Regina 鈥� The Canadian Centre for Policy Alternatives, an Ottawa-based thinktank with a Regina office, put out a paper on Feb. 10 critical of the Boundary Dam Integrated Carbon Capture and Storage Project.
Entitled SaskPower鈥檚 Carbon Capture Project 鈥� What Risk? What Reward? the paper runs 24 pages. Brian Banks and Mark Bigland-Pritchard authored the report.
The report suggested the province of Saskatchewan would have been better off investing in wind-powered electrical generation or at least combined-cycle natural gas. The largest benefactor of the risky project was the oil company benefitting from CO2-enhanced oil recovery, and the province is committed to the development of fossil fuels over any other alternatives.
The report鈥檚 introduction makes the point of the escalating costs of the project 鈥� first announced on April 26, 2011 as a $1.24 billion project, then rising to $1.4 billion.
(On Feb. 11 SaskPower reported the total cost is $1.467 billion, which includes $240 million in federal contributions.)
The paper sought to assess the 鈥渇inancial, environmental and technical risks of SaskPower鈥檚 CCS project versus the potential rewards/benefits of expenditures exceeding $1.4 billion.鈥�
They authors ask, 鈥淲hat are the current and future impacts on SaskPower鈥檚 finances? How will project costs affect electrical rates and ratepayers in years to come? Are the publicized environmental benefits as positive as claimed? Who is the major benefactor of the CCS facility?鈥�
Of 55 carbon capture and storage projects in various stages of planning or construction world-wide. Only one project, Boundary Dam, is a CCS post combustion coal-fired plant: other such projects have been abandoned or postponed for cost reasons, they note. Most American projects are intended for enhanced oil recovery, while Chinese, European and Korean projects intend to use deep saline storage similar to the associated Aquistore project that is part of the Boundary Dam initiative.
The Kemper County Energy Facility, which envisions carbon capture as part of a coal gasification system, is now expected to cost US$6 billion, double its initial budget.
鈥淭he necessary preconditions to take CCS in North America to the next stage of development are: high North American natural gas prices (low natural gas prices make it more desirable as a fuel); continued logistical or policy barriers to low-cost renewables such as wind power; available indigenous low rank coals; a desire to control or lower CO2 emissions; either a serious carbon pricing regime or nearby oil fields that would purchase the CO2 for enhanced oil recovery projects; and suitable geological formations for CO2 disposal. Without these conditions being present, second generation CCS coal-fired plants are highly unlikely,鈥� the paper states.
Low-cost natural gas makes coal less competitive as a fuel. However, 鈥淎part from Boundary Dam 3, remaining coal-fired capacity in Saskatchewan amounts to 1285 MW: 427 MW at Boundary Dam 5 and 6, 582 MW at Poplar River and 276 MW at Shand. Canadian regulations exclude renewal of these plants after their retirement dates if CCS is not installed: hence the choice will be between permanent shutdown and a problematic CCS conversion process.鈥�
Canadian regulations require that all new and any retrofitted coal-fired units must meet carbon dioxide emissions guidelines that can only be met with carbon capture and storage. If they are not retrofitted by their retirement date, they must be shut down.
鈥淭hese regulations could enable CCS in the USA and in coal-dependent Canadian provinces (principally Alberta and Saskatchewan); but whether it will generate new out-of-province revenue streams for SaskPower depends on whether the corporation has any significant intellectual property rights over the technology,鈥� the paper said, adding, 鈥淭he main reason the utility industry is resisting the new standards and CCS is that it forces coal to compete with natural gas and could raise wholesale electricity prices by as much as 80 per cent. The US Energy Department admits that first generation CCS technologies have a captured cost of carbon dioxide of between $70 and $90 per tonne for wholesale electricity. Given the current absence of serious carbon-pricing schemes in the jurisdictions concerned, this is not good news for those wishing to sell CCS technology.鈥�
Financial risks
There was a lot of risk involved for SaskPower, a relatively small utility. The report noted, 鈥淭he $240 million contributed by the federal government covers only about one sixth of the costs. Investing $1.5 billion in experimental technology involves a high level of risk, especially for a company of SaskPower鈥檚 size.鈥�
They take aim at the ageing infrastructure argument SaskPower continually makes, stating, 鈥淎geing infrastructure is SaskPower鈥檚 mantra, oft repeated in its rate increase submissions and in its annual reports. The need to upgrade ageing infrastructure has been the corporation鈥檚 historic go to position when seeking rate increases. It is a given that whichever energy path SaskPower embarks on its infrastructure will have to be upgraded, preferably with smart grid technology 鈥� and that its demand projections indicate a need for new capacity. But what is ironic is that SaskPower decided to rebuild (at reduced capacity) one of its oldest coal-fired plants, Boundary Dam 3, rather than mothball it and build new, less expensive, less polluting electrical generation.鈥�
One area of the report is incorrect. It states, 鈥淚t is also interesting to note that in the 2013 Annual Report the corporation predicts that it will need to invest one billion annually in capital expenditures to update its system as a normal practice. One billion just happens to be the approximate cost of the CCS part of the Boundary Dam project. SaskPower closed Boundary Dam 4 in 2014 and it would have to be retrofitted with CCS in order to reopen. Such investment levels are not possible without significant additional rate increases. Can a corporation with a current debt of $5.5 billion responsibly take on annual investments of $1 billion annually?鈥�
Boundary Dam Unit 4 is still in operation, SaskPower has confirmed.
