Mike Monea, President, Carbon Capture & Storage Initiatives, SaskPower. Author of 'SaskPower's Case for Carbon Capture & Storage'.

Mike Monea, President, Carbon Capture & Storage Initiatives, SaskPower. Author of 'SaskPower's Case for Carbon Capture & Storage'.

SaskPower quietly released SaskPower's Case for Carbon Capture & Storage, their first Boundary Dam CCS (BD3) economic assessment, in the Autumn 2015 edition of 'Cornerstone': the official journal of the World Coal Industry (how appropriate).

It is striking that their assessment does not even mention the benefits of this $1.5-billion project for electricity consumers of Saskatchewan.
Would it be a cheap shot to suggest this is because there are no benefits for electricity consumers of Saskatchewan? 

Before getting to the numbers SaskPower focuses on some qualitative statements which, it would appear, are designed to provide the justification which the economics don't. However we'll look at the numbers first since that is what this post is all about . Where applicable we have included our estimate of the same metric in brackets: that estimate is taken from our March financial analysis of BD3;

BTW: If the detail in this post gets too much - just skip to the Conclusion which contains the salient points.

 

 

THE NUMBERS

It seems incredible that after spending $1.5-billion of public funds and after waiting for more than a year, SaskPower has provided only a handful of numbers (discussed below) and no economic justification. 

Capital cost excluding coal-fired power station: $850-million ($917-million)
We have assumed, given the article subject and since it is so similar to our estimate of $917-million (Paragraph 12.2; page 32), that this is the total capital invested in the carbon capture portion of the BD3 project and it excludes the $617-million invested in the coal-fired power station. 

20 to 30  year project life (30 year)
The first iteration of our BD3 report assumed a 20-year project life. However and despite strong reservations (Paragraph 18.3; page 69) we changed this to 30 years on SaskPower's advice . It is interesting that SaskPower now seems to be leaning back towards 20 years: this further weakens their already weak business justification.

47 million barrels of incremental oil recovery (37.5 million barrels)
The fact that our estimate (Paragraph 13.3; page 42) was low by 9.5 million barrels is not particularly significant since none of the returns from incremental oil sales accrue to SaskPower or to electricity consumers of Saskatchewan. In any event and even according to SaskPower's own estimate, the value of oil recovered is less than the amount of money invested in BD3: more on this in the next paragraph.

Royalties and Taxes $788-million ($900-million) 
This statistic is arguably the most significant in SaskPower's report since it is the only one which even comes close to talking about financial returns or profitability. Even a casual observer with no business experience can instantly see the questionable economics of BD3. There are three major concerns;

1) SaskPower makes the investment but returns accrue to Government (i.e. SaskPower carries the loss);
2) The return of $788-million is less than the investment of $850-million: a red flag for most investors; 
3) The $788-million return takes no account of operating costs of $838-million (Table 3; page 18).

350,000 tonnes will be permanently sequestered in Aquistore
Aquistore's own web site describes itself as a "storage site for the world's first commercial post-combustion CO2 capture, transportation, utilization, and storage project from a coal-fired electrical generating station". However SaskPower, in its 'Case for Carbon Capture and Storage' confirms that Aquistore will permanently sequester only 350,000 tonnes, or 1.2%, of the of 30-million tonnes which will be captured at BD3. This small amount confirms that BD3 was only ever about providing CO2 for Enhanced Oil Recovery. In other words: the tiny percentage that is permanently sequestered at Aquistore is simply a fig leaf to disguise the true nature of BD3 - the production, at public expense, of CO2 for the oil industry.

4,850 person-years of direct employment
This figure is of questionable relevance since there is nothing to indicate that it is any more than the number of jobs which would have been created by the same investment in wind energy.

 

 

INTERMISSION

Given the length and technical nature of this blog we now pause for a break. Grab a coffee - stretch your legs.

Here are some Saskatchewan Burrowing Owls, at the Interpretive Centre in Moose Jaw, whooo have just been told that SaskPower lost $1-billion of your money by investing $1.5-billion at BD3; 

Right - intermission over: onwards..

 

 

THE SUBJECTIVE STATEMENTS

Now that you have seen how poor are the economics of BD3 you may be wondering why SaskPower invested $1.5-billion of your money in this scheme. And that takes us on to the second half - where SaskPower seeks to justify its actions with subjective statements. Here they are together with our explanation of why they are insufficient;

"One of the most common questions we hear is 'Why wouldn't you invest in renewables like wind and solar, rather than CCS?' ".
Actually that is not the question which we have been repeatedly asking SaskPower. But this is;
'Why did SaskPower invest $1.5-billion in coal + CCS when, for $1-billion less, the same amount of electricity could have been generated using wind energy?" It should be noted that this $1-billion saving includes additional back-up costs needed to compensate for wind's variability. (Paragraph 17; page 65)

"Wind power is intermittent and cannot be stored economically."
Ahh - and that, one presumes, is the answer to our question from the prior paragraph.

For real?

This makes about as much sense as saying that, because it is not always raining, water cannot be used to generate electricity. Certainly one cannot build a dam to store wind but the reality, from a power systems standpoint, is that a hydro-electric dam stores electricity and not water. Consequently there is no reason why that same dam cannot be used to store electricity from a wind turbine. That electricity could also be stored, at minimal cost, as unused chemical energy: in other words as gas and coal stocks which would otherwise have been burned in a thermal power station.

G8 leaders photo from Gleneagles 2005: Ahh - those halcyon days when George W had the US (& UK) on a war footing and when we mistakenly believed that Silvio Berlusconi was a politician and Vladimir Putin an ally.

G8 leaders photo from Gleneagles 2005: Ahh - those halcyon days when George W had the US (& UK) on a war footing and when we mistakenly believed that Silvio Berlusconi was a politician and Vladimir Putin an ally.

