Canada-based Maxim Power (TSX: MXG) said Aug. 9 that it is making progress on a new gas-fired power plant, a new coal-fired unit at its Milner coal plant, and development of a new coal mine next to Milner that could both supply the plant with coal and ship metallurgical coal on the export market.
With the Deerland Peaking Station, called D1 for short, MAXIM is actively pursuing commercial arrangements that will allow for the construction of the 190-MW station to commence in late 2012. MAXIM received regulatory approvals in 2008 to construct and operate D1. The D1 site is located near Bruderheim in Alberta’s Industrial Heartland, in close proximity to the entry point of the proposed Gateway pipeline and adjacent to the existing Deerland high voltage substation. D1 is the only permitted peaking project in the province of Alberta as of Aug. 9.
“This project is attractive due to an anticipated contraction of reliable base load supply in the Alberta power market,” said the company about D1. “As such, MAXIM expects peaking requirements across Alberta to continue to grow to meet increasing demand and to provide firm backup for additional intermittent wind resources. During the second quarter of 2012, MAXIM entered into an agreement to secure firm natural gas transportation services for D1.”
Under the Summit Coal Limited Partnership, MAXIM is advancing the development of Mine 14, located north of Grande Cache, Alberta, to realize value through the potential sale of coal to metallurgical coal markets and potentially to augment coal supply to Milner. During the second quarter of 2012, Summit acquired three additional coal leases, two of which are adjacent to its existing Mine 14 lease. The new leases cover 1,328 hectares, which increases Summit’s lease holdings by 25% to 6,669 hectares. Summit is currently carrying out an exploration program to identify additional resources and reserves on both its existing and recently-acquired leases.
The current technical report for Mine 14, issued on May 3, does not include additional coal that may be identified through the 2012 exploration program. This report identifies measured and indicated resources of 119.3 million tonnes and inferred resources of 154.0 million tonnes. Proven and probable reserves, which are included in the resource estimate, are 18.7 million tonnes. MAXIM anticipates that it will provide an updated technical report during the fourth quarter of 2012 to incorporate results from its 2012 exploration program.
SUMMIT has achieved certain key milestones essential to commencing commercial operations of Mine 14. In 2011, the Alberta regulators granted the license to commence underground mining. SUMMIT has firm terminal capacity and terminal processing services to enable the majority of Mine 14’s proposed coal production to access the seaborne coking coal market commencing Jan. 1, 2015. SUMMIT has also secured firm 2013 delivery dates for critical mining equipment, including continuous miners and shuttle cars.
Milner coal plant addition nears regulatory approvals
In August 2011, MAXIM received approval from the Alberta Utilities Commission for its new 500-MW Milner plant addition, called the M2 project. This new unit would be adjacent to the existing 150-MW Milner generating station. The M2 design incorporates emission control equipment capable of achieving 60% to 80% reductions in SO2, NOx and mercury compared to the conventional coal-fired power plants still operating in Alberta. The highly efficient M2 design will also reduce CO2 emissions by 20% compared to these existing plants. Advancing the project is subject to pending government of Canada regulations, which are expected in the second half of 2012.
MAXIM acquired the Buffalo Atlee Power Project (called B1), situated near Brooks, Alberta, through an amalgamation with EarthFirst Canada Inc. This project has the potential for development of over 200 MW of wind capacity. Wind data has been collected on the site for about four years and supports project development based on higher power prices than those realized during recent months. MAXIM holds an exploratory Crown land permit with a term of five years, expiring on Jan. 1, 2016. The addition of wind generation to MAXIM’s existing portfolio of assets will diversify its generation fuel types and could offset the impact of proposed carbon legislation. MAXIM plans to advance the development of this project once greater clarity on carbon policy is available in the second half of 2012.
MAXIM sometimes burns cheaper gas at Milner in place of coal
MAXIM’s results during the second quarter of this year were negatively impacted by lower Alberta power prices during the second quarter when compared to the second quarter of 2011. Alberta power prices averaged C$40.03 per MWh in the second quarter of 2012, representing a 23% decrease from the C$51.90 per MWh average price of the second quarter of 2011. However, the Milner plant’s average realized price was C$66.60 per MWh during the second quarter of 2012, which is a 24% increase from the average realized price of C$53.70 per MWh in 2011. In addition to this, Milner continues to burn lower cost natural gas instead of coal in certain situations, which has resulted in operating cost savings.
Milner is able to realize a higher average price than the Alberta pool price because Milner’s turnaround occurred during a period of low-priced hours and the facility operated in a derated (low generation) mode during periods when the average pool price was below Milner’s marginal cost. Second quarter Milner O&M costs increased C$0.9 million or 16% to C$6.7 million in 2012 from C$5.8 million in 2011. The increase is primarily due to a 36-day turnaround at Milner in the second quarter of 2012 as compared to a 25-day turnaround in 2011. The longer turnaround was due to additional required maintenance for the boiler. This additional maintenance is expected to increase future boiler reliability.
Alberta electricity prices are a key revenue determinant for MAXIM’s Milner and Gold Creek facilities. These prices fluctuate based on the supply of and demand for electricity within Alberta, the cost of key inputs such as natural gas, and other market factors. MAXIM has currently been operating in a low-priced natural gas environment. Low natural gas prices have a positive impact on the Milner facility through fuel cost savings. Further savings are realized through lower environmental compliance costs and lower maintenance costs. The low natural gas price environment in the U.S. Northeast is expected to have a neutral to slightly negative financial impact on MAXIM’s power plants. MAXIM’s energy margins are positively correlated to natural gas prices. However, generation from coal-fired power plants that do not have fuel switching capabilities will be displaced by natural gas power plants, such as those owned by MAXIM, which should translate into more frequent dispatches for MAXIM’s power plants, the company noted.
MAXIM continues to procure and generate NOx credits at the Milner facility in advance of commencing consumption of these credits on Jan. 1, 2013. Under current legislation, MAXIM anticipates fully consuming these credits by the second quarter of 2015 and will identify alternative options of mitigation thereafter. The rate of consumption of these credits is driven by coal-fired generation and as so may fluctuate given changes in the levels of production and the fuel source used for production. MAXIM also continues to generate SO2 credits at Milner. Under current legislation, MAXIM anticipates that these credits would not be exhausted until beyond 2020. Similar to the NOx credits, the consumption of these credits is driven by coal-fired generation and as such may fluctuate given changes in the levels of production and the fuel source used for production.
Based in Calgary, Alberta, MAXIM is an independent power producer, which acquires or develops, owns and operates innovative and environmentally responsible power and power related projects. MAXIM currently owns and operates 40 power plants in western Canada, the U.S. and France, having 788 MW of electric and 111 MW of thermal net generating capacity. A U.S. asset is the Pittsfield generating station, a 170-MW plant in Pittsfield, Mass., that was acquired by MAXIM in 2008.