The authors take issue with the cost of coal versus wind stating, 鈥淚n its submission to the Rate Review Panel SaskPower admits the price for coal will increase in 2014 as contracts with producers expire and that was one of the additional reasons it applied for a three year rate increase. By sticking with coal-fired plants SaskPower will continue to face long term fuel input costs at a time when wind power, for example, is becoming more competitive.鈥�
They noted power rates are going up, and that SaskPower asked for a 15.5 per cent rate hike increase over three years, but, 鈥淐abinet later approved the first 5.5 per cent rate hike, but scaled back the 2015 increase from five to three per cent.鈥�
While potash and oil companies can pass on rate hikes, senior citizen condos cannot afford such high rate increases, the authors assert.
鈥淭he CCS plant will have a parasitic effect on SaskPower鈥檚 financial position for the next twenty years,鈥� the report states.
Financial rewards
The largest income line item in the balance sheet presented is the sale of carbon dioxide. The report stated, 鈥淪ale of CO2, estimated to be $450 million, may be too high. SaskPower has agreed to provide Cenovus Energy a million tonnes of CO2 per year for ten years, but the actual price per tonne has not been made public and it is not known whether Cenovus is able to lower the amount purchased at any time.
鈥淓stimates range in the neighborhood of $20 to $25 per tonne over 20 years: thus total revenues could be $400-$500 million. But it is also questionable whether the Weyburn field will have an additional twenty year life span even with enhanced oil recovery technologies are applied. Will Cenovus continue to operate its enhanced oil recovery operation should the price of oil drop below $70 per barrel for extended periods of time as low prices negatively affect profit margins? With West Texas Intermediate oil dipping below $50/barrel in early 2015 Cenovus may not purchase the contracted amounts of CO2, and as a result SaskPower will forego revenues and be required to inject the CO2 in its Aquistore site and take on additional operating costs. Many risk factors are at play regarding the sale of CO2.鈥�
Sulphuric acid sales pegged for the next 20 years are pegged at $60 million. Fly ash sales should not be attributed to the CCS project, but normal operation of the plant, they argue.
Similarly, the report questions if SaskPower will be able to monetize any of its knowledge gained at the Shand Carbon Capture Test Facility or at Boundary Dam.
The authors suggest that the Shand facility would not have been built without Boundary Dam CCS, and thus it should be included in the total bill.
The biggest financial beneficiary, according to the report, is the Cenovus-operated Weyburn Unit. 鈥淪askPower has taken on almost all of the financial risk but Cenovus will reap the greatest rewards.鈥�
Their calculations determine that oil production would remain at 30,000 barrels per day, resulting in an incremental increase of 10.9 million barrels per year of oil production as opposed to its 8,000 barrels per day production level in 1990. In 20 years, even at $50/barrel, this equates a potential gross revenue gain of $3.45 billion.
The report does not account for the SaskPower-sourced CO2 being in addition to the long-term Dakota Gasification Company-sourced CO2, or the possibility of production increasing as a result of having additional CO2 available for injection.
Environmental risks
Even though greenhouse gas emissions would be greatly reduced with CCS, that鈥檚 not good enough for the authors, who wrote, 鈥淭he pollution effects of coal mining, burning coal, venting coal gases, and disposing of ash and other residues are well known. Burning coal releases more GHGs than any other fossil fuel per unit, twice that of burning natural gas. With a 90 per cent capture rate coal plants with CCS emit CO2 at a rate 1/10 that of a conventional plant, but this is still a significant amount, perhaps as much as 140 tonnes of CO2 per GWh of power.鈥�
Air quality issues, water contamination from coal washing and disposal of fly ash in unlined landfills, land degradation from strip mining, occupational risks to works and community health hazards such as increased asthma, cancers and pulmonary disorders are all listed ad side effects of coal-fired power.
They stated, 鈥淭he health impact of these toxic substances has not been documented for Saskatchewan, but is most likely significant. The financial cost 鈥� in medical treatment, environmental impact, insurance, etc. 鈥� may also be expected to be high.鈥�
They added, 鈥淢any experts agree that to believe coal can be clean is self-delusionary.鈥�
While the project is touted to reduce greenhouse gas emissions by 1 million tonnes a year, the report points out that between its three coal-fired power plants, three natural gas-fired power plants, two coal mines and three cogeneration plants, a total of 15.7 million tonnes of GHGs are emitted (the numbers include Boundary Dam Units 1, 2 still in operation.) Province-wide, the total is 74.8 million tonnes of greenhouse gases emitted per year. Plus, additional oil production from the Weyburn Unit due to CO2-EOR will result in more greenhouse gas emissions when that oil is consumed.
