Samsung deal will spark election

Toronto Sun Editorial

Stung by constant attacks that he blew it on the $7-billion secret “sweetheart” deal he signed with South Korea’s Samsung Group to generate 2,500 megawatts in green power, Premier Dalton McGuinty has given it another shot.

With Wednesday’s new deal the premier has finally released details of the pact, powered down the $437-million sweetner offered to their foreign partner, is creating jobs faster and will give Samsung more time to bring the wind and solar power online.

And an election disaster is saved, right? Not so fast, premier.

While McGuinty says the new deal shines brightly for taxpayers, chopping $327 million in potential payments to Samsung, while still generating 16,000 jobs and generating a $7-billion investment in the province in a bid to make Ontario a green jobs hub, it’s not a crystal clear win.

In fact, there’s still a serious stench attached to the contract.

This is still a sole-sourced deal with a foreign company. That’s a $7-billion mind-boggler.

This is still a deal that sees Ontario taxpayers paying a huge premium for every megawatt of green power, not including the potential $110-million bonus — or economic adder, as the Liberals like to generously call it. The official spin is the top-up will only cost consumers 36¢ a year on their electricity bills.

This is still a deal that also gives preferential access to the province’s electricity grid to a South Korean company instead of local producers like farmers who are trying to add another cash crop and save their family businesses but find themselves at the back of the line, delayed and adding more red ink instead.

This is still a deal that sees Ontario taxpayers subsidizing the “green” jobs with the inflated price we’re paying for this wind and solar power — 13.5¢ per kw/hr for wind, and 44.3¢ for solar, instead of 5-7¢ for conventional energy we’re paying now — although any new power capacity will cost more.

Despite McGuinty’s assurances, and the four new manufacturing plants, there’s no evidence the 1,800 jobs in Tillsonburg, Windsor and the GTA are anything more than short-term.

If Ontario is able to become an exporter of green energy infrastructure, this will look like a much better deal.

The energy file promises to be a flashpoint as the Ontario election campaign heats up.

Our nuclear plants, responsible for almost half of the province’s power on any given day, are aging, the Liberals have now promised to close coal plants by 2014.

Meanwhile, wind and solar power output is negligible so far, and won’t solve this province’s thirst for energy at any point in the future.

Since the Samsung deal was signed, the Tories have vowed to kill the contract and start over.

The NDP want Ontario out of nuclear and are promising $1 billion in cash to retrofit Ontarians houses to conserve energy.

And the province’s energy future is still completely up in the air.

This file should electrify the election.

27 thoughts on “Samsung deal will spark election

  1. The Samsung deal was so bad for Ontario that McGuinty has to renegotiate it every couple of months….Thanx to Hudak for holding his feet to the fire on this corrupt deal…A lot of the temporary jobs created will turn into permanent green jobs as they will need to have people canvassing all the Wind Farms to count all the bird carcasses that these bird chopper wind turbines create during their killing sprees….

  2. http://ca.news.yahoo.com/ontario-renegotiates-samsung-deal-200657551.html
    “The government said it has given Samsung a one-year extension in getting its wind and solar projects online because of problems getting approvals and agreements with local First Nations.”

    This appears to be a sticking point. It seems the First Nation people have more common sense than everyone and no mention is made of this. So now Samsung is going on a ‘hard sell’. What is the offer here going to be. If the First Nation refuse the Samsung offers, there will still be no deal to get done???? Seems we could use First Nation help to prevent this disaster! Anybody to check this out?

  3. These high cost give aways affect us all. It is not just electricity costing more but consumer goods. Electricity is used somewhere in the process of getting goods to market.

  4. Duguids big announcement back in January 2009 was that Samsung had struck a 40 million dollar renewables deal in Oshweken and eventurally First Nations pulled back. Samsung had been negotiating with them for a long time, before anyone else even knew what was happening. I suspect that Duguid who was Minister of Aboriginal Affairs prior to his flip to Energy minister was in the background orchestrating the whole thing and by Jan. they had signed a memorandum of understanding.
    Only they can say why they backed away but it could be anything. I suspect they realized that they were being used right from the get go and the knowledge that existing wind projects were harming the environment, wildlife and human life was starting to spread. Or maybe Samsung just wouldn’t offer a decent royalty outside of the usual 1 or 2 percent as they had noted at the time….who knows?
    Now Samsung is taking over some of the wind projects that are already in line in the name of Pattern energy. I believe Kingsbridge 2 in the Goderich area is one of them. Kingsbridge 1 was owned by Epcor then changed to Capital Power and now we have Pattern Energy (Samsung)
    It’s a big expensive game and we are the big paying losers.
    Someone closer to Ontarios west coast may have more info on Samsung/Pattern.
    (P.S. Thank you First Nations for having the respect and integrity for leaving that relationship alone. I am sure you will not regret it.)

