ATCO Ltd. (TSX: ACO.X) (TSX: ACO.Y) announced Nov. 25 that it has entered into an agreement with the Government of Alberta on transition payments for the elimination of coal-fired emissions from the Sheerness Generating Station on or before Dec. 31, 2030.
ATCO has also agreed to work with the government on the conversion of coal-fired generation to natural gas, the exploration of hydro generation, and the development of Alberta’s new capacity market.
“We are supportive of initiatives to transition the province to cleaner sources of electricity and will continue working with all levels of government on the many interrelated components of Alberta’s electricity system,” said Siegfried Kiefer, Chief Strategy Officer, ATCO Ltd. & Canadian Utilities Limited and President, Canadian Utilities Limited. “Our focus remains on ensuring these measures support affordable, reliable and sustainable energy for all Albertans.”
As compensation for the capital invested in Sheerness, ATCO will receive cash payments from the Government of C$4.7 million annually for 14 years, commencing in 2017 and terminating in 2030. Sheerness Units 1 and 2 were otherwise scheduled to retire in 2036 and 2040, respectively.
In the near-term, ATCO will assess the economic viability of converting some of its coal-fired generation to natural gas. In addition, ATCO will work alongside the government in exploring the potential of hydroelectric power as a means to provide reliable, emissions-free baseload generation in the province. Hydro, as the only form of renewable energy generation with dispatch control, is an optimal solution to replace coal-fired generation while supporting the reliability and sustainability of Alberta’s grid.
ATCO will also work closely with the government in the development of Alberta’s capacity market to ensure equitable treatment and a level playing field for both existing and new electricity generation.
TransAlta does its own deal; works on pumped storage hydro project
TransAlta Corp. (TSX: TA) (NYSE: TAC) announced Nov. 24 that it has entered into an agreement with the Government of Alberta on transition payments for the cessation of coal-fired emissions from the Keephills 3, Genesee 3 and Sheerness coal-fired plants on or before Dec. 31, 2030. Additionally, TransAlta announced that it has reached an understanding with the provincial government pursuant to a Memorandum of Understanding to collaborate and cooperate in the development of a policy framework to facilitate the conversion of coal-fired generation to gas-fired generation, facilitate existing and new renewable electricity development through supportive and enabling policy, and ensure existing generation and new electricity generation are able to effectively participate in the recently announced capacity market to be developed for the province.
“Today’s announcement is the culmination of the collaborative work we have been doing with the provincial government over the past year,” said Dawn Farrell, President and Chief Executive Officer. “We have reached a mutually beneficial agreement on the transition payments to enable the coal retirements in the post-2030 period and memorialized our intention to work collaboratively with the government in a manner that supports TransAlta’s future investment in Alberta.”
The successful development of a future policy framework will set a clear path for the investments that TransAlta will make in its existing coal, hydro and wind fleets and will allow the company to make additional investments in gas conversions, hydro and wind development in the province. TransAlta is committed to converting Sundance Units 3-6 and the Keephills 1 and 2 to gas-fired generation in or before 2023.
TransAlta has also commenced the development of a pumped hydro project at its existing Brazeau facility and expects to begin stakeholder consultations in the near future. The company is targeting 2021 for the commencement of construction of the project, subject to receiving a long-term contract.
“Through our work with the federal and provincial governments, we’ve been able to develop a plan that has potential to restore value to our existing assets in the Alberta market”, said Farrell. “Our work together has shown that environmental and investment objectives can be met without undue burden on customers. The implementation of a capacity market, new rules for coal-to-gas gas conversions, and fair treatment of existing renewable assets will enable us to supply competitive capacity and energy to the Alberta market for decades to come.”
Under the Off-Coal Agreement, TransAlta will receive annual cash payments of approximately C$37.4 million, net to TransAlta, commencing in 2017 and terminating in 2030. Receipt of the payments is subject to a number of terms and conditions, including that TransAlta maintains prescribed spending on investment and investment related activities in Alberta, maintains a significant business presence in Alberta (including through the maintenance of prescribed employment levels), maintains spending on programs and initiatives to support the communities surrounding the plants, and the employees of the company negatively impacted by the phase-out of coal generation and fulfills all obligations to affected employees. The Off-Coal Agreement requires TransAlta to cease all coal-fired emissions at the affected plants by Dec. 31, 2030. The affected plants are not, however, precluded from generating electricity at any time by any method other than the combustion of coal.
