$12B COAL WARNING
High price put on phase-out
Premier Rachel Notley scoffed at an analyst’s report Wednesday that power generators will forgo $12 billion in lost revenue if the government shuts down Alberta’s coal-fired power plants early, but she wouldn’t say just how much the province is willing to pay to compensate them.
An Industrial Alliance Securities Inc. report says the accelerated phase-out of coal-fired plants “will result in $12 billion of forgone revenue to plant owners,” although the amount sought as compensation could be significantly less.
Notley told reporters at a climate change discussion at an Edmonton school that the $12-billion figure seems “rather generous.”
“I am not going to get into public negotiations with people and particular players, but I would suggest that number is exceptionally higher than any number that we have considered,” she said.
“It’s also not surprising that people are going to start counting up every dollar that they can possibly attribute to this in making their case, but it’s not our intention to negotiate on that basis.”
The NDP government’s new climate change strategy unveiled this week calls for the mandatory end of emissions from Alberta coal-fired electrical plants by 2030.
The government promised companies would be treated fairly in the process, “ensuring that capital is not unnecessarily stranded.”
Report author Jeremy Rosenfield said that after subtracting power plant expenses, maintenance costs and economic discounts, Alberta’s policy changes may cost the industry $4 billion to $5 billion.
“There are some very large numbers here and it depends on how things are going to be calculated,” Rosenfield said in an interview. “We are talking about billions of dollars.”
That number is exceptionally higher than any number that we have considered. PREMIER RACHEL NOTLEY
He estimated the costs to Edmonton-based Capital Power at $2 billion, about $1 billion to Calgarybased TransAlta Corp., while other electricity producers would also be affected.
A mediator will be hired to determine what compensation may be required. It’s unclear who that will be or when that would take place.
“I think we’ll have those answers in the coming days,” said Environment Minister Shannon Phillips. “It’s a matter for all of government to consider.”
But she said the $12-billion number “sounds pretty high.”
Rosenfield said the $12 billion in forgone revenue is “the shock number,” but the amount of money the newer power plants would have generated is significant, regardless of how it’s calculated.
“That doesn’t necessarily mean the government will see fit to provide that level of compensation.”
Existing federal regulations would require 12 of 18 of the province’s coal-power plants to close by 2030, but proposed provincial rules will affect six Alberta facilities that would have been able to operate until as late as 2061.
Notley said the federal regulations were already going to “significantly limit growth and the continuation of coal” — regulations limiting the life of coal-fired plants to 50 years as well as expected new air quality rules.
“There is work afoot with respect to the air quality regulations that are being imposed and that would likely have also affected the viability of some of the players,” the premier said.
Evan Bahry, executive director of the Independent Power Producers Society of Alberta, noted in an email that the Alberta government has communicated its intent to treat coal generators fairly as it accelerates the retirement of their investments.
“This is welcomed by IPPSA and its affected members,” he said. “How the government treats coal owners will be an important signal for all businesses in Alberta.”
Rosenfield noted it’s unknown what form any compensation will take, from lump sum or contingent payments to a contract to build new power capacity or a loan guarantee.
But he said the NDP’s promise to negotiate indicates the government recognizes that private capital has made significant investments in the province.
“They’re saying we recognize there’s going to be a harm done to businesses by this decision.”
But Chris Severson-Baker, Alberta director at the Pembina Institute, said the province has no obligation to pay power plant operators, noting many older facilities were already facing shutdown and their invested capital will have been paid out.
Newer merchant plants were built by operators who understood the risks of future government action to tackle climate change, he added.
“I don’t think there’s any requirement to compensate,” Severson Baker said.
Wildrose Leader Brian Jean said taxpayers should not be stuck with a bill for compensation.
“That’s not a bill taxpayers should pay,” he said. “Taking a more accelerated approach than the United States on coal is not the answer. We’re a small portion of greenhouse gas emissions for coal.”
He said Alberta could avoid paying compensation and killing coalindustry jobs by allowing a longer term phase-out.
But Liberal Leader David Swann said compensating power plants to shut down may well be worth it in terms of reducing emissions and improving air quality if the amounts are reasonable.