For confirmation of this statement check out any one of numerous electro-technical studies carried out by highly reputable companies such as General Electric. Consider also that the US Government expects to generate 35 percent of its electricity from the wind by 2050. The International Energy Agency, in response to a request from the 2005 Gleneagles G-8 summit, also produced this report about integrating variable renewables. This from the Executive Summary;

 
Based on a thorough assessment of flexibility options currently available for VRE (Variable Renewable Energy) integration, a major finding of this publication is that large shares of VRE (up to 45% in annual generation) can be integrated without significantly increasing power system costs in the long run.
 

"Actually about 25% of our current available capacity already comes from renewables."
This statement appears to be SaskPower saying that it is already doing "jolly well" and hence doesn't need to worry too much. It is not clear why they would think this because 25 percent of electricity from renewables is well below the Canadian average (76 percent) and the second lowest of any Canadian province.  

And would it be stating the obvious to note that 25 percent renewables means 75 percent non renewables?

"When we evaluated CCS, we compared it against the next best alternative: natural gas."
It is inexcusable that SaskPower did not even include wind as an option. Consider: wind is half the price of coal + CCS and is cost-competitive with natural gas (some would even say its cheaper). 

Wind energy currently generates 2.7 percent of Saskatchewan's electricity. If wind energy had been used in place of coal + CCS at BD3, it would today be generating 6 percent of our electricity. This is less than wind penetration levels already achieved, today, by 17 US States (2nd graph on this page). If the electricity from the Chaplin Wind project (due online at the end of next year) is also included - then, by the end of 2017 and after allowing for load growth, wind would be generating 8 percent of our electricity. This is less than 12 US States already achieve today as demonstrated in the following graphic;

Source: US Electric Power Monthly: February 2015 (w/ Full Year 2014 data). SaskPower 2014 Annual Report.

In  other words there is no reason why wind energy should not have been considered as a viable alternative to coal + CCS at BD3. That it was not is, as noted in this 14-Sep blog (point 5), solely because the primary rationale for BD3 was not economics but rather a political imperative that the public should fund the manufacture of carbon dioxide for the oil industry.

You pay, the environment suffers and the oil industry profits. Nice.

"However our renewable capacity will need baseload generation to ensure reliability."
This statement is patently false as we have previously noted (page 75 of our BD3 analysis).

From the executive summary of the Paris-based International Energy Agency’s June 2013 study on renewable energy integration;

 
Countries with stable power systems should seek to maximise the contribution from existing flexible assets for system transformation. They may consider accelerating system transformation by decommissioning or mothballing inflexible capacities that are surplus to system needs.
 

Almost exactly the same point, about the need for more flexible generation and less inflexible baseload, is made by the North American Electric Reliability Corporation (NERC) in their 2009 report (page 47 & 48) on accommodating high levels of variable renewables. No mention in either of these studies, or in any others, is made of the need for additional inflexible baseload to support variable renewables.

"Coal is a fuel source with an affordable, stable price."
Cough ... cough..  Excuse me?

This statement is false. We are moving rapidly to world where carbon will be priced. No price has yet been set but $20 per tonne of carbon dioxide (CO2) seems likely. The cost of coal for SaskPower is $20 per megawatt hour ('Fuel and Purchased Power' page 53 of SaskPower's 2013 Annual Report). However generating one megawatt hour from a coal-fired power station releases 1.1 tonnes of CO2. In other words and assuming a CO2 price of $20 per tonne, every megawatt hour of generation will incur fuel costs of $20 and carbon charges of $22 i.e. CO2 costs will represent more than half of the total fuel cost of $42 per megawatt hour.  

Some might note that carbon charges are irrelevant since CO2 is being sequestered. However the nature of Enhanced Oil Recovery using CO2 is that substantial amounts of CO2 are lost to the atmosphere during processing. In fact only about half of the total carbon emissions from Boundary Dam are being permanently sequestered. (Figure 2: Boundary Dam 30-year Carbon Flows; Page 20)   

It is therefore evident (or should be) that in a carbon-constrained world the cost of Saskatchewan coal is neither affordable nor stable. In fact coal as a fuel is particularly unaffordable relative to wind: the last time we checked the wind was free and not yet taxed.
Coal is even more unaffordable when one considers that we have not even begun to consider the true cost associated with SaskPower's annual release of tens of thousands of tonnes of toxic waste products to our land, air and water.

 

 

CONCLUSION

The $1.5-billion investment in BD3 fails on two scores;

1) SaskPower is an electricity-rate-driven enterprise that has a duty to consider the next lowest cost generation option to supply its customers with power: reliably and sustainably. In this instance it has clearly failed to perform that duty since it selected coal + CCS when wind energy, even after accounting for the provision of back-up capacity for wind-free days, would have been $1-billion cheaper.

2) SaskPower, as a Crown Corporation supervised by Crown Investments Corporation, has a duty to provide an "appropriate return to the people of Sakatchewan".   Why then did it invest in a project which it knew from the outset would have at best a zero return. (SaskPower's own words from page 29 of this report: "This economic scenario could be characterized as the yield of a zero net present value for the Integrated Carbon Capture and Storage Project at BD3."
Indeed, and as this blog post demonstrates, SaskPower must have known from the outset that the BD3 investment would actually have a below zero return - in other words it would generate very substantial losses.   

No doubt SaskPower will continue in its year-long refusal to answer any of our questions on this matter. Given that refusal and the sums of money involved, we have passed details to the Provincial Auditor of Saskatchewan since she is "responsible for auditing the provincial government's management of public money in order to foster accountability and transparency with respect to its performance". Maybe SaskPower will feel inclined to respond to her?