Tuesday, March 08, 2016 9:42:23 AM
http://business.financialpost.com/news/energy/transcanada-corp-to-terminate-coal-power-contracts-due-to-higher-emissions-costs?__lsa=daa7-582b
CALGARY – Companies are wiggling out of money-losing contracts to buy electricity from coal-fired power plants in Alberta as a result of the province’s new climate change policies, leaving a provincial agency to honour the agreements.
TransCanada Corp., a company best known for building pipelines but that also has a power business, cited a recent change in Alberta’s climate laws in order to terminate contracts to buy coal-fired electric power from Atco Ltd. and TransAlta Corp.
Both TransCanada and AltaGas cited the change in Alberta’s laws – such as the new policy that all carbon emissions be taxed at $30 per tonne beginning in 2017 – as the reason for the cancellation.
“It will make coal a lot more uncompetitive,” Nieukerk said of Alberta’s new carbon-pricing policies.
Both companies produce electricity from natural gas, a process that emits less carbon per megawatt hour than coal-fired power.
“The climate change policy gives them a good reason to get out (of coal contracts),” said Larry Charach, an Edmonton-based consultant who helped shape Alberta’s deregulated electricity market when he worked for the provincial government in the late 1990s.
Charach said there is currently a surplus of available power in Alberta, which is made worse by weak demand for electricity given the current economic downturn. He said the collapse in natural gas prices this year is also rearranging Alberta’s electricity market.
Each of these factors has contributed to a fall in electricity prices in the province, which has made many of the coal-fired power contracts unprofitable for the buyer.
“The climate change policy is a factor, but the low prices are the trigger,” Charach said
In December, Calgary’s city-owned utility company Enmax Corp. informed the Balancing Pool that it would also terminate one of its PPAs for coal-fired electricity.
The terminated contracts now require the province’s Balancing Pool to buy coal-fired power from Atco and TransAlta at a specific price, which many analysts say is higher than the current price of electricity in Alberta.
“TransCanada is terminating money-losing agreements that obliged it buy power in Alberta at above market prices,” FirstEnergy Capital Corp. analyst Steven Paget said in a research note.
Paget added the decision to hand those purchase agreements over the provincial agency would prevent further losses for TransCanada, which “was likely to lose money on every megawatt-hour it purchased this year due to low gas prices in Alberta combined with the addition of the 800 MW Shepard gas-fired plant near Calgary.”
TransCanada executive vice-president Bill Taylor said in a release that the company will still participate in the Alberta power market, as a natural gas-fired power producer.
“These low-cost and low CO2 emitting gas units are expected to perform well in today’s market environment,” Taylor said.
David Gray, a power expert and president of Gray Energy Economics Inc., said Albertans will see the effects of the termination of those agreements on their electricity bills, in the form of a rider from the Balancing Pool.
“It leaves the Balancing Pool holding the bag for the last part of the agreements,” Gray said.
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