The cost of “clean coal”

Saskatchewan is home to the first power station to use Carbon Capture and Storage technology. In October 2014, the ageing Boundary Dam 3 coal-fired plant was powered up with the ability to “clean-up coal” and capture up to one million tonnes of carbon dioxide per year. But with a price tag of $1.467 billion -- the path to clean coal is not a cheap one.

Saskatchewan is coal country. The resource is abundant in the province -- with over 5 billion tonnes of it -- and in 2016, 40 per cent of Saskatchewan’s power came from coal. But coal is a heavy polluter, emitting about 1 tonne of carbon dioxide per megawatt of energy produced and contributing heavily to Saskatchewan’s high rate of annual greenhouse gas emissions.

That’s why the innovation of utilizing Carbon Capture and Storage technology at a coal power plant appeared to be promising.

CCS could offer Saskatchewan the opportunity to continue to utilize resources while protecting the environment.

At the Boundary Dam III CCS facility, up to 90 per cent of the coal plant emissions can be caught before they enter the atmosphere. Then the captured CO2 is liquified and sent through a pipeline, some of it to the nearby Weyburn-Midale oilfields to be used for Enhanced Oil Recovery to boost oil production. Another portion of it is stored permanently in the Aquistore facility, a geological storage site for CO2.

Boundary Dam III was originally built in 1970, and federal regulations state the plant would have to be shut down by 2019 if it was not retrofitted with CCS technology. CCS extended the life of the plant, and allowed it to meet federal greenhouse gas emission standards.

The plant produces about 115 megawatts of power. According to SaskPower, that’s enough to power 100,000 Saskatchewan homes. For the CCS project, the plant was retrofitted with a capacity of 160 MW because extra electricity is required to capture the CO2 (Dolter 2015).

Cost versus rewards

However, critics have argued that the $1.467 billion project was a $1 billion loss.

In March 2015, former SaskWind president, wind proponent and financial analyst James Glennie released a financial analysis of the project. He conducted a breakdown of the costs versus revenues of the project over a 30-year time frame.

His report noted that of the $1.467 billion price tag for the project, the Canadian federal government contributed $240 million.

The project required a new boiler for the power station, which cost $550 million. The boiler is projected to make a profit of $391 million over a span of 30 years from electricity and fly ash sales, which falls short of the $550 million initial price tag plus ongoing operation and maintenance expenses, he wrote.

The CCS facility cost $917 million to build. Glennie’s report calculates that over 30 years the facility would generate $713 million in revenue from the sale of CO2 and sulphuric acid.

By his count, if you subtract the initial investment and the cost for operations and maintenance, and the parasitic load needed for carbon capture, the carbon capture facility loses just over a $1 billion.

Altogether, considering the profits of the power station and the losses of the CCS facility, his financial analysis shows a total $651 million net financial loss for SaskPower and Saskatchewan ratepayers.

Source: SaskWind, James Glennie

Bearing the burden

Paying for projects like Boundary Dam III CCS means more electricity rate hikes for Saskatchewan customers.

SaskPower projected in 2013 it would invest $1 billion per year to rebuild the province’s ageing infrastructure. Since then, the Crown corporation has spent roughly that amount on capital expenditures per year, and plans to invest that much in infrastructure for the foreseeable future.

Such investments are not possible without electricity rate hikes.

Since January 2013, there have been six separate electricity rate rises at a compounded increase of 24 per cent (5 per cent in January 2013; 5.5 per cent in January 2014; 3 per cent in January 2015; 2 per cent in September 2015; 5 per cent in July 2016; and 3.5 per cent in January 2017). SaskPower CEO Mike Marsh told the media in July 2016 that he expects another rate increase in 2018-2019 of close to five per cent (CBC News, 2016).

The Canadian Centre for Policy Alternatives also conducted a study of the risks and rewards of SaskPower’s Carbon Capture Project, analyzing Glennie’s calculations. Mark Bigland-Pritchard, one of the report’s authors, says the project is just another thing adding to the province’s current $1.3 billion deficit.

