Dividend Ramp Up In Canadian Utilities

Canadian renewable energy contracts guarantee premium rates and cost recovery for wind, solar, and hydro, aligning with biofuels targets and carbon reduction goals, via provincial utilities, power purchase agreements, and long-term support for developers.

As in the U.S., Canada’s demand for electricity is expected to rise steadily in coming years as an increasingly urban population continues to adopt new power-using devices. New demand will be especially strong in the energy patch, as oil sands are opened up for export to either the U.S. or China.

As I’ve pointed out on numerous occasions, oil sands development is at its core not a drilling operation but a mining and chemical refining process. That requires an enormous amount of electricity to carry through.

On the other hand, the Canadian government has also been very aggressive setting targets for use of renewable energy and reducing carbon dioxide emissions from power generation, as an election lift for green power helped solidify investor confidence.

A year ago the country set tough new standards for fostering biofuels development. That matches renewable energy standards set in nine Canadian provinces, growing at different rates across the country, that require power companies to generate a set percentage of their electricity from wind, solar and hydro.

As the major utilities are primarily provincial power authorities like BC Hydro across Canada, that amounts to guaranteed contracts for renewable energy developers and generators. And not only are contracts backed by the full support of taxpayers, but they typically guarantee premium rates and recovery of any change in costs. Some - particularly in solar and wind - actually guarantee payment even if conditions inhibit a full generation.

After it completes its acquisition of Capital Power LP, Atlantic Power Corp. AT will hold several valuable projects, and B.C. clean power approvals suggest an expanding pipeline. Management plans to follow up with more, particularly in hydro-rich British Columbia.

Meanwhile, Innergex Renewable Energy INGXF.PK, which I first profiled in this February 2010 InvestingDaily.com article, already has substantial holdings, and is in the process of building more capacity. Innergex has aggressive plans with new wind and water projects in development, including work that taps B.C. wind potential in key corridors, that will nearly double current capacity in the next few years. And it has prospective projects that would potentially add another 2,800 megawatts, or nearly seven times current output of 401 megawatts.

Getting all that up and running is just a matter of executing, and Innergex has been very effective getting such deals done in the past. Even a partial success will result in a big ramping up of dividends in coming years, even as the current payout remains secure despite what happens in the economy.

Related News

• Electricity Forum News

• Power Generation News