By Nicole Mordant and Susan Taylor
VANCOUVER/OTTAWA (Reuters) - Traditional energyproducers are diving into Canada's renewable energy space, amove that means more than buffing up their "green" credentials,it is also providing solid growth avenues for revenue andprofit.
Oil and gas companies, and conventional electricityproducers that use coal or natural gas, are snapping up wind,solar and geothermal projects, or even swallowing smallercompanies whole, for reasons beyond good optics.
"No, we are not trying to placate green groups. Greenprojects from day one have been driven by the economic return,"said Al Monaco, executive vice-president of major projects andgreen energy at Enbridge Inc, Canada's No. 2 pipelineoperator.
"I will say, though, that the environmental benefits areimportant ... but this is not inconsistent with what ourshareholders want as well," Monaco told Reuters in aninterview.
Enbridge, in the headlines lately due to a U.S. oil spillfrom a ruptured pipeline, has investments in Canada's solar andwind energy sectors, and this month bought a stake in aU.S.-based geothermal project.
Its green energy ventures generally have returns in thesame "low teens" percent range as its other businesses, Monacosaid.
The economic viability of green energy projects is beinghelped in Canada by 20- to 25-year contracts from someprovincial utilities. Others offer grants, tax breaks andcarbon-offset incentives.
Ontario's one-year-old feed-in tariff plan, modeled onprograms in Europe, has the richest incentives for renewablepower in North America. The province has lured most of thecountry's new wind and solar expansion as it aims to shut downits high-emission, coal-fired power generators.
The federal government also provides tax incentives for theproduction of clean energy, primarily in the form of fasterdepreciation of assets, which can be used by companies as a taxshield, said Stonecap Securities analyst Michael Goldberg.
PROVISION FOR FUTURE
Investments in renewable energy by "dirty" power producerscould also be a pre-emptive strike to avoid future difficultiesif the federal government eventually imposes a restriction onCO2 emissions.
"Before any of those policies are really put in place, Ithink some companies ... are taking a proactive approach toreducing their environmental footprint," Goldberg said.
Power producer TransAlta Corp, which generateselectricity from coal-fired plants and is one of Canada'sbiggest emitters of greenhouse gasses, last year bought thecountry's then-largest green energy firm, Canadian Hydro, in aC$755.6 million ($733.6 million) deal.
Green energy investments could also be a future source ofrevenue if a value is put on carbon credits, said NCP NorthlandCapital analyst Tania Maciver.
For a company like Teck Resources Ltd, Canada'sbiggest diversified miner, a foray into green energy is moreprosaic: it's about power security in the future.
"As with all mining companies, we are a very significantpower consumer," said John Thompson, Teck's vice-president oftechnology and development.
"Obtaining more of it where we need it and when we need itis important. In that regard, looking at alternatives beyondconventional is important to our long-term future," he said,after Teck announced a C$66 million investment last week in anAlberta wind farm with oil and gas heavyweight Suncor EnergyInc.
EASY SHIFT, MORE TO COME
The move by traditional power producers into clean energyis a small sidestep rather than a major leap, said Maciver.
"(They) know how integration works and the grid works. Itdoes fit quite nicely and it is a strong growth areacurrently," she said.
Whatever the key motivation, traditional energy producerswill continue to invest in green energy, companies and analystssay, as assets are reasonably priced again, thanks to theeconomic recession, and small and cash-strapped developers arelooking for deep-pocketed investors.
Enbridge's Monaco said he could see the pipeline operator,over the next few years, doubling the C$2 billion investment ithas made in green energy over the past four or five years.
Another company that may be on the prowl for purchases isnatural gas pipeline operator Fort Chicago Energy Partners, which has already made three deals in as manymonths as it looks for growth opportunities.
As for targets, Stonecap's Goldberg believes Boralex Inc, once it has digested its income fund purchase, couldbe ripe for the picking, as it is trading at a discount to itspeers and has a strong, diversified asset base.
($1=$1.03 Canadian) (Editing by Rob Wilson)