Energy Probe

Dana Flavelle
Toronto Star
November 15, 2005

Some of Ontario’s biggest power users say the provincial electricity utility should give back the $181 million in profit it made over the summer at their expense.

Roughly half the refund – about $90 million – would go to residential consumers, the Association of Major Power Consumers of Ontario said yesterday.

The corporate power users say soaring electricity rates are contributing to job losses and plant closings, particularly in the chemical and forestry sectors.

In addition to the refund, they want the province to fully cap Ontario Power Generation’s rates for three more years.

"There is absolutely no justification for OPG to earn such high profits," said Mike Kuriychuk, chair of the industry association, whose members include Ford of Canada, Inco Ltd. and Dofasco Inc.

"We don’t mind paying the cost of power but these profits demonstrate we’re paying more than the cost of power," said Adam White, the association’s president.

At least two electro-chemical companies, CXY Chemicals and Erco Worldwide, have moved their operations out of Ontario because of rising rates, the association said, and several forestry companies have cited hydro as one factor in job losses and plant closings in their industry.

Provincial Energy Minister Donna Cansfield defended OPG’s profits in the Legislature yesterday, saying everyone benefits because the money is used to help pay down its predecessor’s $20.9 billion debt and upgrade power facilities.

Energy Probe spokesperson Tom Adams called the industry association’s demand for a refund short-sighted. "The money does come back to consumers in the form of debt reduction."

But Adams said he shares corporate Ontario’s concerns about what will happen to electricity rates if the government goes ahead with plans to fully deregulate OPG by April.

The former Ontario Hydro still controls 65 to 70 per cent of the province’s electricity market.

"We could see a tremendous increase in prices to consumers," he warned. "We want to see OPG regulated because we’re concerned about its spending habits."

OPG spokesperson John Earl defended the utility’s profit, saying it’s the only utility in the province that is required to provide consumers with a rebate. It needs the income to invest in future expansion and its return on equity so far this year has been just 5 per cent.

"We are a commercial company and we have a responsibly to act like one."

OPG reported the unusual profit last Thursday, noting that it was the product of a long, hot summer and skyrocketing fuel prices.

This is also the first year the former monopoly has operated in a partially deregulated market.

OPG produced 4.2 per cent more power in the three months ended Sept. 30 compared with the year-earlier period. But the price it received for that power jumped 35 per cent to an average of 5.4 cents a kilowatt hour from 4 cents/kwh the previous summer. However, that price was still well below the spot market rate for electricity, which averaged 8.6 cents/kwh over the summer, OPG noted.

With files from Canadian Press

Alan Findlay
Ottawa Sun
October 17, 2005

Toronto: Ontario’s electricity ratepayers have shelled out more than $5 billion to pay down the industry’s stranded debt, only to see it go up.

According to figures from a provincial agency’s annual reports, the Ontario Electricity Financial Corporation has collected $2.9 billion from the debt retirement charge added to bills since 2002 and another $2.2 billion from a preceding customer-funded "revenue pool residual" dating back to 1999 – a total of $5.1 billion.

The so-called stranded debt inherited from the dismantled Ontario Hydro has grown by $930 million to $20.4 billion.

"The debt retirement charge should be renamed the debt slow-the-increase charge or the Ontario Power Generation party fund," said Tom Adams, director of Energy Probe.

Payments lacking

He blamed OPG’s high costs and lack of payments toward the stranded debt for the lack of progress in whittling it down.

OPG, Hydro One and smaller utilities are listed by the OEFC as other contributors to pay down the debt between 2012 and 2020.

Government officials blamed the rise in debt on a variety of costs including a $900-million rate cap brought in by the previous Tory government.

Energy Minister Donna Cansfield said that the debt dropped slightly last year.

Karen Howlett
Globe and Mail
November 17, 2005

Ontario’s energy regulator is sitting on $570-million in rebates it owes to electricity customers as of the end of October.

While not one cent of that money will end up in the coffers of households across the province, it will help to cushion the blow of higher rates next year.

The surplus arose because Ontario Power Generation, the province’s electricity utility, has collected revenue this year that exceeds the cap imposed by the government.

About half of the surplus funds will be reimbursed to industrial consumers that pay market prices for electricity.

The Ontario Energy Board is using the balance to offset a portion of the shortfall between what the province is paying to buy electricity on the open market and what it charges households and small-business users.