  5. Liberal Green Act causing unnecessary hardship for Canada.
    (Citizens should recognize this – and boot the Liberals out of power).

    – wishfully thinking they can argue:
    both Mesa and the Government of Japan argue the electricity contracts do not count as provincial procurement.

    This little piggy went to market – this little piggy stayed home –
    and, this little piggy went sniffling –
    all the way to the World Trade Organization (WTO)

    On the world stage!
    The WTO – could come under the microscope –
    so – who is this panel of wise old owls?

    Harper conservatives have said, they will vigorously defend Canada.

    Under NAFTA rules, foreign investors can sue the federal government if provinces discriminate against them. Provinces can have local content rules for their own procurement programs, but both Mesa and the Government of Japan argue the electricity contracts do not count as provincial procurement.

    “Provinces are not directly bound [by trade agreements] but Canada is bound and Canada can be found to be in violation of its trade obligations as a result of actions by the province,” said trade lawyer Lawrence Herman with Toronto-based Cassels Brock & Blackwell LLP .
    http://www.theglobeandmail.com/report-on-business/industry-news/energy-and-resources/oil-tycoon-takes-on-ontario-green-energy-act-over-wind-farm/article2097575/

  6. But the crux of the biscuit is that windmills don’t work. They can never supply enough power to run a growing country unless there is one for every house in Canada and a few dozen for every building. This wholesale rush to ‘green’ energy is misguided and nothing more than a vote getter from the left.

    So far the every single policy from the left has brought us at best dramatic failure and at worst disaster.

    Voting for the left is like voting for cancer. The idiots of the left seem to have some sort of emotional or mental disorder whereby they cannot see reality when it hits them in the face not to mention the wallet.

    • Hey John West – you make an interesting point – to ponder
      Is he – or isn’t he?
      Crazy or insane – open for debate
      http://www.merriam-webster.com/dictionary/insanity

      Ontario Citizens can judge for themselves!

      The fact Prime Minister Stephen Harper just called for his head on a Conservative plate doesn’t faze Premier Dalton McGuinty.
      Mr. McGuinty quote: I’m just going to stay focused on my responsibilities and do what I think is right for Ontarians.” Jonathan Jenkins, The Toronto Sun, Friday Aug. 5, 2011

      Well – I know what I think.
      Vote Conservative!

    • Vampire Economics..it sustains itself by sucking the life out of the existing economy of it’s host
      Then goes on to find another country.
      Won’t be enough IWTs..because wind blows where it blows in order to get power at all you need IWTs everywhere to power 27% of it’s claimed capacity…and then you need coal or gas backup for the other 73%…..so not only doesn’t it work buty it doesn’t reduce GHG’s
      But once we get past all the silly spin…we had clean ,air , have clean air. We also have and had power.
      There has never been need to conserve….never.
      There one thing that keeps going off the radar.
      Business was not selling us power at a profit…NAFTA allowed foreign companies to deregulate Ontario Hydro….
      The scam and spin is that….we talk conservation , GHG’s , sustainable this and that..what we don’t talk about is why McGuinty was elected in the FIRST place..to STOP the privatization of our power system

      These guys are really really good….you have to admire a well thought out plan.

    • These inflated FIT contracts are worth a lot of money and can be sold over and over in both private and public company deals. Each time a contract/wind farm is flipped it brings in a lot of money for the owner/owners.

      Texas is having a difficult time keeping the lights on and ACs going this summer

      • Barbara…got to admire you ….go girl!
        Paper profits….they put the dollars in the bank and we pay the bill.
        It is so..”conspiracy theory like” that feel foolish talking about it because people just stare at you.

        No Virginia your Government never lies to you.

