TransAlta Corp.’s coal-fired, 1,340-MW Centralia Thermal plant in Washington state has shown weak results lately due to factors like low power prices and relatively cheap natural gas in the Pacific Northwest.
TransAlta, in its Oct. 31 earnings statement for the third quarter, noted that Washington state’s TransAlta Energy Bill and a Memorandum of Agreement, which was signed in December 2011, provided a framework for the orderly transition from coal-fired energy produced at Centralia Thermal and the shutdown of the units, one in 2020 and the other in 2025. In July 2012, the company announced that it had entered into a long-term power agreement to provide electricity from the Centralia Thermal plant to Puget Sound Energy from December 2014 until the facility is fully retired in 2025.
TransAlta’s overall power production for the third quarter increased 933 GWh compared to the same period in 2012 primarily due to lower economic dispatching at Centralia Thermal, lower planned outages at the Alberta coal power purchase agreement (PPA) facilities, higher PPA customer demand, and lower market curtailments, partially offset by higher unplanned outages at the Alberta coal PPA facilities, primarily driven by the Keephills Unit 1 force majeure outage.
For the nine months ended Sept. 30, production increased 1,972 GWh compared to the same period in 2012 primarily due to lower economic dispatching at Centralia Thermal, lower planned outages at the Alberta coal PPA facilities, higher PPA customer demand, and lower market curtailments, partially offset by higher unplanned outages at the Alberta coal PPA facilities, primarily driven by the Keephills Unit 1 force majeure outage, and higher planned and unplanned outages at Centralia Thermal.
Generation comparable gross margins for the three and nine months ended Sept. 30, 2013, excluding the impact of mark-to-market movements on de-designations, decreased by C$35m and C$40m, respectively, compared to the same periods in 2012, as there was lower contract pricing at Centralia Thermal, higher unplanned outages at the Alberta coal PPA facilities, and unfavorable coal pricing at the Alberta PPA coal facilities, partially offset by favorable coal pricing at Centralia Thermal, increased volumes due to lower market curtailments, and lower planned outages at Alberta PPA coal facilities.
For the three and nine months ended Sept. 30, 2013, average spot power prices in Alberta increased compared to the same periods in 2012 primarily due to tighter supply and demand growth. In the Pacific Northwest, where Centralia Thermal is located, average spot power prices increased due to higher natural gas prices and lower hydro generation.
Over the balance of 2013, power prices in Alberta are expected to be weaker than 2012 with additional coal-fired generation online. However, prices can vary based on supply and weather conditions. In the Pacific Northwest, the company expects prices to be significantly stronger than in 2012. However, it expects that overall power prices will still remain relatively weak due to low natural gas prices and slow load growth.
The outages at Centralia Thermal did not negatively impact gross margins for the nine months ended Sept. 30, as the company was able to extend planned outages to take advantage of lower market prices to purchase power on the market to fulfill its power contracts. Generation availability, after adjusting for economic dispatching at Centralia Thermal, was 86.1% for the nine months ended Sept. 30, 2013. For the three and nine months ended Sept. 30, 2012, generation availability, after adjusting for economic dispatching, was 91.4% and 89.9%, respectively.
Coal-fired Sundance Units 1 and 2 returned to service
In December 2010, Units 1 and 2 (total capacity of about 560 MW) of the Sundance facility in Alberta were shut down due to conditions observed in the boilers at both units. In July 2012, an arbitration panel concluded that Unit 1 and Unit 2 were not economically destroyed under the terms of the PPA and TransAlta was required to restore the facility to service. Unit 1 returned to service on Sept. 2 and Unit 2 was returned to service on Oct. 4. “We have issued notices to the buyers regarding the cessation of the force majeure period for the two units,” TransAlta reported.
On March 5, an outage occurred at Unit 1 of the Keephills coal facility in Alberta due to a stator winding failure found in the generator. Upon completion of the initial repair work, further condition testing and analysis identified greater winding degradation requiring a full rewind of the generator stator. The unit was returned to service on Oct. 6. Arbitration on the matter began during the quarter.
Effective Jan. 17, TransAlta assumed, through its wholly owned SunHills Mining LP, operations and management control of the Highvale coal mine from a unit of Sherritt International, Canada’s largest steam coal producer. The mine, Canada’s largest coal mining operation, serves TransAlta coal plants.
Coal costs for 2013, on a standard cost per tonne basis, are expected to be 11% to 13% higher than 2012. Mining of coal in Alberta is subject to cost increases due to greater overburden removal, inflation, capital investments, and commodity prices.
Although TransAlta owns the Centralia strip mine in the State of Washington, it has been shut for several years. Fuel at Centralia Thermal is purchased from external suppliers in the Powder River Basin and delivered by rail. The delivered cost of fuel per MWh for 2013 is expected to decrease between 6% to 8%.
U.S. Energy Information Administration data shows that the coal suppliers to the plant earlier this year were the Spring Creek mine in Montana of Cloud Peak Energy and the Rawhide mine in Wyoming of Peabody Energy.
Uncertainty about new emissions limits present in both Canada and U.S.
In Alberta, there are requirements for coal-fired generation units to implement additional air emission controls for NOx, SO2 and particulate matter, once they reach the end of their respective PPAs, in most cases at 2020. These regulatory requirements were developed by the province in 2004 as a result of multi-stakeholder discussions under Alberta’s Clean Air Strategic Alliance (CASA). However, the release of the federal GHG regulations may create a potential misalignment between the CASA air pollutant requirements and schedules, and the GHG retirement schedules for older coal plants, which in themselves will result in significant reductions of NOx, SO2, and particulates.
“We are in discussions with the provincial government to ensure coordination between GHG and air pollutant regulations, such that emission reduction objectives are achieved in the most effective manner while taking into consideration the reliability and cost of Alberta’s generation supply,” TransAlta said.
In the U.S., on June 25, President Obama announced his Climate Action Plan, which sets out plans for GHG standards to be imposed by the U.S. Environmental Protection Agency for new and existing power plants. Subsequently, on Sept. 20, the EPA issued draft regulations for new coal-fired plants which, if adopted, would require new coal plants to achieve GHG emissions of no more than 1,100 pounds per MWh of CO2 (significantly below current average emissions for coal-fired plants) in order to be approved, TransAlta pointed out. These regulations are expected to be finalized by mid 2014.
“These proposed regulations do not currently have an impact on our operations,” the company added. “Standards for existing units are to be finalized by June 2015. State implementation plans are to be completed a year later. There will be few additional details as to how existing coal (and potentially natural gas) units might be treated until the EPA releases a draft rule. Furthermore, the U.S. Supreme Court has agreed to review a challenge to the EPA’s right to regulate GHG emissions from stationary sources like power plants, so the future of this regulation is uncertain.”
In December 2011, the EPA issued national standards for mercury emissions from power plants. “We have already voluntarily installed mercury capture technology at our Centralia coal-fired plant, and began full capture operations in early 2012,” TransAlta said. “We have also installed additional technology to further reduce NOx, consistent with the Washington State Bill passed in April 2011.”
TransAlta installed mercury control equipment at it Alberta Thermal operations in 2010 in order to meet the province’s 70% reduction objectives. The coal-fired Keephills Unit 3 began operations in September 2011 using supercritical combustion technology to maximize thermal efficiency, as well as SO2 capture and low NOx combustion technology, which is consistent with the technology that is currently in use at Genesee Unit 3. Uprate projects completed at the Keephills and Sundance plants have improved the energy and emissions efficiency of those units.