鈥淔or each tonne of carbon dioxide injected, d, about 2.7 tonnes of carbon dioxide are eventually emitted from combustion of the oil recovered,鈥� the report states. 鈥淭his calculation does not even account for carbon dioxide losses in the course of the injection process: a substantial proportion returns to the surface with the oil.鈥�
鈥淲hen all GHG emissions are considered the one million tonnes captured annually is not a significant reduction in the province鈥檚 contribution to climate change.鈥�
Conclusion
The report concluded, 鈥淚n 2011, SaskPower鈥檚 decision to rebuild Boundary Dam 3 and construct a CCS facility is an important turning point in the corporation鈥檚 history. At a time when utilities and grid management corporations around the world are shifting decisively towards renewables as costs fall, SaskPower appears willing to lock the province into fossil fuel electrical generation for decades. SaskPower missed an opportunity to shut down its oldest and dirtiest plant and instead spent $1.5 billion on a very financially risky new technology, CCS.
In future CCS may become lower cost and technical issues may be resolved, but in 2011 it was an extremely poor fit for SaskPower and the purchasers of electrical power. When corporations take high risks, then the potential for high rewards should be the result, not so for Boundary Dam 3 CCS. The financial losses for Boundary Dam 3 are high and the future rewards are far from proven.鈥�
The authors suggested SaskPower should have instead built wind farms. 鈥淐oal when compared to wind is about $300 million more expensive over 20 years. When factoring in the capital cost of CCS, coal is even more uncompetitive. Wind is affordable. Twenty-six per cent of North Dakota鈥檚 power is generated by wind; Denmark almost 40 per cent, and Spain over 20 per cent.41 Wind could become a much more significant part of Saskatchewan鈥檚 electrical generation.鈥�
Germany and Denmark are held up as countries that have successfully integrated wind into their power generation. For Denmark, the number is quoted as 40 per cent of their power. Integration of solar power and smart grid technology are offered as ways to address grid issues.
Alternatively, the Queen Elizabeth Power Station in Saskatoon could have been upgraded at a cost of $488 million, providing double the power at a fraction of the cost compared to BD3. Using natural gas, it would not be as climate-friendly, they noted.
But even natural gas doesn鈥檛 get a free pass. 鈥淭hose who, following the findings of climate science, believe that we must move to a low carbon economy much faster, put the emphasis on shifting to renewables such as wind, solar, hydro and biomass, and seek to minimize the degree to which natural gas is used as a 鈥渂ridge鈥� fuel. No fossil fuel can ever be carbon neutral; and there is evidence that emissions associated with natural gas are increasing as a result of methane leaks (especially from fracked wells), venting and flaring.鈥�
The report misquoted from a Pipeline News article (Page A14, Oct. 2014), stating, 鈥淧remier (Brad) Wall has stated that he had to convince a SaskPower board committee to support the CCS project.鈥� In fact, the committee convinced the premier to approve the project, not the other way around.
The authors suggested Wall鈥檚 in approval of the project was political in nature, stating, 鈥淭o increase SaskPower鈥榮 debt so substantially in order to garner US support for the Keystone Pipeline demonstrates the government鈥檚 commitment to the development of fossil fuels over any other alternatives.鈥�
The authors end by saying, 鈥淭he predominant reason for the CCS to go ahead appears to be to recover more oil from south east Saskatchewan and reward the oil producing companies rather than adopting appropriate carbon pricing, and moving forward more rapidly on a menu of renewable energy options.
About the authors
According to the report, Brian Banks is a former director of CCPA Saskatchewan Office and board member, and is also a member of the board of Adult Educators Association of Saskatchewan. His career in education included K-12, adult education, post-secondary and training and development. Banks holds an arts degree from the University of Saskatchewan, a Bachelor of Education from the University of Regina and a masters degree in History from the University of Regina.
Mark Bigland-Pritchard鈥檚 bio stated he is 鈥渁n independent consultant in energy, environmental assessment and sustainable building. His background includes two engineering degrees, a PhD in architectural physics, several years of teaching energy studies at two major British universities, and a diverse range of consultancy, research and project management work. His current work-in-progress includes a technical assessment of a transition to renewables-only electricity in Saskatchewan (in conjunction with economist Brett Dolter), and home design to meet Passivhaus standards.
The report also acknowledges the assistance of Dr. Emily Eaton, professor of geography from the University of Regina. Pipeline News reported on her summer tour in 2014 researching the impact of oil on Saskatchewan. The story appeared on page B7 of our August 2014 edition.
Of the 52 endnotes in the report, eight referenced Pipeline News stories.
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