“The economic situation (in the province) is a result of the government spending too much on the things they like, and not putting taxes up enough during that period, not saving money, and relying far too much on the resource economy,” said Bigland-Pritchard.

“Now, the resource economy is failing them, and suddenly we have problems. The answer to that is to diversify the economy. Coal with CCS doesn’t really do anything for that.”

Reaping the benefits

While SaskPower and Saskatchewan taxpayers bear the burden, critics say that an Alberta-based oil company, Cenovus, is reaping the benefits.

Although Boundary Dam III CCS has been touted as an environmental initiative -- and that Saskatchewan has made the highest per capita investment in reducing emissions through the project -- some argue that the motivation was to provide publicly-subsidized, low-cost carbon dioxide to aid the oil company in increasing production.

“The reality is a billion dollars has been spent, which needn’t have been done, and it’s gone into the pockets of an oil company,” said Glennie.

Glennie’s analysis includes the costs and revenues for the Weyburn Consortium for the Weyburn-Midale oil fields, headed by Cenovus energy.

His report states the consortium will invest $2.025 billion in the EOR project. For operations, the consortium will profit $6.75 billion from crude sales, while paying $1.3 billion for operations and maintenance, $900 million to the Saskatchewan government in oil royalties, and $690 million to SaskPower for the CO2 purchase.

That totals to a profit of $1.823 billion for Cenovus, according to Glennie’s report.

The CCPA report also questions whether selling to Cenovus actually helps realize carbon reduction targets.

When SaskPower’s contract with Cenovus was announced, it was stated that Cenovus will purchase all the carbon dioxide captured -- one million tonnes annually -- for enhanced oil recovery. Each tonne of CO2 increases oil production in Weyburn by two or three barrels.

However, because the carbon dioxide is being sold to an oil company to further fossil fuel extraction, that just adds further emissions from the oil and gas industry down the line, argues Bigland-Pritchard. Banks and Bigland-Pritchard’s CCPA report calculates that for every tonne of CO2 captured and injected into an oil well, about 2.7 tonnes of carbon dioxide are emitted when the oil is eventually burned (Banks & Bigland-Pritchard, 2015).

Indeed, using captured carbon dioxide for enhanced oil recovery, rather than greenhouse gas reductions, may have been the primary motivation in investing CCS technology. According to energy researcher Brett Dolter, the concept of utilizing CCS to capture carbon dioxide to be used for enhanced oil recovery was considered by SaskPower as early as 1994 and “enhanced oil recovery appears to be part of the rationale for CCS at the beginning” (Dolter, 2015).

Cenovus also happens to be one of the Saskatchewan Party’s top donors: since 2010, the Alberta-based oil company has donated over $75,000 to the political party. Cenovus was the party’s top donor in 2013, and second top donor 2012 (According to Registered Political Party’s Fiscal Returns. 2010- $9240; 2011-$6200; 2012- $16,020; 2013-$16,852; 2014- $14,618.80; 2015- $8000; 2016- $5200).

For the province, the project offers a politically viable solution to high levels of greenhouse gas emissions. Investing in CCS technology has the benefit of extending oil production in ageing oil fields, increasing provincial royalties, while saving jobs in coal -- all while appearing to meet Saskatchewan’s commitment to emissions reductions.

As the efficiency and operations improved at the plant, penalties fell to $2.5 million in 2016. According to the SaskPower website, the crown corporation made $18 million in sales of carbon dioxide, thus making $15.5 million in net revenue from the sale of carbon dioxide to Cenovus in 2016.

It had been stated in the past that Cenovus was contractually obligated to buy 100 per cent of the carbon dioxide captured by SaskPower, and experts estimated Cenovus would purchase it for between $20-$25 per tonne.

If SaskPower captured the projected one million tonnes of carbon dioxide per year, that would equal $20-25 million in revenue for SaskPower a year for 30 years.

