Natural Resources Committee on May 14th, 2007

[Peter Stoffer, NDP, Sackville—Eastern Shore, NS]

How many physical plants, though? Are there 30, 60, 100, 200?

[Dr. David Lewin]

There are hundreds.

[Peter Stoffer, NDP, Sackville—Eastern Shore, NS]

How many would be slated to close down, say, in the next 15 years? I guess the question is, what's the average lifespan of these plants that are there now, with the hundreds that are out there?

[Dr. David Lewin]

The lifespan is usually around 30 to 40 years. In Canada, for sure, there's a significant number: something like 20,000 megawatts is due for retirement between now and about 2020 to 2025. There's a real opportunity to change out that capital stock with the best available technology.

[George White]

There are very few coal-fired plants that have been built in the United States in the last 10 years. They've all been gas plants, and that's why the price of gas is so high.

[Peter Stoffer, NDP, Sackville—Eastern Shore, NS]

Thank you very much.

[The Chair, Conservative, Lee Richardson]

Well done.

[Peter Stoffer, NDP, Sackville—Eastern Shore, NS]

There's nothing wrong with munchkins, by the way.

[The Chair, Conservative, Lee Richardson]

Mr. Trost.

[Bradley Trost, Conservative, Saskatoon—Humboldt, SK]

Thank you, Mr. Chair.

Just to understand a little bit more, we're talking here about unit capital cost, etc. To get back to roughly where Mr. Russell was at least starting to go, we have the whole cost question. Let's be blunt: there are a dozen different ways out there to generate electricity. Some, like solar, are ridiculously expensive. Coal is very inexpensive.

With all these scrubbers or gasification or other technological changes, what sorts of cost hikes are we looking at if this goes through as planned? I realize there's a range, but at what point does it become uneconomical? I realize if you're producing with coal, you have to compete against other producers. I realize that for some, like nuclear, there are huge infrastructure costs, and for some, like natural gas, the fuel cost is very different, and there are base power prices and peak and so forth. With all those caveats slapped on there, at what point does it start to become uneconomical? Will it be the cost that stops us from using these technologies that we're trying to implement or will it just be the science and technology problem?

[Dr. David Lewin]

Maybe I can kick it off.

Our initial work, through the CCPC, found that were we to go to coal gasification, we could see a generation cost price hike of something around 50%.

[Bradley Trost, Conservative, Saskatoon—Humboldt, SK]

Fifty?

[Dr. David Lewin]

Five-zero.

Our subsequent work has sort of brought that down a little bit, but our current work on the EPCOR IGCC project is targeting somewhere in the region of a 20% hike.

There may well be cost-of-electricity increases due to other things in the intervening period. We certainly couldn't build a unit like this until probably around 2014 or 2015. But that's the sort of cost escalation we're targeting, in terms of what we feel is still a viable project.

Now, in Alberta we have a deregulated—

[Bradley Trost, Conservative, Saskatoon—Humboldt, SK]

So even with a 20% increase, you would still be competitive with competitive technologies, with other technologies, other fuel sources, etc. Is that what you're saying?

[Dr. David Lewin]

Well, I think so, but that remains to be seen.

[Bradley Trost, Conservative, Saskatoon—Humboldt, SK]

We can't predict natural gas prices--I know that--but that would be the expectation as of right now?

[Dr. David Lewin]

In Alberta, we have a deregulated marketplace, so a real test will be whether the investors invest in a project of that nature knowing that the returns are whatever they are but that the energy going into the power pool would likely be maybe 20% higher than the current pulverized coal-fired power plants.

[George White]

I agree with the numbers from an Alberta and Saskatchewan point of view. For Ontario and Nova Scotia and New Brunswick, provinces that also burn coal, their cost of fuel is significantly higher than it is in Alberta. Ontario buys its coal from the United States, from Appalachia, and from Powder River Basin. Nova Scotia and New Brunswick buy it from South America, so they have transportation costs. Seaborne coal's a different marketplace. Their fuel costs are higher, so therefore their power rates would also be higher. The capital costs would be the same, but because of their fuel costs, their operating costs would be higher.

[Bradley Trost, Conservative, Saskatoon—Humboldt, SK]

So they would be starting at a higher base cost to begin with—

[George White]

Yes.

[Bradley Trost, Conservative, Saskatoon—Humboldt, SK]

So even if the cost came up the same amount, the percentage increase would actually be less, then?

[George White]

Well, take Ontario, for example. If Ontario decided to go with an IGCC power plant, the cost of that energy would be above the 50% mark, in my opinion.

[Bradley Trost, Conservative, Saskatoon—Humboldt, SK]

Okay.

Do you have any suggestions—we're ultimately going to produce a report here to come out—excluding direct subsidies? What sorts of ideas, from a government perspective, could you see being useful, positive, to help with the transition from old coal to new coal? Do you have any ideas? There's capital cost stuff that we can play around with, and maybe regulatory stuff. Are there any ideas that either of you gentlemen haven't presented, things that you'd like to throw out that maybe we could suggest?

[Dr. David Lewin]

The only thing we're asking for right now, as a coalition, is a contribution to the front-end engineering design work on the Genesee project, as well as the SaskPower and the Nova Scotia Power projects. Really, that will help us get through this initial period, and then we can decide as a coalition, as individual companies, what the industry is prepared to invest in.

The whole idea is to make the IDCC, for example, commercial. So right now we're not proposing subsidies and so forth. We'd like to see that those projects stand on their own feet and are economic.

In terms of regulation, I think we're seeing the guidance from the federal government in terms of their expectations around targets, particularly NOx and SOx and also mercury, as well as CO₂. So I think from an industry point of view, we need to have certainty around those targets, so we know what the rules are, how we're expected to meet those targets and so forth. It's a matter of giving the industry certainty and then we can get on with it.

[George White]

I can think of a number of things.

I think liaison between the people who are already successful in these industries.... Contrary to maybe the impression the committee got earlier, I don't believe that China is lagging in this, nor that India will lag either. The Chinese are building some pretty good technology. They have a lot of old technology as well, which they're not taking out of service, but the fact is that in many cases their environmental issues are so desperate that they cannot do anything except build the best technology that's available. They have many gasification plants, and I already know that NRCan is working with people in China to try to transfer the technology to that kind of thing. So that's one thing that could be done.

Support for the industry is another. The industry that is supplying these particular pieces of equipment is different from the industry that supplied the traditional coal-fired power plants. Companies like General Electric in the United States and Siemens and Shell are the companies that are supplying the gasification technology, or are looking at developing the technology, whereas the traditional power plant suppliers haven't picked up on the technology, mainly because gasification is more of a refinery type of process than it is a combustion type of process. It's different, so it's rooted in a different process.

The South Africans, for example, have the Sasol plants. South Africa, during the time of apartheid, were not allowed to buy oil so they produced their own oil. They used coal to do that. The technology is not transferrable to Canada, but many of the processes associated with their technology are transferrable to Canada: how to use the coal, how to deal with some of these effluents and problems that are created by this technology.

So there's a lot of goodwill that can be generated between the existing users and the people who have been successful in the industry and what we need here, including the United States, who really feel that their solution to the problem, I believe, is that we're not going to be able to stop the third world and developing countries from using coal, so we should develop the best technology here and then transfer that technology to those countries.