Canada-based Maxim Power (TSX: MXG) said in May 6 earnings statements that it is making progress on various development initiatives, including a switch from coal to natural gas as the planned fuel for a 500-MW power project in Alberta.
- Summit Coal Limited Partnership – This project is located north of Grande Cache, Alberta, and involves metallurgical coal reserve leases for Mine 14 (M14) and Mine 16S (M16S). This initiative is construction ready. MAXIM considers the advancement of the M14 and M16S projects as strategic primarily because of the value of metallurgical coal itself for sale in that market, and also to the nearby Milner coal-fired plant of MAXIM and its ability to utilize tailings and lower quality fuels, which are by-products of the beneficiation of coal, to produce electricity. All monetization options – including construction, own and operate; joint venture; or outright sale – are being evaluated.
- Deerland Peaking Station (D1) – MAXIM is pursuing commercial arrangements that will allow for the full-scale construction of the 190-MW D1 Station to commence during 2014. In 2012, MAXIM entered into an agreement to secure firm natural gas transportation services for D1. MAXIM had previously received regulatory approvals to construct and operate D1. The D1 site is located near Bruderheim in Alberta’s Industrial Heartland, close to the entry point of the proposed Gateway pipeline and adjacent to the existing Deerland high-voltage substation. This area is expected to experience significant growth in electrical demand. D1 is the only permitted peaking project in Alberta as of May 6. This project is attractive due to an anticipated contraction of reliable baseload supply in the Alberta power market due to coal-fired power restrictions.
- Milner Expansion (M2) – The Alberta Utilities Commission (AUC) in 2011 granted MAXIM approval to develop a 500-MW generating facility adjacent to the existing 150-MW coal facility (M1). But in 2012, the federal government of Canada enacted new greenhouse gas legislation that limits the amount of CO2 emitted by coal-fired facilities. As a result, in November 2013, MAXIM submitted amendments for the existing M2 permit that would convert the M2 fuel source from coal to natural gas. MAXIM expects approval of these submissions by the third quarter of 2014.
- Buffalo Atlee (B1) – MAXIM acquired the B1 project, situated near Brooks, Alberta, through an amalgamation with EarthFirst Canada. This project has the potential for over 200 MW of wind capacity. 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 MAXIM’s generation fuel types and provide the potential to offset the impact of expected new provincial greenhouse gas legislation.
MAXIM is currently estimating capital and development expenditures of about C$45.1m for 2014. This spending includes: C$26.3m on facility renovations in France; C$3.8m on the development of Deerland; C$2.6m on the Milner turnaround as well as an additional C$0.8m on other plant improvements at the Milner facility; C$4.5m on plant improvements at the Pittsfield facility; C$2.3m on plant improvements at the Forked River facility; C$1.6m on plant improvements at the Pawtucket facility, C$1.8m for the full development of Milner’s coal ash management site and the development of M2; and $C1.4m on other development projects as well as capital projects at other North American facilities.
The rest of 2014 looks good for coal at the Milner plant
MAXIM said its outlook is significantly impacted by Alberta electricity and fuel prices. Alberta electricity prices are a key revenue determinant for MAXIM’s Milner facility. Alberta electricity 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. Tighter generation capacity relative to demand since 2011 led to higher power prices from 2011 to 2013. With new generation expected to come online, power prices in Alberta are expected to be weaker in 2014.
Natural gas prices on a spot and forward basis are such that coal is expected to be the preferred fuel choice for the balance of 2014. The use of coal would have a positive impact on fuel costs at Milner as well as reduce MAXIM’s cash requirements by using existing inventory and purchasing less natural gas. MAXIM said it will continue to evaluate its fuel blend and use more coal when it is economically prudent to do so.
In the Northeast U.S., growing demand for natural gas as a fuel source for power generation, as well as constraints on existing gas pipeline infrastructure, have increased natural gas price volatility during periods of peak gas consumption. This volatility is expected to have a positive impact on MAXIM’s power plants in that region as energy margins are positively correlated to natural gas prices, resulting in higher margins at higher gas prices. Natural gas price volatility is expected to persist until natural gas supply constraints in the region are addressed.
The 2012 Canadian CO2 regulations limit carbon dioxide emissions for power plants commissioned after July 1, 2015, to 420 tonnes of carbon dioxide for each gigawatt hour produced. In addition to this, power plants built before 1975 are able to operate at full capacity until the earlier of 50 years after the commissioning date and December 31, 2019. Moreover, power plants built after 1974 are able to operate until the earlier of 50 years after the commissioning date and Dec. 31, 2029. The coal-fired Milner (M1) facility was commissioned in 1972, and accordingly, is allowed to operate to its full capacity to Dec. 31, 2019. After that, Milner is allowed to operate at an annual capacity factor of up to 9%, which is approximately 113,500 MWh per annum, until Dec. 31, 2029, based on its current CO2 emission levels.