"Every single penny there is spoken for," said Tom Adams, executive director of Energy Probe, an energy watchdog.

If the government does not extend the revenue cap earlier placed on Ontario Power Generation when it is due to expire in April, electricity prices will go up "big time," Mr. Adams said.

The cap acts as a buffer against higher prices, he said.

OPG received an average price of 5.4 cents a kilowatt hour during the quarter ended Sept. 30, but it gets to keep only 4.7 cents for most of its output.

The cost of buying electricity on the open market far exceeds what the government charges consumers, who pay artificially low prices for electricity.

At the end of October, the shortfall stood at $637.3-million, Chris Cincar, a policy adviser at the energy board, said in an interview yesterday. But $276.5-million of the surplus has been used to reduce the shortfall to $360.7-million, he said.

The shortfall has risen steadily every month since the board began tracking it on May 1, the day a regulated price plan for consumers came into effect.

Under the plan, consumers pay five cents a kilowatt for the first 750 kilowatt hours of power they use each month during the summer and for the first 1,000 kilowatts during the winter. The rate rises to 5.8 cents a kilowatt hour for consumption above those thresholds.

By comparison, the province has paid 7.9 cents a kilowatt hour on average to buy power from generating companies since May 1.

Based on that discrepancy alone, consumers are already bracing for sticker shock next May when the board rolls out its new electricity rates, Mr. Adams said.

And the bad news for consumers does not end there, he said. Electricity distributors across the province have applied to the board to charge higher rates next year for delivering electricity to consumers’ homes.

Hydro One, the province’s largest distributor with 1.2 million customers, has applied for increases of up to 25 per cent, Mr. Adams said.

A Hydro One spokesman did not confirm these numbers but said the rate increases, if approved, would result in average overall increases of 6 per cent. Electricity bills consist of four separate charges: electricity, delivery, debt retirement and regulatory.

New Democratic Party Leader Howard Hampton has questioned Energy Minister Donna Cansfield repeatedly this week about whether the government would order OPG to return its excess profits to industrial customers immediately.

"What’s very clear is that the high cost of electricity is killing jobs in the forest sector," Mr. Hampton told reporters yesterday.

"That money, frankly, could be put to better use in helping some of those companies stay alive."

Ms. Cansfield told reporters yesterday that industrial customers would receive rebates next April.

Mike Kuriychuk, chairman of the Association of Major Power Consumers of Ontario, said yesterday that the cap on OPG’s revenue should be extended once it expires. OPG should earn profits sufficient to maintain its operations, he said. "Everything else should be distributed back to consumers across the board."

Electric Shock

What a 37-per-cent bill increase looks like . . .

A typical monthly bill for a high density residential customer of Hydro One, the province’s largest utility, who uses 1,000 kilowatt-hours of electricity a month under the existing regulated price plan and the bill if the same consumer paid market prices for electricity, provided Hydro One wins regulatory approval to increase delivery charges by up to 25 per cent on some utilities by May 1, 2006.

Your Electricity Charges

SOURCE: HYDRO ONE, THE INDEPENDENT ELECTRICITY SYSTEM OPERATOR AND THE ONTARIO ENERGY BOARD

Jim Chliboyko
Business Edge Vol.1 No.23
November 24, 2005

 Provinces take first step to send electricity east

A $500-million energy agreement between Manitoba and Ontario could be the first step in reviving a long-shelved $10-billion generation project that would send Manitoba electricity to power-starved Ontario.

The Manitoba government last month announced a $500-million deal with its eastern neighbour that officials hope will pave the way for the Conawapa project, which would send thousands of megawatts across the Canadian Shield to heat and light hundreds of thousands of Ontario homes.

"What we have agreed to do is to look at a subsequent phase," says Manitoba Hydro spokesman Glenn Schneider. "That would mean that we would need to construct additional facilities. That would mean Conawapa. We are very optimistic that we will reach a second-phase agreement and start working on planning."

The deal involves the transmission of 150 megawatts (MW) of power beginning in 2006. That will require upgrades to the power connections between Winnipeg and Thunder Bay, which will double the existing east-west grid capacity at the Manitoba-Ontario connection point. The two provinces will share the estimated $100-million pricetag. In 2009, that transfer will be increased to 400 MW.