  7. So much for Dalton’s green jobs. Just saw this comment from Roger, who works in the solar industry:
    “i just finished working on a solar farm in peterborough,McGuinty’s claim of bringing good green jobs here is a joke.the screws that supported the panels were brought in from Germany,the panels came from china and the steel to put them together came from mexico.Not many good canadian jobs there ..They were assembled in peterborough by labour ready workers making minimun wage,even the truck drivers who brought them to the site made only 12 $ an hour.The only ones that made good money were the construction workers on site.After construction it will only have one or two people on site,So the math is 50 million $ for a 300 acre site producing 10 M W [ daytime only] to employ possibly 2 people fulltime,at a cost of 44 cents a kw. hour for 20 years.sounds like a great deal.”

    http://www.torontosun.com/2011/08/04/mcguinty-says-tories-need-to-brighten-up#disqus_thread

  8. Td overview….Karen and Barbara

    Cap Power Providing leases
    Samsung and Pattern energy providing line access and
    purchase power agreement(PPA).

    Capital Power Corp.
    (CPX-T) C$23.23
    K2 Wind Project Receives PPA From the OPA
    Event
    â?¢ Capital Powerâ?Ts 270 MW wind power project (the
    K2 project) has
    received a 20-year Power Purchase Agreement (PPA) from the
    Ontario
    Power Authority (OPA).
    â?¢ Capital Power will partner with Samsung Renewable
    Energy Inc.
    (Samsung) and Pattern Renewable Holdings Canada ULC
    (Pattern) to
    develop the K2 project.
    Impact
    POTENTIALLY POSTIVE. Assuming all approvals are received,
    once
    fully brought into service, the K2 project could contribute
    a few cents to EPS
    annually based on standard project economics.
    Details
    K2 Project Details:
    â?¢ Project Description: The 270 MW K2 project will be
    located in the
    Township of Ashfield-Colborne-Wawanosh in southwestern
    Ontario.
    Assuming a 35% capacity factor, the project could generate
    approximately 828 GWh of generation annually.
    â?¢ Partnership Details: Capital Power has entered into
    a limited
    partnership for the development, construction and operation
    of the K2
    project with Samsung and Pattern. Capital Power will
    continue to
    spearhead the provincial Renewable Energy Approval (REA)
    process for
    the project and Samsung will serve as the engineering,
    procurement and
    construction contractor. The partnership will finalize the
    turbine model
    and supplier.
    â?¢ Ownership: Capital Power, Samsung, and Pattern will
    each have an
    equal economic interest in the project. Capital Power will
    contribute the
    project lease agreements and the development work completed
    to date,
    while Samsung and Pattern will contribute the PPA and
    transmission
    access rights. It is our understanding that all parties will
    continue to be
    long-term stakeholders in the project.
    Pipelines, Power & Utilities
    Recommendation: HOLD
    Unchanged
    Risk: MEDIUM
    12-Month Target Price: C$27.00
    Unchanged
    12-Month Total Return: 21.7%
    Market Data (C$)
    Current Price $23.23
    52-Wk Range $22.26-$28.00
    Mkt Cap (f.d.)($mm) $2,251.0
    Dividend per Share $1.26
    Dividend Yield 5.4%
    Avg. Daily Trading Vol. (3mths) 175247
    Financial Data (C$)
    Fiscal Y-E December
    Shares O/S (f.d.)(mm) 96.9
    Float Shares (mm) 49.5
    Net Debt/Tot Cap 34.8%
    Estimates (C$)
    Year 2010A 2011E 2012E 2013E
    EBITDA ($mm) 424.0 505.2 459.5 572.8
    EPS (basic) 1.38 1.27 1.50 1.68
    AFFO/Shr 2.77 2.10 2.49 3.01
    EPS (basic) Quarterly Estimates (C$)
    Year 2010A 2011E 2012E 2013E
    Q1 0.55 0.33 — —
    Q2 0.05 0.07 — —
    Q3 0.48 0.56 — —
    Q4 0.24 — — —
    Valuations
    Year 2010A 2011E 2012E 2013E
    P/E (basic) 16.8x 18.3x 15.5x 13.8x
    P/AFFO 8.4x 11.1x 9.3x 7.7x
    Notes:Financial estimates are based on IFRS.
    All figures in C$, unless otherwise specified.
