Six Handy Facts About Alberta’s Coal Phase-Out

Alberta’s decision to phase out coal-fired power by 2030 represents a big shift (coal currently generates just over half of Alberta’s electricity), so it’s not exactly surprising that the phase-out has led to a fair bit of debate.

Throw in a complex lawsuit, threats of increasing power prices and a resurgence of the “clean coal” myth, and it becomes nearly impossible to figure out what’s actually going on.

Often missed in the conversation is the fact that 12 of the 18 coal-fired power plants in Alberta would have had to shut down by 2030 anyway under federal regulations introduced by former prime minister Stephen Harper.

Quite a lot of other facts are getting lost in the noise as well, so DeSmog Canada delved into the research to come up with these six handy facts.

Fact #1: Electricity Bills Aren’t Going to Skyrocket Because of the Coal Phase-Out

First things first: in late November, the Alberta NDP introduced a cap on default power prices at 6.8 cents per kWh, beginning in June 2017 and running until June 2021. (For reference, default rates are currently between 4.1 and 4.4 cents/kWh, depending on location.)

So yes, rates may increase a little, but there’s simply no way that retail prices can triple, or even double, as some have been suggesting.

Secondly, there are different elements of electricity bills: the cost of electricity and transmission or distribution costs.

Alberta has been anticipating an increase to the cost of electricity since 2014 (before the NDP was elected) because of improvements to the province’s transmission system and unsustainably low prices in recent years — and not as a result of the coal phase-out.

“Those cost increases are independent of coal phase-out,” Binnu Jeyakumar, program director of the Pembina Institute’s electricity program, told DeSmog Canada.

Many critics of the phase-out point to Ontario — which has seen a doubling in retail prices — as an example of what might happen.

But Jeyakumar notes the main reasons for the drastic price increase in Ontario were the payments for deferred grid infrastructure investments, and the costs associated with the refurbishment of nuclear plants.

“Those are massive, massive capital investments that we’re not looking at in Alberta,” she says.

Plus, the price of renewables has dropped significantly since the Ontario experience, and the process by which Alberta is procuring power is “much more competitive,” says Jeyakumar.

Fact #2: Coal Jobs Were Already Threatened by Shoddy Economics

Many small towns have expressed serious fears that the phase-out will kill hundreds of jobs.

In 2016, coal town Grande Cache, asked the provincial municipal affairs minister to consider dissolving the town after losing 750 — about one-third — of its jobs.

For Grande Cache, like many other coal-reliant towns, the issue of low coal prices had become existential.

Here’s the thing: this is not a new issue.

Coal prices — for both thermal and metallurgical coal — have plummeted in recent years as jurisdictions all over the world shift away from coal. Renewables have increased in viability, economic growth has slowed and natural gas prices have dropped, all factors in the collapse of coal that pre-date the announcement of Alberta’s climate plan.

“Planned coal phase-out — with the introduction of renewables and energy efficiency — is actually better for labour because it allows you to plan for support for your workers,” Jeyakumar says.

“The alternative is you have these coal plants that could come offline just purely based on economic reasons. It’s the coal plant’s owner and operator who’s making that decision. That gives the workers and province less time to plan for how they’re going to transition these workers into the new economy, or how they’re going to compensate those workers.”

Of course, such a reality don’t necessarily make the decline of coal towns any easier.

But many new jobs will be created in the transition to the “30 by ’30” target, which will see 30 per cent of electricity generated by wind, solar, geothermal and biomass by 2030 (which itself will replace two-thirds of the lost generation from coal). There will also be an increase in job opportunities as predicted by Green Party leader Elizabeth May, who stated in 2015 that “we need an army of carpenters, electricians and contractors going out to plug leaky buildings.”

These new jobs will exceed those lost through the coal phase-out. Pembina has calculated that there are 3,150 jobs directly associated with coal in Alberta. But between 12,600 to 35,000 jobs will be created between now and 2030, thanks to the province’s renewable energy program.

Alberta has committed $195 million to help coal and Indigenous communities with the transition to renewable energy. And on January 9, it was announced that Alberta Labour would be conducting a “Coal Communities Survey” to identify worker skills to help the department plan the transition. The government has also formed an Advisory Panel on Coal Communities.

Fact #3: Billions of Dollars Will Be Saved in Healthcare Costs (And Fewer People Will Be Sick)

The coal phase-out isn’t just about cutting greenhouse gases. It’s also about reducing air pollutants, including sulphur dioxide, nitrogen oxides, fine particulate matter, ozone, cadmium, mercury and lead. These can lead to serious respiratory and heart diseases.

The Canadian Association of Physicians for the Environment estimates that coal leads to 107 premature deaths, 80 hospital visits and 4,862 asthma-related sick days in Alberta every year, costing the province around $300 million.

Over the next 20 years “the phase-out can get us up to $3 billion in healthcare savings for the province,” Jeyakumar says. “If you look at the whole balance sheet — you add up the health cost savings and the potential for labour transferring from renewables and energy efficiency — the province actually comes out way ahead than it would be without the coal phase-out.”

