Maxim Power Corp. (TSX: MXG) said in an Aug. 10 quarterly earnings report that as a result of record low Alberta power prices, which have undermined profitability for a prolonged period, it made the decision to dial down operations at the coal-fired HR Milner Unit 1 (M1) and temporarily suspend generation on March 23.
On June 29, Maxim resumed the generation of electricity at M1 as it was determined that it was economic to do so through a fixed price firm financial swap agreement. This swap agreement ends in December 2016. The company said it will actively monitor the Alberta power market to determine if it is economically to continue operations into 2017, while continuing to advance its initiatives to convert M1 from coal to natural gas.
HR Milner Unit 1 is a 150-MW (nameplate capacity) coal-fired generating facility located near the town of Grande Cache, Alberta.
In the area of new projects, the company reported:
- MAXIM is proposing to increase generating capacity at the M1 site by building M3, which will be comprised of two gas-fired turbines located next to M1 and is a cost-effective solution to transition M1 from coal to natural gas. M3 will utilize existing M1 assets including, but not limited to, its boiler, steam turbine, generator, water license, as well as electrical and gas interconnections. Exhaust energy from M3’s gas turbines will be converted to steam and utilized to generate electricity in the existing M1 steam turbine, displacing coal-sourced steam. Before giving effect to the development of M2, M3 will increase the nameplate capacity at the Milner site from 150 MW to 236 MW. Total emissions of carbon dioxide, nitrogen oxides, sulfur oxides and particulates at the M1 site will decrease compared to running the existing M1. MAXIM has received regulatory approval to construct and operate M3.
- MAXIM has received regulatory approval to construct and operate M2, a 520-MW natural gas-fired combined cycle facility. Synergies with existing M1 infrastructure such as electrical interconnection, fuel delivery, water license and a skilled operations team, allow the M2 project to achieve a competitive advantage as compared to a greenfield development. The M2 project will be one of the most efficient combined cycle gas turbines in the province and is anticipated to run as a base load facility, similar to that of the recently commissioned Shepard Energy Centre.
- SUMMIT is MAXIM’s coal mine development initiative located north of Grande Cache, Alberta, that owns metallurgical coal leases for Mine 14 (M14) and Mine 16S (M16S). Current estimates for M14 are 18.9 million tonnes of low-mid volatile metallurgical coal reserves with a mine life of 17 years. M16S is located 30 kilometers northwest of M14 and represents 1,792 hectares or 29% of SUMMIT’s total area of coal leases. M14 is permitted for a run-of-mine production rate of up to 1,300,000 tonnes per year. MAXIM has also received approval from the Alberta Energy Regulator to construct and operate a Coal Beneficiation Plant. This Coal Beneficiation Plant, to be located on MAXIM’s existing M1 industrial complex, will bifurcate M14’s run-of-mine coal into an estimated annual production of 950,000 tonnes of high-quality, low-mid volatile and metallurgical coal for shipment to export markets. These approvals provide SUMMIT with all of the requisite government and regulatory approvals to construct and operate M14. MAXIM has received delivery of five pieces of mine equipment including two continuous miners and three shuttle cars. The units are in storage awaiting development of M14.
- MAXIM has received regulatory approvals to construct and operate the Deerland peaking station, a 190-MW natural gas-fired peaking facility. MAXIM has entered into agreements to secure firm natural gas transportation service for Deerland. MAXIM expects that full-scale construction of the facility would commence pending improved prices in the Alberta power market and satisfactory commercial arrangements.
- MAXIM acquired the Buffalo Atlee Power Project, situated near Brooks, Alberta, through an amalgamation with EarthFirst Canada Inc. This project has the potential for development of up to 200 MW of wind capacity in multiple phases. The first phase consists of 33 MW and MAXIM anticipates this capacity will participate in the Government of Alberta (GoA) renewable generation competition launching in the fourth quarter of 2016. The addition of wind generation to MAXIM’s existing portfolio of assets would diversify further potential changes to MAXIM’s generation fuel types and provide the potential to offset the impact of potential provincial emissions legislation, once enacted.
Maxim braces for Alberta carbon reduction plan
In 2015, the GoA announced its Climate Leadership Plan (CLP). The CLP recommends that Alberta move forward on phasing out coal-fired electricity generation by 2030 and encourages more renewable energy. The GoA targets renewable sources to make up 30% of Alberta’s electricity production by 2030.
Under the CLP, the GoA has also announced the intention to replace the existing Specified Gas Emitters Regulation with the Carbon Competitiveness Regulation (CCR) commencing Jan. 1, 2018. If enacted, the CCR will require coal-fired generators to pay C$30 per tonne of carbon dioxide on emissions above what Alberta’s cleanest natural gas-fired plant would emit to generate the same amount of electricity. This has been estimated at C$18 per MWh for Alberta’s coal-fired generation fleet.
On March 3, the Alberta Electric System Operator (AESO) announced that it was tasked by the GoA to develop and implement a renewable electricity incentive program to add additional renewable generation capacity into Alberta’s electricity system. In May, the GoA received draft recommendations from the AESO. As of Aug. 10, market participants are not aware of what the recommendations contain. Following GoA approval, the AESO expects to continue development of the program throughout 2016. The first competition for renewable power is expected to launch in the fourth quarter of 2016, with the first projects to be in service by 2019.
MAXIM anticipates that any resulting environmental compliance cost increases from the CCR will either be recovered in the market through higher wholesale power prices or, in the case of M1, incent a higher use of natural gas versus coal. As at the date of Aug. 10, uncertainties still exist on the details of the legislation resulting from the CLP. MAXIM currently anticipates that it will be permitted to run M1 at full capacity to Dec. 31, 2019, as a coal, natural gas or dual fuel-fired facility and as a natural gas-fired facility at full capacity thereafter, consistent with the current federal regulations.
MAXIM said it is awaiting further clarification of the renewable electricity program and is looking forward to the growth opportunities that this may bring.
The Clean Air Strategic Alliance (CASA) is an Alberta-based, multi-stakeholder group of representatives from industry, government and nongovernment organizations. This group creates strategies to assess and improve air quality for Albertans and influences air emission regulations. CASA developed a framework to manage air emissions from the electricity sector in Alberta, and the provincial government is currently reviewing emissions, by each industry, in Alberta. A primary issue under review is the current misalignment of federal greenhouse gas coal regulations with the Alberta air emission regulations. The risk arises from the potential for retirement of coal generating plants before mandated under existing federal regulations, as a result of significant uneconomic expenditures to comply.
Up to the end of 2012, MAXIM generated NOx credits at M1. As of Jan. 1, 2013, MAXIM commenced consumption of these credits to maintain compliance under CASA. M1’s rate of consumption of these credits is heavily influenced by coal-fired generation volumes and, as such, may fluctuate given changes in the levels of production and the fuel source used for production at M1. MAXIM also has been able to generate emission credits used to offset the production of SO2 at M1 up to Dec. 31, 2012. Similar to the NOx credits, the consumption of these credits is driven by coal-fired generation volumes and as such may fluctuate given changes in the levels of production and the fuel source used for production.
MAXIM said it continues to advocate through various industry working groups and direct discussions with the provincial regulators for a reasonable and timely resolution to what it believes is a misalignment of the federal GHG and provincial air pollutant regulations.