    Action Notes August 5, 2011
    Equity Research 143 of 190
    â?¢ Costs and Timing: The project has an expected
    capital cost of $750-$900 million, and capital cost risk
    will be shared by all the partners. The company expects
    construction to begin in 2013, with commercial
    operation in 2014.
    â?¢ Financing: Although financing details are not
    finalized, management stated that most of the capital cost
    will be funded using project financing. We assume that all
    interest will be capitalized during construction,
    with long-term financing put in place once the project is
    completed (using 40-50% debt-tocapitalization).
    â?¢ Returns and Contract Pricing: Capital Powerâ?Ts
    previously disclosed internal rate of return (IRR) for
    contracted, lower-risk opportunities is an 8% unlevered,
    after-tax IRR. Under the 20-year PPA, the K2
    project will receive $135 per MWh.
    â?¢ Approvals: Construction of the K2 project is subject
    to obtaining the necessary corporate approvals, the
    receipt of regulatory approvals, and the execution of
    definitive agreements, which includes the
    completion of the Ontario REA process.
    Valuation
    Exhibit 1. Capital Power Valuation
    Curr. Shares Market Ind. Book EPS (f.d.) P/E EPS P/E
    Symbol Price O/S (mm) Cap (mm) Div. Yield Value P/BV 2009A
    2010A 2011E 2012E 2009A 2010A 2011E 2012E For. E Forward
    CPX $23.23 96.9 $2,251 $1.26 5.4% $21.63 1.1 $0.60 $1.38
    $1.27 $1.50 n.a. 16.8x 18.3x 15.5x $1.40 16.6x
    ACO.X $60.40 57.7 $3,485 $1.14 1.9% $36.43 1.7 $4.63 $4.88
    $5.07 $5.56 13.0x 12.4x 11.9x 10.9x $5.36 11.3x
    CU $55.70 127.5 $7,101 $1.61 2.9% $24.43 2.3 $3.26 $3.28
    $3.45 $3.86 17.1x 17.0x 16.2x 14.4x $3.69 15.1x
    EMA $30.59 126.7 $3,876 $1.30 4.2% $13.65 2.2 $1.52 $1.65
    $1.73 $1.81 20.1x 18.5x 17.7x 16.9x $1.78 17.2x
    ENB $30.19 758.0 $22,884 $0.98 3.2% $20.48 1.5 $1.15 $1.32
    $1.42 $1.52 26.2x 22.9x 21.3x 19.9x $1.48 20.4x
    FTS $30.70 186.3 $5,719 $1.16 3.8% $20.20 1.5 $1.48 $1.60
    $1.63 $1.75 20.7x 19.2x 18.9x 17.6x $1.70 18.1x
    TA $20.66 222.0 $4,587 $1.16 5.6% $12.49 1.7 $0.88 $0.88
    $1.12 $1.13 23.4x 23.5x 18.4x 18.3x $1.13 18.4x
    TRP $39.17 703.0 $27,537 $1.68 4.3% $22.54 1.7 $2.02 $1.97
    $2.20 $2.30 19.4x 19.9x 17.8x 17.0x $2.26 17.3x
    Avg. 4.2% 1.7x 21.2x 19.7x 18.4x 17.1x 17.6x
    Notes:
    1) Averages exclude ATCO due to its holding company nature.
    Source: Thomson, TD Newcrest.
    Justification of Target Price
    Our $27.00 target is predicated on 50% of each of our 2012
    and 2013 financial estimates as follows: 1) 25%
    EV/EBITDA multiple of 9.0x, 2) 25% relative dividend yield
    of 160%, and 3) 50% free-cash-flow yield of
    10.0%. Our target incorporates a 3.5% 10-year Government of
    Canada bond yield.
    Key Risks to Target Price
    1) Materially different-than-expected long bond yields, 2)
    acquisitions that do not create shareholder value, 3)
    operational disruptions, 4) materially
    different-than-expected power prices, 5) unanticipated
    changes to
    environmental laws and regulations, and 6) escalating
    construction costs.
    Investment Conclusion
    In our view, the award of a PPA contract to Capital
    Powerâ?Ts K2 project is positive as the project could
    add a
    source of relatively low-risk, stable cash flows and
    diversify the business mix away from the Companyâ?Ts
    merchant generation.
    Going forward, Capital Powerâ?Ts refined strategic plan
    should facilitate continued strong competitive
    positioning for new assets. In the medium term, Capital
    Power has the highest positive leverage to any
    sustained recovery in Alberta power prices under our
    coverage and the recent U.S. acquisitions provide the
    company with exposure to a potential recovery in New England
    power prices. Our investment thesis is based
    on our view of the companyâ?Ts quality assets,
    straightforward business model, growth potential, and
    attractive
    dividend yield.