That was the figure Glennie used in his calculations. Turns out, the revenues from the carbon dioxide would be far less.

Photo: Joelle Seal

It has since come to light that Cenovus is not obligated to purchase all of the carbon dioxide captured at Boundary Dam III CCS. According to SaskPower, the contract, which expires in 2024, holds Cenovus to purchase between 50 to 99 per cent of carbon dioxide captured, not 100 per cent. This may greatly reduce the amount of revenues expected from the sale of carbon dioxide, and shows that SaskPower does not have a guaranteed source of revenue for the entire lifespan of the project, which is projected to extend to 2034.

According to SaskPower’s Boundary Dam III blog, the plant captured an average of 58,273 tonnes of CO2 per month from May 2016 to May 2017. If all of that carbon dioxide is sold at an estimated cost of $25 per tonne to Cenovus, that equals roughly $17.5 million in revenue for SaskPower over that time frame.

That is significantly less than the $25 million in revenue per year for SaskPower that was estimated at the outset of the project, and greatly reduces the estimated revenues over the 30-year year life span. On top of that, Cenovus is not obligated to purchase all of the carbon dioxide captured anyway -- so that $17.5 million in revenue is not guaranteed.

While the plant is expected to make $16 to $17 million per year with the stream of revenue from Cenovus, operations and maintenance in 2015 cost under $13 million (Fraser, 2016). If operations continue as such, that means the CCS facility generates only a $3 to $4 million profit annually.

With the price of oil dipping below $50 per barrel now, there is less demand for Cenovus to produce as much. Because of that, there is less reason for them to purchase large quantities of CO2 from SaskPower. According to Banks and Bigland-Pritchard’s report, this may require SaskPower to forego revenues and inject the CO2 in its Aquistore site and take on additional operating costs.

According to a representative from the Petroleum Technology Research Centre in Regina, Cenovus is also able to capture any CO2 that comes up with the oil on site during recovery, separate the oil and then recompress the CO2 back into a liquid state back into the reservoir.

“If they can trap the CO2 and pump it back underground, it saves buying it from SaskPower, CCS,” said Glennie.

“(It) could also benefit other countries in their capturing of carbon in their industrial production as well.”


Brock said that the project is meant to ensure that the technology is fully developed, then Saskatchewan can contribute to emission reductions on a global scale.

“Saskatchewan benefits from the export of that technology as it increases the potential that we’re going to reduce emissions globally,” said Brock.

“How we do our part is to make contributions internationally to those countries which have much higher total emissions, but do not have the same level of economic development as do countries like Canada.”

However, with such an expensive price-tag, there are many obstacles to this technology being implemented globally. Many countries, such as China and India, are moving away from coal, and few countries would be willing to invest in the technology without better economic incentive, or governmental regulations on emissions like a price on carbon.

There was also the possibility that CCS technology could generate revenue from the implementation of the technology elsewhere, but SaskPower does not own the technology of capture.

Expensive "boondoggle"

Because the plant has not performed up to expectations, that hampers the possibilities of the technology being implemented globally.
According to SaskPower’s Boundary Dam 3 blog, the plant has been online just over 68 per cent of the time since startup in October 2014. The carbon capture rate of the facility was also headlined to be up to 90 per cent, but the plant has been capturing at a rate of below 60 per cent capacity from May 2016 to May 2017 (SaskPower, 2017).

Boundary Dam III CCS has captured 1.5 million tonnes of carbon dioxide since start up in October 2014. For comparison, SaskPower emits over 15 million tonnes of CO2 per year, and Saskatchewan as a province emits 75 million tonnes of greenhouse gases per year. For a $1.5 billion price-tag, that’s a small amount of greenhouse gas emissions saved.

It was originally claimed the CCS facility would be capable of capturing one million tonnes per year -- the equivalent of taking 250,000 cars off the road. If the plant was performing to expectations at the onset of the project, it should have been capable of capturing 2.75 million tonnes of CO2 by now.

Is the small amount of emissions reductions worth the large cost?