Fact #4: Yes, Coal Companies Will Be Compensated, but Out of Carbon Tax Revenues

There’s been plenty of debate about whether the six coal units that are being shut down before schedule should receive compensation from the province.

A 2015 publication from Pembina concluded that four of the six units would receive a “fair return on capital” by 2030, undermining the case for compensation.

It argued that “investors in merchant units built after 2001 were well aware the long-term operations of these facilities would be subject to change of law related to climate policy,” but it might still be helpful to pay off the owners of the two most recently constructed units — Capital Power and TransAlta’s Genesee 3 (2005) and Keephills 3 (2011) — to maintain an attractive investment climate.

“As a matter of law, I think it’s crystal clear the province didn’t have to pay a cent,” agrees Nigel Bankes, chair of natural resources law at the University of Calgary, in an interview with DeSmog Canada. “It’s just new regulation. No one is entitled, unless specific commitments have been made, to a particular environmental regime to continue from the time they made an investment.”

Alberta’s government did indeed decide to provide “transition payments” for the six coal units that would otherwise operate past 2030, representing “approximate economic disruption to their capital investments.”

In late November Alberta announced it will pay Capital Power, TransAlta and ATCO a total of $97 million per year beginning in 2017, totalling $1.36 billion by 2030.

All money for the “transition payments” will be diverted from revenues from Alberta’s carbon tax on large emitters (the Specified Gas Emitters Regulation, to be replaced in 2018 by the Carbon Competitiveness Regulation). In other words, none of it will come from general revenues.

“It does seem to me the province struck a reasonable balance on this,” Bankes says.

Six Handy Facts About #Alberta’s Coal Phase-Out https://t.co/7yptHiHmLb #ableg #yyc #yeg

— DeSmog Canada (@DeSmogCanada) January 17, 2017

Fact #5: ‘Clean Coal’ Was Never a Viable Option

The previous federal regulations introduced in 2012 would have required 12 of the 18 coal-fired power plants in Alberta to shut down by 2030. The six remaining would be forced to close in later decades, with one as late as 2061.

That is, unless coal-fired units could reduce their emissions to 420 tonnes of carbon dioxide per gigawatt hour (gWh), or about as efficient as natural gas. The only way to do that is via carbon capture and storage (CCS), which either requires an extremely high carbon price or government investments to justify.

The retrofitting of SaskPower’s Boundary Dam coal-fired power plant with CCS technology is an example of how expensive this can get. The revamp cost of $1.47 billion effectively doubled the cost of power from $0.06 per kilowatt hour (kWh) to $0.12 per kWh from the facility.

Plus, since its opening, Boundary Dam has been plagued with issues, including frequent shutdowns, a massive leaking storage tank, cost overruns and equipment failures in August and November; the latter, a compressor failure, resulted in only 49 per cent of potential volume capture (the monthly target is 65 per cent).

In Alberta’s plan, there’s no entertaining the notion of CCS, which would likely require billions in payouts to coal companies and a long-term increase in power bills.

Rather, the government has acknowledged there are far more economically and environmentally viable options, and introduced clear policy direction to see them come to fruition. The province has stated that “where it is economically viable,” coal-fired power stations will be converted to natural gas power plants.

Jeyakumar says the best and cheapest alternatives to coal remains renewables (two to three times cheaper) and energy efficiency (up to six times cheaper).

Fact #6: Alberta’s Approach Guarantees Phase-Out is Permanent

By far the most controversial element related to the coal phase-out has been the province’s lawsuit filed in regards to “Power Purchase Agreements,” or PPAs.

The story is a confusing one, but here are the basics: Alberta deregulated its electricity system in 2000, which allowed for power purchase agreements to be signed directly between electricity generators and buyers. A public balancing pool was created to handle the PPAs that weren’t sold off. All was well.

Except there was a small and little-known clause that was introduced by the Energy and Utilities Board only five days prior to the auctioning of the PPAs. In short, the clause ensured that buyers had the ability to transfer the PPA back to the public balancing pool if any government decision was deemed to make the agreement “more unprofitable” (rather than just “unprofitable,” as the original wording had allowed for).

That clause remained dormant for more than 14 years but now, with the introduction of Alberta’s economy-wide carbon tax, the clause is being used by four PPA buyers to terminate contracts — a move that has the potential to cost the province $2 billion by 2020.

The details are confidential, but Bankes says they’re going to “split the difference,” with the Alberta government reimbursing the companies for the estimated cost of the carbon price, while the companies pay an “anticipated calculated cost associated with the market risk” that accounts for the lower electricity prices.

The province has negotiated a confidential settlement with all but one company: Enmax, the city of Calgary’s utility company.

What this whole process has ensured, interestingly, is that no government in the future can bring back these phased-out coal-fired power plants, because the contracts have been absorbed by the balancing pool and subsequently terminated.

The good news is ten megatonnes of annual emissions will be permanently cut, Alberta’s air will be cleaner and the province will be one step closer to a building an electricity system for the 21st century.