Coal’s picture turns darker in the new environmentally activist West.
Coal-fired power plants fear new Alberta rules
No matter how this story ends, it’s not good for us
Brian Vaasjo is concerned about stranded assets.
Despite standing alongside Alberta Environment Minister Shannon Phillips as she described the beginnings of her government’s new climate change strategy at a news conference, the CEO of Capital Power Corp. is worried the government could force the early retirement of his company’s coal-fired power plants.
“I would say that we are concerned about it,” Vaasjo said in an interview following the announcement Thursday. “The fact of the matter is that, no matter how this story ends, it’s not good for us as a coal plant owner.”
A few hours earlier, Phillips had unveiled a new advisory panel on climate change would consider regulations that could speed up the decommissioning of coal-fired power plants in Alberta. “That will form part of the review,” Phillips said.
The province also hiked the price large emitters pay to pollute from $15 per tonne of CO2 this year to $30 per tonne in 2017 and required emitters to reduce greenhouse gas emissions by 20 per cent.
Every company generating electricity from coal in Alberta is preparing to move to other power sources — in the long run.
Under current regulations, coal power will represent 12 per cent of the province’s supply mix by 2030 compared with 40 per cent today, TransAlta Corp. president and CEO Dawn Farrell said in a statement earlier in the month.
These retirements will keep more Albertan coal in the ground, though there’s at least one company in the province, privately held Coalspur Mines, which is planning to export coal from a proposed mine to power markets in Asia.
Coalspur’s proposed Vista mine would produce bituminous coal, which is a highervalue product and can produce more energy than the sub-bituminous coal mined and burned by TransAlta and other utilities in Alberta. Analysts have said that weak prices for sub-bituminous coal make it an unlikely commodity for export.
The new regulations increase the urgency for Capital Power to transition away from coal, Vaasjo says, compelling the company to commission another wind farm by 2021.
He also said there are steps the government can take in the near term that will cause coal power producers to reduce their absolute emissions — which is one of the goals of the new government’s climate change strategy.
One option analysts have pointed to is hiking the royalty rates coal miners are charged to extract the hydrocarbon in Alberta in the royalty review announced Friday, which would make powering coal plants more expensive relative to cleaner-burning natural gas.
Another option that Phillips said is on the table, and which is causing Vaasjo and his peers some alarm, is speeding up the retirement of existing coal plants, which currently have a federally mandated maximum lifetime of 50 years.
This is concerning for Capital Power, Vaasjo said, given that his company spent $1.6 billion alongside TransAlta to build the Keephills 3 coal-fired power plant, which began generating electricity in 2011.
An accelerated phase out of coal-fired power generation in the province would likely halve the economic life of that project, he said, and many other coal-fired generating stations in the province would be affected too.
“We would hope the government respects investments made in good faith,” said Evan Bahry, executive director of the Independent Power Producers Society of Alberta. “To impact the economics of an investor’s asset, whether it’s a pizza shop or a power plant, you have the same risk of investor chill.”
Max i m Po we r Corp. president and CEO John Bobenic said Ontario had to compensate coal plant owners when the province phased out the power source, but he doesn’t think there’s an appetite to do the same in Alberta. He also said his company would be unaffected by early retirements as Maxim plans to transition its coal plant near Grande Cache, Alta., to natural gas in 2019.
RBC Capital Markets analyst Robert Kwan said in a research note earlier this month that share prices of power producers could be negatively affected if Alberta’s new government considers imposing a 40-year
We would hope the government respects investments made in good faith
lifespan on the province’s coal plants when it unveils its climate change plan.
Shares of Capital Power are down around 14 per cent year-to-date, while TransAlta is down around five per cent. Maxim Power shares are virtually flat for the year.
Curtailing the lifespan would force the retirement of 2,600 megawatts of coal-fired electricity by 2020, he said, which would be replaced by additional renewable energy capacity like wind and create incremental demand of roughly one billion cubic feet of natural gas per day as a source of electricity.
Data released by Alberta Environment and Parks on Thursday show that coal power continues to be the largest single source of emissions in Alberta, pumping 40.9 million tonnes of CO2 into the atmosphere in 2014. The ministry said natural gas power plants produced 1.3 million tonnes of carbon emissions in 2014.
Older coal plants produce 1,000 to 1,200 tonnes of carbon emissions per gigawatt hour of electricity produced, which is roughly double the 400 to 420 tonnes of C02 produced by natural gas cogeneration facilities, according to the The Pembina Institute’s electricity program director Ben Thibault.
For Capital Power, Vaasjo said the company is actively looking to invest in renewable and natural gas power, but can’t shake the worry about early coal plant retirement, which is part of the reason he participated in Thursday’s climate change announcement.
“We do recognize that it’s on the table and that’s one of the reasons why we’re fully participating in this process to ensure that all consequences and unintended consequences are understood,” Vaasjo said.