    Capital Power Corp.
    (CPX-T) C$23.23
    K2 Wind Project Receives PPA From the OPA
    Event
    â?¢ Capital Powerâ?Ts 270 MW wind power project (the
    K2 project) has
    received a 20-year Power Purchase Agreement (PPA) from the
    Ontario
    Power Authority (OPA).
    â?¢ Capital Power will partner with Samsung Renewable
    Energy Inc.
    (Samsung) and Pattern Renewable Holdings Canada ULC
    (Pattern) to
    develop the K2 project.
    Impact
    POTENTIALLY POSTIVE. Assuming all approvals are received,
    once
    fully brought into service, the K2 project could contribute
    a few cents to EPS
    annually based on standard project economics.
    Details
    K2 Project Details:
    â?¢ Project Description: The 270 MW K2 project will be
    located in the
    Township of Ashfield-Colborne-Wawanosh in southwestern
    Ontario.
    Assuming a 35% capacity factor, the project could generate
    approximately 828 GWh of generation annually.
    â?¢ Partnership Details: Capital Power has entered into
    a limited
    partnership for the development, construction and operation
    of the K2
    project with Samsung and Pattern. Capital Power will
    continue to
    spearhead the provincial Renewable Energy Approval (REA)
    process for
    the project and Samsung will serve as the engineering,
    procurement and
    construction contractor. The partnership will finalize the
    turbine model
    and supplier.
    â?¢ Ownership: Capital Power, Samsung, and Pattern will
    each have an
    equal economic interest in the project. Capital Power will
    contribute the
    project lease agreements and the development work completed
    to date,
    while Samsung and Pattern will contribute the PPA and
    transmission
    access rights. It is our understanding that all parties will
    continue to be
    long-term stakeholders in the project.
    Pipelines, Power & Utilities
    Recommendation: HOLD
    Unchanged
    Risk: MEDIUM
    12-Month Target Price: C$27.00
    Unchanged
    12-Month Total Return: 21.7%
    Market Data (C$)
    Current Price $23.23
    52-Wk Range $22.26-$28.00
    Mkt Cap (f.d.)($mm) $2,251.0
    Dividend per Share $1.26
    Dividend Yield 5.4%
    Avg. Daily Trading Vol. (3mths) 175247
    Financial Data (C$)
    Fiscal Y-E December
    Shares O/S (f.d.)(mm) 96.9
    Float Shares (mm) 49.5
    Net Debt/Tot Cap 34.8%
    Estimates (C$)
    Year 2010A 2011E 2012E 2013E
    EBITDA ($mm) 424.0 505.2 459.5 572.8
    EPS (basic) 1.38 1.27 1.50 1.68
    AFFO/Shr 2.77 2.10 2.49 3.01
    EPS (basic) Quarterly Estimates (C$)
    Year 2010A 2011E 2012E 2013E
    Q1 0.55 0.33 — —
    Q2 0.05 0.07 — —
    Q3 0.48 0.56 — —
    Q4 0.24 — — —
    Valuations
    Year 2010A 2011E 2012E 2013E
    P/E (basic) 16.8x 18.3x 15.5x 13.8x
    P/AFFO 8.4x 11.1x 9.3x 7.7x
    Notes:Financial estimates are based on IFRS.
    All figures in C$, unless otherwise specified.
    Action Notes August 5, 2011
    Equity Research 143 of 190
    â?¢ Costs and Timing: The project has an expected
    capital cost of $750-$900 million, and capital cost risk
    will be shared by all the partners. The company expects
    construction to begin in 2013, with commercial
    operation in 2014.
    â?¢ Financing: Although financing details are not
    finalized, management stated that most of the capital cost
    will be funded using project financing. We assume that all
    interest will be capitalized during construction,
    with long-term financing put in place once the project is