Photo courtesy of Manitoba Hydro

The proposed Conawapa dam site on the Nelson River is back on the power-generation radar.

Negotiations will continue on a second phase, which could see up to 3,000 MW of power transmitted, but for that the Conawapa dam needs to be in place.

Conawapa – a 1,250-MW dam on the Nelson River in northern Manitoba – was cancelled in the early 1990s when Ontario pulled out of the initial deal. The original construction cost was estimated at $5 billion when the dam was first proposed, but inflation has increased that estimate to between $8 and $10 billion.

A feasibility study released last month by the two provinces estimated the dam could power 600,000 homes and create 80,000 person years of employment during the dam’s construction, government officials say.

The cross-border power deal – and the prospect of reviving the Conawapa project – has been met with skepticism by Tom Adams, executive director of the watchdog agency Energy Probe, who has reservations about the "fogginess" of the details.

"I know they are trying to present it to the public as a kind of a package," says Adams.

"It behooves us to be cognizant of the hype that has surrounded this for so long. Both governments have been yabbering on about Conawapa, but there is no signed contract nor any transmission study."

Ontario Premier Dalton McGuinty has said that Ontario will need to look for new sources to supply 25,000 MW of energy within the next 15 years, especially since he has vowed to close all of Ontario’s coal-powered generation stations within four years.

Bruce Power is spending billions of dollars to refurbish two nuclear reactors on Lake Huron, which when completed will produce 750 to 800 MW of power each.

But having a better cross-border connection is considered key to stabilizing power supplies and minimizing problems such as the power blackout that hit Ontario and the eastern United States in 2003.

Tapping into Manitoba’s hydro surplus is also on the radar for Premier Gary Doer. In a speech to the Empire Club in Toronto last October, Doer noted the lack of power sharing between Canadian provinces.

Proposed and existing hydro dams

"I’ve got a map up here in terms of the North American power grid and I think a picture’s worth a thousand words," Doer told the audience.

"You can see there are three north-south spaghetti lines of transmission going from Canada to United States. You can see also, that this country has no grid east and west. The empire, if you will, has no grid … It’s an issue we should have on our national agenda."

The two provinces have said they will seek federal funding for the dam project, although so far Ottawa has not agreed to chip in.

But sending Manitoba energy east isn’t a simple task because it requires the stringing of transmission lines over much of the vast and isolated Canadian Shield, Energy Probe’s Adams notes.

"That is a lot of real estate. The distances we are talking about are not just vast, but particularly harsh. There is almost no communication infrastructure, in terms of roads, railways, airstrips, in the straight line between Wawa and Conawapa."

Glenn Schneider

"Contrast this with Labrador power, and there are some interesting comparisons. The distance from Conawapa to Toronto is almost identical between the Lower Churchill and Toronto. The main difference is that Labrador path is already developed. High-voltage lines go almost the entire distance."

Nor are they easy to initiate. One of Manitoba’s current projects, the Wuskwatim dam, will be a relatively modest 200-MW dam that will flood an estimated one-half square kilometre on the Burntwood River near the City of Thompson. Wuskwatim will cost an estimated $900 million and take six years to build.

For that project, Manitoba’s Clean Air Commission had 32 days of public hearings on the potential impacts of the dam before giving the project an OK. Authorities are awaiting an environmental report to be translated into French before starting the public hearing process.

As well, the Nisichawayasihk Cree First Nation will hold a referendum on whether the dam should proceed. A date for that vote has not been set.

And while the bigger Ontario deal isn’t written in concrete yet, Manitoba Hydro sounds cautiously optimistic. "We don’t have a deal at this point," says Hydro’s Schneider. "They may decide not to go in this direction. We’re hopeful, they are sincerely looking at it as a sincerely viable option."

Will Rodgers
Tampa Tribune
December 12, 2005

With the United States so dependent on oil from abroad and the nation’s supply of coal estimated to last a couple centuries, energy experts and environmentalists say coal unavoidably will play a large role in meeting the nation’s future energy needs.

Coal had been cast aside as a choice fuel for new power generation because of air and water pollutants. But the rising cost of oil and natural gas has moved coal back to center stage for many utilities.

Advanced coal technology tested in our back yard has proven the abundant and relatively inexpensive energy source can clean up its act and generate electricity nearly as cleanly and efficiently as natural gas.