“There certainly doesn’t look like there will be a market for it internationally. The countries in East Asia where the market looked like it was developing are moving it quite the opposite direction now,” said Bigland-Pritchard.

“I think government wanted to put up this prestige project that we’re pioneers in the world,” he added. “Everyone else did the the cost-benefit analysis and decided ‘No, there’s no way’.”

Cheaper alternatives

Greater emissions reductions could be achieved with cheaper alternatives.

“The cost of Boundary Dam was $1.5 billion, and the cost of doing the same thing with wind energy would have been $500 million,” said Glennie. Glennie had been advocating for a community-owned wind project near Swift Current before shutting down his company, SaskWind, and leaving the province in late 2016.

“No one has disputed those numbers,” said Glennie.

His report on Boundary Dam III CCS states that wind energy could generate the same amount of electricity for $1 billion less -- and free of carbon dioxide emissions.

His report states that “economically superior alternatives to Boundary Dam CCS include energy efficiency, wind energy, imports, natural gas, solar and biomass.”

Glennie argues that if wind were put in place of CCS at Boundary Dam IV and V, it would save SaskPower at least $1.2 billion in capital expenditures.

Bigland-Pritchard agrees that more CCS isn’t the way forward in Saskatchewan.

“I don’t think it’s a good option for Saskatchewan, rather than renewables, which a) could be done more cheaply, b) can be more dispersed and give benefit to more communities, and c) are less polluting,” said Bigland-Pritchard.

In Banks and Bigland-Pritchard’s report on Boundary Dam III CCS, they argue “wind could become a much more significant part of Saskatchewan’s electrical generation.”

In his 2017 report called “The Bottomless Pit: The Economics of Carbon Capture and Storage”, professor of economics Gordon Hughes argues that replacing Boundary Dam III with an efficient gas plant would have also significantly reduced emissions at five to ten per cent of the cost.

For example, a coal-fired plant without CCS emits 1,100 tonnes of carbon dioxide per gigawatt hour of energy produced -- more than two times the amount of a gas plant (A coal plant emits approximately 1,100 tonnes of CO2 /GWh. A gas plant emits 420 tonnes of CO2/GWh). At an average capture rate below 60 per cent, the CCS facility still emits more than an efficient gas plant.

In a letter to the Regina Leader-Post published July 14, 2017, Hughes writes, “The cost per tonne of CO2 by deploying CCS, even under very favourable assumptions, is absurdly expensive relative to both (i) other ways of reducing emissions, and (ii) the estimated social benefits of such reductions. It may be regrettable but CCS is an economic dead-end under current technology and costs.”

Managing money

Glennie saw the expense for Boundary Dam III as a waste of taxpayers' money to subsidize the oil industry, so he wrote letters to the provincial auditor, Judy Ferguson, asking her to assess the project.

Ferguson said the project is “on their inventory,” but the office will not be conducting an audit of Boundary Dam III this year. She said the plant is in its “start-up phase,” so it is too early to assess if the project performed well economically.

She said if they were to conduct an audit of Boundary Dam III, her office would ask questions about the performance of the plant versus goals at onset, and if it was worth the money spent.

Photo: Brandon Harder

For Glennie, the plant has already proven to be an economic failure. The misuse of public funds in investing in Boundary Dam 3 CCS is one of the reasons he packed up shop and left the province.

“No one’s even prepared to look at it,” he said. “I just find that incomprehensible.”

Covering carbon capture

Saskatchewan’s investment in Boundary Dam III CCS has not just posed problems for those in the alternative energy industry. It has created problems for some reporters as well.

Alex Coop worked for the newspaper, the Estevan Mercury -- in the hometown of the Boundary Dam III plant.

“The community that we lived in, in Estevan, it was a tight-knit … symbiotic relationship with the oil industry,” said Coop. “We reaped the benefits greatly.”

Coop said he noticed that there were a lot of misconceptions about renewable energy in the community, so he sought to shed some light on how Saskatchewan could benefit from a mixed energy grid in his reporting.