TransAlta also entered into a Memorandum of Understanding (MOU) with the government pursuant to which they committed to cooperate and work collaboratively to advance the objectives of the Alberta Climate Leadership Plan.
- Coal-to-Gas Conversions – collaborate on the development of a policy environment to facilitate the economic and environmentally responsible conversion of some coal-fired generation to natural gas-fired generation in Alberta, including securing regulatory cooperation from the Government of Canada so as to enable this conversion;
- Support for Renewable Electricity – collaborate to facilitate both existing and new renewable electricity development through supportive and enabling policy, including policy that addresses the value of the carbon reductions in the generation of electricity from existing wind and hydro generation, the development of effective supporting mechanisms to ensure that existing renewables generation is not adversely impacted by the implementation of a capacity market in Alberta, and the development of regulatory clarity and alignment so as to permit the economic and timely development of hydroelectric projects within Alberta (including through the establishment of contractual assurances in the form of capacity payments); and
- Opportunity Under a Capacity Market – work to ensure existing incumbents and new electricity generation are able to effectively participate in capacity payment auctions to be established as part of the development of a capacity market.
The MOU does not create any legally binding obligations between the government and TransAlta and does not impose any obligations on, or constrain the discretion and authority of, the government.
Capital Power to end PPA fight with the government
Capital Power Corp. (TSX: CPX) on Nov. 24 released details of agreements reached with the Alberta government relating to the 2030 coal phase-out and settlement of the Power Purchase Arrangement (PPA) dispute. As compensation for the capital that Capital Power invested in coal generating assets that will be “stranded” effective Dec. 31, 2030, Capital Power will receive cash payments from the province of C$52.4 million annually for 14 years, commencing July 31, 2017, for a total of C$734 million.
Capital Power has also agreed to continue to participate in the Alberta electricity market, support the local communities surrounding the coal facilities through 2030, and fulfill its pension and other commitments to employees.
“The settlement is reasonable because it repays shareholders for the stranding of capital due to the 2030 truncation of coal emissions, while also recognizing the potential for extending the economic lives of certain facilities through conversion to natural gas,” said Capital Power President and CEO Brian Vaasjo. “The Province committed to implement its Climate Leadership Plan in a way that would be fair to communities, companies and workers, and avoid unnecessarily stranding capital. Today’s agreement fulfills that promise to our shareholders.”
The province has also agreed to discontinue its legal action against Capital Power and to arrange for the Balancing Pool to accept Capital Power’s termination of its role as a buyer under the Sundance C Power Purchase Arrangement. In consideration of these actions, Capital Power and its syndicate partners have agreed to pay the Balancing Pool C$39 million, of which Capital Power’s portion is C$20 million or C$15 million after tax.
“On balance, this represents a fair settlement, having regard to uncertainty regarding the effective date of the termination and the PPA value decline because of market factors,” said Vaasjo. “It is important that the uncertainty associated with these issues is behind us, so that we can continue to develop generation opportunities in Alberta, subject only to market and economic signals. It also helps clear the way for us to consider ways in which we can utilize both new and existing assets to extend the life of the Genesee site as a major contributor to Alberta’s power needs beyond 2030.”
Vaasjo added: “In addition, we look forward to engaging with the Government of Alberta on the evolution of Alberta’s electricity market design, including participation in stakeholder consultations regarding the design and introduction of a capacity market. A well designed and fairly implemented capacity market can deliver an affordable power supply for Albertans, reduce market price volatility, and provide certainty that generation capacity will be there when needed.”
Capital Power owns more than 3,200 MW of power generation capacity at 18 facilities across North America. More than 700 MW of owned generation capacity are in advanced development in Alberta and under construction in Kansas.