Yet, just three power stations nationwide use the advanced technology known as integrated gasification combined cycle (IGCC) to generate electricity from coal. And several Florida utilities are seeking permission to build traditional coal-fired plants, albeit with the latest pollutant-scrubbing technology.

If coal plays a big role in the nation’s energy future, then the advanced technology of extracting gas from coal should be the preferred method for generating electricity, say experts. But utility officials argue the technology is too expensive and unreliable.

"I’m disappointed by it," said Tom Adams, executive director of Energy Probe, a Toronto-based environmental and consumer group that studies energy issues across North America. "The power industry could be a lot cleaner than what it is today."

In fact, the cleanest-burning coal plant in North America serves the Bay area and is owned by Tampa Electric Co., according to a study released in November by Energy Probe. The Polk Power Station, south of Mulberry on U.S. 37 just north of State Road 674, cranks out 320 megawatts of electricity all day, everyday – with negligible air emissions, said Vernon Shorter, Tampa Electric’s tour guide at the power plant.

Shorter is retired from Texaco Inc., which developed the coal-gasification technology used at the Polk plant. That technology has since been purchased by General Electric.

Energy Probe evaluated emissions data from 403 coal power plants in the U.S., Canada and Mexico. And the Polk plant came out at the "top of the stack," Adams said.

IGCC technology involves turning coal or coal mixed with petroleum coke or biomass into a gas, known as synthesis gas, or syngas. That gas is cleaned of pollutants and burned in a combustion turbine to generate electricity. Waste heat from the combustion turbine is then captured and used to heat steam, which then spins another turbine to produce electricity.

Some of the byproducts from producing and cleaning the gas are sold, such as sulfuric acid for fertilizer, or reused in the process to create more gas.

Other coal-fired plants burn the coal to generate power and then try to capture or clean up the emissions.

The cleaner-burning coal-gasification power plant also is about 7 percent more efficient in generating electricity.

"I think what Polk [power station] has demonstrated is that coal doesn’t need to be a dirty word," Adams said.

But while many utilities recognize coal-gasification is better for the environment and communities, they argue that power plants built with the technology are expensive and unreliable.

Coal-gasification experts and environmentalists agree that IGCC power plants are more expensive than traditional coal plants initially. But the federal government offers grants and tax incentives to help fund the construction of gasification plants.

The experts also point to Tampa Electric’s Polk Power Station, which ran as a test facility from 1996 until 2000 and now runs commercially as a base load power plant. Base load means that the plant runs around the clock, supplying constant power to the grid.

Ross Bannister, Tampa Electric spokesman said it cost about $500 million to build the Polk Power Station. The Tampa utility paid about $380 million, and the U.S. Department of Energy paid $120 million.

Shorter said the power plant also is Tampa Electric’s lowest-cost producer of electricity. The Polk station has a per kilowatt-hour cost of $2.50. That compares with kilowatt-hour costs of $2.80 for Big Bend, a coal-fired unit, and $9 for Bayside, a natural gas-burning unit.

Stephen Smith, executive director of the Southern Alliance for Clean Energy, said coal-gasification is more reliable and more efficient than traditional coal-burning plants. He said the technology is proven and is mature enough for primetime.

The Southern Alliance for Clean Energy recently helped defeat Juno Beach-based Florida Power & Light Co.’s effort to build a coal-fired power plant in southwestern St. Lucie County. County commissioners there voted 5-0 against allowing the power plant after outcry from the community about potentially harmful emissions.

Smith said his organization would not have strongly opposed Florida Power & Light if the company has chosen to use coal-gasification technology. He said IGCC is the only type of coal power plant that will capture or minimize all of the carbon emissions from coal.

"We’re very bullish on coal-gasification as an organization," Smith said.

Tyler Hamilton
Toronto Star
January 5, 2006

The Ontario government’s suggestion that it will consider foreign nuclear companies for the construction of new power plants is a bargaining tactic aimed at getting Ottawa to cover any financial risks of sticking with Candu technology, sources say. Government officials began hinting in the summer that choosing Candu technology from Atomic Energy of Canada Ltd., a federal Crown corporation, is not a certainty and that reactor designs from countries such as France and the United States will also be explored.

"The feds will have to take some of the financial risk," one unnamed government official told the Toronto Star. "This minister (of energy) is not rubber-stamping anything."

