient–a key area of investment for our fund–we can't eliminate energy demand. Choices have to be made."

Westport's case illustrates another big issue for green investors: waiting for research losses to become profits. Formed to market University of B.C.–developed pollution-cutting technology, Westport's early years were dogged by research-and-development losses and roller-coaster stock prices. Analysts lumped it in with the underperforming fuel-cell sector. Governance issues arose–all since settled, according to Jonathan Burke, Westport's vice president for corporate development. De Weck said Westport was "a terrible stock over the years–a very poor performer for shareholders".

So what's changed? "Right now, it's a hot sector," Burke said, "but a few years ago, it was really cold." He laughed. "Frigid." It was more than that, de Weck said: "In the past, its product offering wasn't ready for commercialization. Essentially, they were ahead of their time."

Big orders like the Beijing and California port deals showed that the market was finally catching up.

But profits take time. Burke says R&D cost $21 million last year–against record revenues of $60 million. "We have to maintain our global-leadership position," he said. "We don't intend to slow down; that's what's given us the credibility we have in the international marketplace."

That credibility is key to Westport's growth. Industry recognition includes this year's Blue Sky Merit Award for consistently beating emissions standards (they already meet U.S. Environmental Protection Agency standards for 2010). The result? Partnerships and joint projects from Switzerland to China, including current work with BMW and Ford on hydrogen-fuelled internal-combustion engines.

Although "much of the work being done in Vancouver involves technology", de Weck expects hydroelectric power to be big here as well, given B.C.'s "tremendous resources in this field". Looking east, he sees "much more capital being invested in wind energy in Ontario and Quebec".

But which technologies will win the race to dislodge fossil fuels? De Weck gives solar the edge, because its costs are falling the fastest. But this race, he said, requires multiple approaches, from energy efficiency and renewables to the low-carbon transitional fuels Westport works with.

And that's a big opportunity for Vancouver's fledgling clean-energy industry.

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