    completed (using 40-50% debt-tocapitalization).
    â?¢ Returns and Contract Pricing: Capital Powerâ?Ts
    previously disclosed internal rate of return (IRR) for
    contracted, lower-risk opportunities is an 8% unlevered,
    after-tax IRR. Under the 20-year PPA, the K2
    project will receive $135 per MWh.
    â?¢ Approvals: Construction of the K2 project is subject
    to obtaining the necessary corporate approvals, the
    receipt of regulatory approvals, and the execution of
    definitive agreements, which includes the
    completion of the Ontario REA process.
    Valuation
    Exhibit 1. Capital Power Valuation
    Curr. Shares Market Ind. Book EPS (f.d.) P/E EPS P/E
    Symbol Price O/S (mm) Cap (mm) Div. Yield Value P/BV 2009A
    2010A 2011E 2012E 2009A 2010A 2011E 2012E For. E Forward
    CPX $23.23 96.9 $2,251 $1.26 5.4% $21.63 1.1 $0.60 $1.38
    $1.27 $1.50 n.a. 16.8x 18.3x 15.5x $1.40 16.6x
    ACO.X $60.40 57.7 $3,485 $1.14 1.9% $36.43 1.7 $4.63 $4.88
    $5.07 $5.56 13.0x 12.4x 11.9x 10.9x $5.36 11.3x
    CU $55.70 127.5 $7,101 $1.61 2.9% $24.43 2.3 $3.26 $3.28
    $3.45 $3.86 17.1x 17.0x 16.2x 14.4x $3.69 15.1x
    EMA $30.59 126.7 $3,876 $1.30 4.2% $13.65 2.2 $1.52 $1.65
    $1.73 $1.81 20.1x 18.5x 17.7x 16.9x $1.78 17.2x
    ENB $30.19 758.0 $22,884 $0.98 3.2% $20.48 1.5 $1.15 $1.32
    $1.42 $1.52 26.2x 22.9x 21.3x 19.9x $1.48 20.4x
    FTS $30.70 186.3 $5,719 $1.16 3.8% $20.20 1.5 $1.48 $1.60
    $1.63 $1.75 20.7x 19.2x 18.9x 17.6x $1.70 18.1x
    TA $20.66 222.0 $4,587 $1.16 5.6% $12.49 1.7 $0.88 $0.88
    $1.12 $1.13 23.4x 23.5x 18.4x 18.3x $1.13 18.4x
    TRP $39.17 703.0 $27,537 $1.68 4.3% $22.54 1.7 $2.02 $1.97
    $2.20 $2.30 19.4x 19.9x 17.8x 17.0x $2.26 17.3x
    Avg. 4.2% 1.7x 21.2x 19.7x 18.4x 17.1x 17.6x
    Notes:
    1) Averages exclude ATCO due to its holding company nature.
    Source: Thomson, TD Newcrest.
    Justification of Target Price
    Our $27.00 target is predicated on 50% of each of our 2012
    and 2013 financial estimates as follows: 1) 25%
    EV/EBITDA multiple of 9.0x, 2) 25% relative dividend yield
    of 160%, and 3) 50% free-cash-flow yield of
    10.0%. Our target incorporates a 3.5% 10-year Government of
    Canada bond yield.
    Key Risks to Target Price
    1) Materially different-than-expected long bond yields, 2)
    acquisitions that do not create shareholder value, 3)
    operational disruptions, 4) materially
    different-than-expected power prices, 5) unanticipated
    changes to
    environmental laws and regulations, and 6) escalating
    construction costs.
    Investment Conclusion
    In our view, the award of a PPA contract to Capital
    Powerâ?Ts K2 project is positive as the project could
    add a
    source of relatively low-risk, stable cash flows and
    diversify the business mix away from the Companyâ?Ts
    merchant generation.
    Going forward, Capital Powerâ?Ts refined strategic plan
    should facilitate continued strong competitive
    positioning for new assets. In the medium term, Capital
    Power has the highest positive leverage to any
    sustained recovery in Alberta power prices under our
    coverage and the recent U.S. acquisitions provide the
    company with exposure to a potential recovery in New England
    power prices. Our investment thesis is based
    on our view of the companyâ?Ts quality assets,
    straightforward business model, growth potential, and
    attractive
    dividend yield.

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