The Ontario Power Authority recommended in a report last month to the provincial Ministry of Energy that nuclear power remain 50 per cent of the province’s energy mix over 20 years, requiring an estimated $40 billion be spent to refurbish aging plants and build new ones as coal generators are shut.

But critics said that figure could end up much higher if history repeats itself. For example, the province expected to pay about $4 billion for the Darlington nuclear station but the price tag surpassed $14 billion by the time it was completed in the early 1990s. The former Ontario Hydro assumed all the risk.

Ontarians have no intention of carrying such a burden again, observers say. Getting the federal government to offer upfront subsidies or indirectly guarantee a fixed rate from AECL could be a way for the Ontario government to make new nuclear plants more palatable for taxpayers, they say.

Tom Adams, executive director of think-tank Energy Probe, said the situation is not unlike New Brunswick’s request earlier this year for federal subsidies for its nuclear refurbishment plans. He said that province threatened to negotiate with Ontario’s Bruce Power and the Indian government’s nuclear agency to put pressure on the federal government.

When those subsidies were refused, Premier Bernard Lord blasted the federal government for abandoning New Brunswick.

"The federal government is willing to invest in nuclear development in China, assist Ontario with decommissioning of coal in Ontario, but they are not willing to invest in the nuclear industry in New Brunswick," Lord said in a July speech that characterized Ottawa’s decision as a "betrayal."

---

‘If the Candu history is any guide, those guarantees . . . could be worth billions.’

Tom Adams of Energy Probe

---

New Brunswick eventually signed with AECL, but it didn’t walk away empty handed. Its contract with AECL stipulates that 90 per cent of the cost of the refurbishment be fixed so that Ottawa indirectly covers any unexpected cost overruns.

"AECL has actually absorbed more of the risk than the original project," said a spokesperson from New Brunswick’s energy department.

Adams said such a contract structure is potentially more valuable than upfront subsidies, because it creates more certainty and lowers the financial risk for any province that has been hit financially in the past.

"What Lord obtained was a guarantee from AECL on construction time, construction cost, and also the post construction performance of the reactors," he said.

"If the Candu history (in Ontario) is any guide, those guarantees are worth more than a few hundred million dollars. They could be worth billions."

AECL spokesperson Dale Coffin said it’s now standard practice to offer fixed-price contracts.

"Whenever we are bidding on new projects, such as the last two in China, that’s already the model we promote in our business case," said Coffin. "As the technology has evolved, so too has the business model to become more robust and to carry risk-sharing."

Rivals to AECL and its Candu technology include U.S.-based General Electric Co. and Westinghouse Electric Company LLC, and France’s Areva SA. There are about 30,000 nuclear industry jobs in Ontario. As well, the hiring of a foreign company would likely lead to significant job losses at AECL, which employs about 4,000.

While taking the unpatriotic route of choosing a foreign technology would likely come with its own set of uncertainties and risks, one provincial official said AECL’s next-generation Candu technology has its own question marks and risks, making it impossible to accurately predict costs.

"They admitted two years ago it was nearly designed and it’s still not designed," the official said.

CBC News

January 23, 2006

A Toronto-based environmental organization says Ontario’s new-found interest in long-term power contracts could make the development of the lower Churchill River more feasible.

The Energy Probe Research Foundation believes a recent policy shift in Ontario may change the economics of the long-awaited hydro project.

Tom Adams, the executive director of Energy Probe, said the government of Ontario is ready to buy as much power as it can, for as long as it can.

"Senior Ontario government officials have been very clear in public comments that their instructions are to pursue long-term contracts," Adams said.

"Some of them very controversial like nuclear, where the government recently entered into a 36-year contract for supply."

Ontario has partnered with Hydro-Québec and SNC Lavalin for one of the bids that has made it to a shortlist for pursuing a Lower Churchill project.

On Friday, Premier Danny Williams said Newfoundland and Labrador Hydro had been directed to apply to transmit energy through Quebec.

The process of making such an application has begun even though the province has not yet selected a bid for development of the megaproject.

Adams said there is no guarantee that the Ontario-Quebec proposal will be selected, but he added Ontario’s shift in outlook may give the bid some steam.

The feasibility of developing hydro power on the lower Churchill River has been studied for decades. In recent years, one obstacle has been a market shift that saw buyers avoid long-term contracts.

