Keeping the coal promise
Ontario scrambles to replace plants
Critics say it will be Herculean task
Toronto Star - August 28, 2004
by Peter Gorrie
The word "challenging" comes up often when people in the electricity
business are asked whether Ontario's polluting coal-fired generating
stations can be shut down in 2007.
Another favourite: "Tough."
"Very tight deadlines" is a common refrain.
And that leads to the most crucial word of all: "Cautious."
As in, few companies are yet rushing in to build new, cleaner plants to
make up for the power produced by the smoke-belching behemoths in
Etobicoke, Nanticoke, Sarnia, Thunder Bay and Atikokan.
Nobody doubts the province would be better off without the noxious
emissions that spew from the plants, operated by Ontario Power Generation.
They contribute in a big way to air pollution that the Ontario Medical
Association says leads to 2,000 premature deaths and thousands of hospital
admissions each year, and adds $1.2 billion a year in health costs and lost productivity.
The Liberals scored with voters when they promised in last year's election
campaign to douse the massive coal fires within four years.
But those plants combined can generate more than 7,550 megawatts of power
— one-quarter of Ontario's capacity and one-third of its normal peak demand.
That production must be replaced, by reducing consumption or building new plants.
Premier Dalton McGuinty's government insists it has a plan. Energy
Minister Dwight Duncan has unveiled parts of it over the past nine months.
They're short of what's needed, but Duncan says more measures will be
announced this fall.
"This government is moving heaven and earth to achieve its goal in the
timeline set out. We believe we'll be able to achieve it."
Power experts say that, at best, keeping the promise will be a Herculean
task. Some angrily argue that the way the province is going about it is
too flawed and biased to succeed.
It doesn't help that last week, OPG revealed problems with fuel channels —
which contain uranium bundles in the reactor — at its Pickering B nuclear
station. As a result, the reactors will need more maintenance and be out
of service more frequently than planned.
"It's a challenging deadline, but probably not beyond the scope of human
ingenuity," says David Butters, president of the Association of Power
Producers of Ontario, an industry lobby group.
The province won't suffer power shortages.
"One thing I can say about the coal phase-out is we're not going to let
the lights go out," Dave Goulding, chief executive of the Independent
Electricity Market Operator, or IMO, which runs Ontario's power system,
told the Star's John Spears this month.
At issue are when Ontario's air will get cleaner and whether the
government must break yet another election promise.
So far, Duncan has:
Authorized OPG to repair and restart an idle reactor at the Pickering A
nuclear station. That will increase the province's generating capacity by
515 megawatts, or enough power to supply 350,000 average homes. The
utility says the work can be completed in 15 months at a cost of $900 million. It's a decent amount of power. But critics say pouring more money into
Pickering is a major mistake, given the high cost of nuclear power, OPG's
abysmal record with previous repairs and the costly and dangerous problems
of dealing with used radioactive fuel. The Pickering announcement is "the biggest misstep of the McGuinty
government," says Jack Gibbons, head of the Ontario Clean Air Alliance, an
environmental lobby group. Approved construction of another huge water pipe to boost the capacity of
the Niagara Falls hydroelectric station by 230 megawatts. That's a
straightforward, non-polluting project with virtually no critics.
Unfortunately, it won't be finished until 2009. Requested proposals from private companies to generate 300 megawatts using
wind, solar or other renewable energy sources. Duncan has been swamped
with responses; 90 projects totalling about 4,400 megawatts. Industry
observers figure about half are viable. Those that win the competition are
required to have their projects up and running by the end of 2007. Requested proposals for another 2,500 megawatts, either through building
new generating stations or curbing industrial demand. This seems very
helpful. But the deadline for completing new projects isn't until Dec. 31,
2009. And it's not certain how many companies will participate.
If all four measures pan out, the government can count on adding at most
3,315 megawatts of capacity by the end of 2007 — the promised deadline for
shutting the coal-fired plants. That would leave it 4,235 megawatts short.
Add two recently opened gas-fuelled plants in Windsor and Sarnia and the
deficit drops to about 3,000 megawatts.
The situation could be improved if homeowners use less power. The
government aims for a five per cent cut by 2007. That could, very roughly
speaking, cut the amount of capacity Ontario requires by about 1,300
megawatts, Duncan says.
Then, the province would be about 1,700 megawatts short of its target.
But critics say that, so far, the conservation plan is a dim bulb.
Last October, Duncan announced $225 million for Toronto Hydro and other
municipal utilities to promote reduced consumption.
But the utilities' profits go down if their customers buy less
electricity. Consequently, they haven't spent much of the money. What they
have spent has mainly gone toward what Gibbons calls "feel good" TV and
newspaper ads with little impact.
The government also plans to spend $400 million to install "smart meters"
— which give consumers a price break if they use electricity at off-peak
times — in 800,000 Ontario homes by the end of 2007 and all of them by
2010. The meters will cost homeowners $1 to $3 a month.
But there's no clear evidence how much electricity the meters will save.