The Boundary Dam III CCS project in his backyard came on his radar.
“The future of clean coal was still somehow fueling the oil industry and kind of putting us back to square one,” said Coop.

After reporting on and writing columns about the Saskatchewan energy landscape, he was told by his editor that the “higher-ups” were saying to no longer write about renewable energy or the carbon capture and storage project in his columns.

“The kind of criticism I was putting on paper, they didn’t want any more of that. There was really no other explanation as to why,” said Coop.

Coop no longer wrote columns about the project, but he continued reporting on it from a news standpoint.

Time passed, and two reporters left, and two new reporters were hired on. A few months later, Coop was suddenly let go.

Even though he was told it was because of downsizing, Coop had a lingering feeling it was because of his work on Saskatchewan’s energy landscape.

“I didn’t expect to be let go, and especially when we had just hired two new people,” said Coop.

Saskatoon StarPhoenix columnist Paul Hanley also covered Boundary Dam III CCS extensively.

“My thought on it right from the beginning was, ‘Hey, this is an extremely costly way to address greenhouse gas emissions,’” said Hanley.

He said that SaskPower or the Saskatchewan government has never provided a detailed financial breakdown of the project. Therefore, Hanley faced his own issues in covering the project.

“I couldn’t really get them to answer questions,” said Hanley.

“I’d say, you know, ‘Well, hold it here. Show me … where was your analysis that showed you this would be profitable?” said Hanley.

“Who is really driving this? Is this SaskPower or is this government telling SaskPower to do this? I don’t know,” he added.

Business as usual

“When you have an economic system which is dominated by a single industry, and in Saskatchewan that’s mineral extraction, oil, gas, uranium, you find typically the political system becomes captured by that industry,” said Glennie.

Cleaning up coal is the only way SaskPower can continue using the resource and not be left with stranded assets, and it comes with the benefit of boosting oil recovery.

“There’s just like a big vested interest in the oil and gas industry – and coal, too,” said Hanley. “That whole industry has a really strong interest in maintaining itself as it is.”

“Boundary Dam is just example: ‘Wow, we’ll keep being able to do what we’re doing. We’ve got pounds of coal. We’ll just be able to power this province, and it won’t hurt the environment, and it looks great,” said Hanley.

“It looks like a good solution until you start thinking about it. But maybe people don’t even want to think about it.”

Change isn’t easy. Coal is well suited to a centralized power utility, and that’s how the power grid in Saskatchewan has been operated for years.

“You’d understand the appeal of a technology that maintains that system, maintains that sort of institutional organization,” said ecological economist Brett Dolter.

SaskPower says it will be deciding the fate of Boundary Dam IV and V at the end of the year or early 2018. It remains to be seen if SaskPower will stay on the path of carbon capture and storage, or forge a new one.

Sources:
Banks, Brian & Mark Bigland-Pritchard (2015, January) SaskPower's Carbon Capture Project: What Risk? What Reward? Canadian Centre for Policy Alternatives. Regina: Sask, Canada.

Dolter, Brett. (2015) Greening the Saskatchewan Grid (Doctoral Dissertation). Retrieved from YorkSpace. 92.

CBC News (2016, July 14). SaskPower CEO says $20M worth of carbon capture penalties are in the past. CBC Saskatchewan. CBC . Regina, Saskatchewan, Canada: CBC.

Fraser, D.C. (2016, June 13). SaskPower renegotiated contract to avoid $91.8M penalty. Leader Post. Regina, Sask., Canada: Postmedia.

SaskPower. (2017, June 8). BD3 Status Update: May 2017. SaskPower Blog. Regina: Sask, Canada. http://www.saskpower.com/about-us/blog/bd3-status-update-may-2017/

SaskWind. (2015, March 26) "SaskPower Boundary Dam CCS: Financial Report & Analysis". Saskatoon: Sask, Canada. https://www.saskwind.ca/boundary-ccs/.