Opposition Leader Gerry Reid said that factor stopped the former Liberal administration from developing the project in 1998 and in 2003.

"At that time, the banks told us, and the financial institutions, that it wasn’t viable unless you had a customer who was committed to signing a contract for 25 or 30 years," Reid said.

"As a result, they wouldn’t finance a project for us."

CTV News

January 31, 2006

The Ontario government is warning people to start conserving energy now or face the possibility of another blackout.

"All we’re asking is conserve like hell," former Toronto mayor Mel Lastman said on Tuesday.

Ontarians are being reminded of the blackout in the summer of 2003. People were told to conserve energy then, but the message may not be sticking.

"I think we did for a while and I think people actually changed their thinking," Ontario Energy Minister Donna Cansfield said.

But some are slipping into old habits, leaving lights on and cranking up the air conditioning. Energy consumption increased by two per cent in 2005.

Cansfield said it’s time to push the conservation message again as the Ontario government and the province’s six largest utility companies launched a $4 million ad campaign, powerWISE, Tuesday. The campaign focuses on educating Ontarians about energy conservation.

Studies suggest, for example, that if just four compact fluorescent light bulbs were placed in each of Ontario’s 4.5 million homes and apartments, the province could shut down one 200-megawatt coal-fired plant.

"We need to deal with the issue," Cansfield said. "We need to deal with it now so that we do not have rolling blackouts in 2008," Cansfield said.

But Tom Adams of Energy Probe believes Ontario may not have to wait until 2008 to get a blackout.

"We could have blackouts next summer or next winter," he said. "Anytime the weather drives up electricity demand, we are at risk."

However, getting people to conserve energy won’t happen immediately, said Terry Young of the Independent Electricity System Operator.

"This is really a behavioural thing and it’s going to take some time," he said.

New power plant in Toronto

Toronto’s insatiable thirst for energy means the city may have to build a new gas-fired power plant, Premier Dalton McGuinty said Monday.

Toronto, which is unable to generate power of its own, needs 250 megawatts of new supply by 2008. The city currently relies on existing transmission lines, which run at full capacity during peak demand periods such as hot summer days.

"There’s just no way around it (building a new plant)," McGuinty said. "It’s either that, or talk about rolling blackouts."

The Portlands area, east of downtown, is being considered as a likely area for a new plant.

Mayor Miller said the city would only support a co-generation plant that would produce both electricity and steam to heat homes and businesses.

With files from CTV’s Austin Delaney.

Natalie Armstrong
Metro News
February 9, 2006

TORONTO (Reuters): Ontario said on Thursday it will shave a tenth of a cent off prices for bulk users of electricity this year, offering relief to a sector hammered by high energy costs and the strong Canadian currency.

Energy Minister Donna Cansfield told a news conference that the province had decided to prolong a cap on energy prices for large industry, and lower the price to 4.6 Canadian cents per kilowatt, from 4.7 cents.

"We know that Ontario’s businesses, whether they be located in Thunder Bay, in Sarnia or downtown Toronto, need a reliable supply of power," Cansfield said.

"We also know that Ontario’s businesses rely on electricity prices that are stable and predictable and that’s what today’s announcement is about."

Cansfield said the announcement will affect about 55,000 large industrial and commercial electricity consumers – those who use more than 250,000 kilowatt-hours a year.

The move is aimed at helping steelmakers, pulp and paper mills and other manufacturers at a time when many companies blame soaring energy prices for plant closings and job cuts.

The cap affects prices charged by Ontario Power Generation’s unregulated facilities. OPG is the province’s electricity generating utility. Prices will go back up to 4.7 cents per kWh next year and rise to 4.8 cents on April 1, 2008.

The current cap of 4.7 cents per kilowatt-hour expires on April 30 and is well below market rates. The big users pay the bill at market rates and get the difference back in rebates.

Scott Hand, chairman and chief executive of nickel miner Inco Ltd. ., told the news conference that the Ontario announcement could save C$80 million ($70 million) for Inco and Falconbridge over the next three years.

"That’s a lot of jobs," Hand said.

But Tom Adams, executive director of the consumer and environmental research group Energy Probe, said the subsidy to large manufacturers will eventually be covered by Ontario taxpayers in the form of transfer payments.

"The practicality of this is that OPG will lose more money and come to government for greater top-ups. OPG will not have the cash flows to undertake the capital projects that it has on its book," Adams said.