And much of any effect they'll have won't come until well after 2007.
The biggest part of the government's plan is construction of new
generating stations, likely fuelled by natural gas. They are far more
efficient than coal-fired plants and emit a small fraction as much pollution.
Under the plan, companies must bid for the right to build projects. Those
that offer the lowest price and meet other criteria will be picked, until
the goal of 2,500 megawatts is achieved.
The idea, at its simplest, is that project owners will be contracted to
produce a certain amount of power — much less than their plants' full
capacity because demand fluctuates and is usually below its peak — which
they will sell to the provincial system at the price they bid. If the
system buys more than the contracted amount from a project, its owner
repays any excess revenue. If it buys less, the owner gets reimbursed for
the lost income.
It's called "revenue assurance," and it sounds like a good deal for plant
operators.
Building enough new plants by the end of 2007 is theoretically possible:
Mexico has constructed 8,800 megawatts of capacity since 2001. Whether it
will happen in Ontario is another matter.
The IMO has a long list of potential gas projects, totalling about 3,100
megawatts of capacity. It includes every company that agreed to pay for a
very preliminary assessment of how it would fit into Ontario's
transmission system. Some projects won't go ahead, so while the list is
impressive, it's not necessarily meaningful.
The IMO has just begun revising the list to include only the most likely
players. Final proposals for new plants must be submitted by Nov. 22.
Winners are to be announced Feb. 1.
One solid prospect appears to be the Portlands Energy Centre, a
550-megawatt plant being developed on Toronto's eastern waterfront by OPG
and TransCanada PipeLines Ltd. It's getting special treatment because
Toronto needs a new generating station.
Sithe Canadian Holdings, Inc. has proposed projects — about 800 megawatts
each — in Brampton and south
Mississauga.
Because of their location,
those, too, get a break in the bidding.
Other potential bidders hedge their bets.
"We're looking very closely at Ontario" but "we have no firm project,"
says Susan Dowse, of California-based Calpine Corp., which runs a small
plant in Whitby. The company has concerns about the method of selecting
projects, she says. "We think there's room to optimize it."
"We're considering participating," says John Jenkins of Calgary-based Atco
Power, which last month, in partnership with OPG, opened a 580-megawatt
gas-fuelled plant in Windsor. "It's a complex situation...we'll have to see.
"We'd like to participate but we're very cautious."
If Atco were to propose another plant, Jenkins says: "2007 will be a very
tight schedule."
Another Calgary company, TransAlta Corp., recently began production at a
$500 million, 575-megawatt gas-fuelled plant in Sarnia. When construction
began, under the previous Conservative government, it appeared Ontario
would have a deregulated electricity market, says spokesperson Tim
Richter. Because that's no longer the case, the plant is running at only
25 per cent of its capacity, and losing money.
TransAlta won't participate in the first round of bidding, Richter says.
Before doing anything else, it must get things sorted out at Sarnia: "We
want to ensure our investment in Ontario is protected."
Companies are being cautious for several reasons.
They're worried about the supply and cost of natural gas.
Opinions are mixed on whether Canada can continue to produce enough of the
increasingly popular fuel. But as the Star's Spears has reported, one of
Canada's experts on gas supply, David Hughes of the Geological Survey of
Canada, warns of an energy squeeze in Ontario and suggests closing the
coal-burning plants would create unprecedented pressure on gas supplies.
Some in the industry dislike the selection process.
It's long and extremely complicated: It doesn't always take into account
how projects will link to the electricity transmission grid. Many fear the
rules of Ontario's energy market, radically altered several times since
1995, will be transformed again.
Duncan advises critics to be patient. "We're moving as fast as we can."
The measures he might announce this fall include restarting two idle
reactors at the Bruce nuclear station, developing smaller hydroelectric
projects, pushing for more renewable and gas-fuelled generating stations.
He's considering moves to increase conservation. "The folks that advocate
we need regulatory changes are right. We're looking for the best way to do it."
And he has a big card up his sleeve. The province could tell OPG to
convert some or all of the coal-fired plants to natural gas. It would be
expensive. The two biggest plants are a long distance from adequate gas
supplies. And converted plants are only about half as efficient as new designs.
OPG isn't spending "a lot of time or effort" on plans for converting the
plants, says spokesperson John Earle. "We will continue to operate the
plants as currently designed. If we're directed by our shareholder (the
government) to change the operation, we will."
But that option "is part of the main mix," Duncan says.
It likely must be done. On top of replacing the coal-fired megawatts, the
province will require thousands more by 2020 as nuclear plants and other
sources reach the end of their operating lives.
"We've got a lot of work to do," Duncan says. "Nothing is easy. There are
no simple answers."
No one is disagreeing with that.
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