Coal plan needs a lot more work

Jun 24, 2010

This article first appeared in the Financial Post on June 24, 2010.

TransAlta supports the need to lower emissions from Canada’s power sector.  The aggressive plan for older coal plants proposed by the federal government accomplishes that goal.  It’s a bold plan and as such it means there is also a lot of work yet to be done to ensure the proposal is effective and fair to consumers and investors.  A critical requirement will be to maintain the reliability and affordability of our electricity infrastructure to ensure Canada – and Alberta – remain economically competitive.

Under Ottawa’s proposal, power companies would have to close their coal-fired facilities at 45 years of age, or the end of their power purchase arrangement, if that were later. Companies would be prohibited, under the “cap and close” regulation, from making investments to extend the lives of those plants unless green house gas emission levels can be reduced to the equivalent of those of natural gas combined cycle plants.

The opportunity exists to replace older coal plants with natural gas generation as well as through investments in renewable and clean coal technologies.  Our goal is to physically cut CO2 emissions while continuing to provide our customers with long-term reliable supply without price shocks.

To realize these opportunities and achieve our goal, industry and government now need to work out several issues to ensure Canada’s environmental – and economic – leadership.

1.  We need to find a way to deal fairly with the accelerated capital stock turnover and operating transition costs involved in such a radical change of course for Canada’s power generation industry. In Alberta, this includes addressing the impacts of the federal government’s plan on the power purchase arrangements that govern 40 per cent of the province’s generating capability so customers continue to enjoy the high level of reliability and companies aren’t left with stranded investments in their facilities.

2.  We need to set the long-term emission requirements that will be applicable to natural gas facilities. Without these standards, private capital cannot make the necessary investments to renew the generation mix for fear that 10 years down the road the standards will be changed and the economics of their investments will be severely impaired.

3.  We need to continue exploring the potential of clean coal technologies to permit Canada to continue to benefit from its vast (more than 1,000 years in Alberta) reserves of coal – if it can be done in a cost effective manner that doesn’t increase emissions.
The plan Ottawa released this week regulates coal only and does not provide a broader market place mechanism for pricing carbon. The latter is critical so that investment decisions can be made on technologies to reduce CO2 emissions.  An important example is carbon capture and storage (CCS).  The next few years should tell us whether CCS can be part of Canada’s strategy for clean, reliable and low cost energy.  We should not set emissions reduction timeframes that do not allow sufficient time for CCS technologies to be developed. As such, we believe it is important that the new policy framework recognize and encourage ongoing work in this important area.

We are prepared to work with both the federal and Alberta governments to develop the details of how this coal emission reduction plan could be implemented.  There’s a lot still to do to ensure that Canada’s electricity system can transition to cleaner generation sources, including clean coal, in an efficient and equitable manner.

Climate change is a global issue that requires decisive policy reform. The proposed federal plan delivers on that requirement.  It’s an aggressive plan for a cleaner energy future.  However, the significance of the transition proposed should not be under-estimated.  There will be challenges and bumps on the road.  As a result, government and industry will have to work together to minimize the impacts on consumers and our economy.  We must keep Canada – and Alberta – competitive. We all need to now roll up our sleeves and go to work and put into place a transition that is fair and orderly for all.  The benefit to our environment is worthy of that effort.

 – Steve G. Snyder, president and CEO, TransAlta Corporation, Calgary, AB

Steve Snyder – President and CEO
June 24, 2010