"When you squeeze a balloon, it has to bulge out some place else."

Canada’s manufacturing sector, with much of it based in Ontario, has shed about 151,200 jobs since December 2002, pressured by a rising Canadian dollar and higher oil prices.

The currency has marched steadily higher in recent years and, in late January, touched its highest level against the U.S. dollar since 1991. Energy prices, too, have soared, especially after hurricanes curtailed U.S. oil and gas production in the Gulf of Mexico.

($1=$1.15 Canadian)

Tyler Hamilton
Toronto Star
February 14, 2006

Alberta’s Energy Minister Greg Melchin believes coal, whether we like it or not, is poised to become the most important fuel in Canada’s future.

And he’s not reluctant to say that in Ontario, where the government has vowed to shut all coal-fired plants by 2009. And where the Ministry of Energy estimates nearly 700 people a year die from pollution caused by coal plants, and where more than 300,000 suffer illnesses.

At a business lunch last week in Toronto, Melchin strongly urged Ontario to reconsider its seemingly inflexible position on coal. "The opportunity is enormous."

He wasn’t just talking about any coal. Melchin was touting "clean coal" – an umbrella term for a variety of technologies and power-plant designs that promise to take the dirtiest and most abundant fossil fuel on the continent, clean it up and turn it into low-emission electricity.

North America has roughly 250 billion tonnes of recoverable coal reserves, accounting for about a quarter of worldwide reserves. As global demand for energy skyrockets, boosted by spectacular economic growth in India and China, there’s a growing movement to make coal a cheap, secure, domestic and environmentally acceptable alternative to nuclear power and increasingly expensive natural gas.

"The coal plants that appear in the next decade or so will be unrecognizable to those familiar with their ancestors," says The Thinking Companies Inc., a Maine-based energy-consulting firm that argues coal is back in fashion. Modern coal plants, based on designs from General Electric Co., ConocoPhillips Co. and Royal Dutch Shell PLC, will be "clean, highly efficiently facilities able to produce electricity with perfect reliability at low cost," the report asserts.

Many challenge the claim, calling the term "clean coal" an oxymoron, but by all accounts the coal renaissance has begun:

Alberta Premier Ralph Klein told energy executives last month that he was a "coal guy" at heart. He hinted he will use his annual TV address to Albertans this month to outline a plan, involving clean-coal technologies, to unlock value from the province’s massive reserves.

A group of coal producers and power generators called the Canadian Clean Power Coalition has plans to build a $1.5 billion clean-coal demonstration plant by 2012. And, George W. Bush’s proposed 2007 budget has earmarked $285 million (U.S.) for research and development into coal technologies and another $54 million for FutureGen, an initiative to build the world’s first zero-emission fossil-fuel plant based on coal.

Some American states, such as New York and Pennsylvania, have more aggressively embraced clean coal by setting up special investment funds, establishing incentives and offering low-cost loans to spur development of new technologies and power plants.

Meanwhile, French-based power equipment giant Alstom SA recently reported that the coal industry will account for the lion’s share of its power generation equipment sales over the next 10 years, representing 40 per cent of the market compared with 35 per cent for natural gas and even less for nuclear.

Executives with the company said clean coal advancements are making the fuel more attractive to many countries, particularly China, which will need to build hundreds of new coal plants over the coming years and at the same time manage a worsening environmental crisis.

Ontario is moving in the opposite direction. The Lakeview Generation Station in Mississauga has been shut and three more coal-fired plants are to close next year. The massive 4,000-megawatt Nanticoke plant on Lake Erie is to be shut in 2009 if the government can stick with its schedule.

But even in Ontario, some observers say it’s premature to write Old King Coal’s obituary.

"Within a 20-year time horizon I suspect it could come back again," says Jan Carr, chief executive officer of the Ontario Power Authority. "What won’t happen is setting fire to coal in boilers and making steam the way we do right now. The difficulty with coal is not that it’s coal; it’s that the particular way we’re using it has a lot of very negative side effects."

Carr says the government’s position is a wake-up call to an industry clinging to the status quo.

The Power Workers’ Union, for example, argues that existing coal plants in Ontario can reduce smog-causing sulphur dioxides and nitrogen oxides, as well as mercury emissions, by retrofitting facilities with better catalytic and "scrubber" technologies wrapped under the "clean coal" banner. The union says the province could save $11 billion by going this route instead of building new natural gas plants.

But Carr says the approach, which the Ontario Clean Air Alliance claims would reduce emissions from the province’s coal plants by only one-half of 1 per cent, isn’t new and isn’t really what clean coal is about. "They need to get their act together on their terminology."

In energy circles, clean coal is much more ambitious and involves an entirely new way of extracting energy from coal, as demonstrated by the handful of Integrated Gasification and Combined Cycle plants built in Europe, Japan and the United States in the past decade.

These modern facilities use high temperatures and extreme pressure to convert coal into a hydrogen-rich synthetic gas. Throughout this chemical bond-breaking process, a system of filters and scrubbers removes contaminants, while activated carbon is used to capture mercury. Carbon dioxide (C02) is also easily separated from the gas, which is eventually burned in a power-generating turbine, much like natural gas.

And like most advanced natural gas plants, clean-coal "gasification" plants operate on a more efficient combined cycle, meaning waste heat from the process is used in a steam turbine to produce even more electricity.

Ideally, the goal is to reduce coal-plant emissions enough to make them environmentally competitive with natural gas. In Ontario this is often referred to as the Witmer Standard — in reference to former environment minister Elizabeth Witmer, who said the criteria for letting a coal plant in the province stay open is that it must meet the emission standards of a natural-gas plant.

"The government should subject all proposals for so-called clean coal to the Witmer Standard," urges a recent report from the Ontario Clean Air Alliance.

But even if the Witmer Standard can be met, clean coal isn’t without its risks. For one, the technology is still relatively unproven and, while the power authority recognizes costs will fall 90 per cent as the design becomes more widespread, being a first mover comes at a significant financial penalty. This includes the kind of construction delays and cost overruns typically associated with nuclear.

Also, the appeal of a clean-coal facility is based on the assumption that coal will remain cheap and natural gas prices will continue to rise. But the cost of coal has more than doubled over the past two years, and while still much cheaper than natural gas and oil, some wonder whether the migration to clean coal will push prices much higher over the next decade.

What to do with all the CO2 that’s captured poses another problem. In Saskatchewan and Alberta, it’s generally thought that CO2 could be pumped via a pipeline into old oil fields for long-term storage, a process known as sequestration. This method also enhances oil recovery by forcing hard-to-reach reserves up to the surface.

EnCana Corp., for example, is using CO2 pumped in from North Dakota to retrieve an estimated 130 million barrels of oil over two decades from a 50-year-old oil field in Weyburn, Sask. It’s a win-win arrangement, but one that won’t work everywhere.

"Ontario’s geography has less opportunity for CO2 sequestration," says Bob Stobbs, a spokesperson for the Canadian Clean Power Coalition, which is likely to base its planned clean-coal demonstration plant near an aging oil field in Western Canada.

Stobbs says the CO2 could be stored in deep aquifers in Ontario, but that is less proven and doesn’t provide the opportunity for enhanced oil recovery that would justify the cost of CO2 capture at a clean-coal plant.

There are other experimental technologies the province could consider, including converting CO2 to marketable baking soda or selling it to the carbonated beverage industry. The greenhouse gas could even be used to feed huge farms of algae, which can be harvested and processed into biodiesel and ethanol.

But Ontario’s appetite for experimentation is limited. The power authority advised the Ministry of Energy in December to spend $40 billion between now and 2025 on nuclear power to help fill the gap left by coal shutdowns.

Nuclear is something Ontario knows. Clean coal and algae farms are foreign concepts, filled with too much uncertainty. Indeed, the authority’s 20-year plan includes little mention of clean-coal development, other than a recommendation to closely follow developments in the United States.

Tom Adams, executive director of think-tank Energy Probe, says next-generation nuclear technology being proposed by Atomic Energy Canada Ltd. is untested, unproven and carries the same cost-overrun risks as clean coal. The only difference, he points out, is that the poor track record of nuclear in this province is already known.

On the other hand, he says, Shell and General Electric Co. seem prepared to offer comprehensive guarantees on their clean-coal "gasification" technologies, something the province appears unwilling to recognize.

"The McGuinty government talks about how there’s all this risk, but they’re not prepared to take the same risk by going to cleaner coal," he says. "That just shows they don’t know what they’re talking about."