Good afternoon, Chair, ladies and gentlemen, and honourable members of the Standing Committee on Natural Resources. My name is Brian Vaasjo. I am president and chief executive officer of Capital Power, headquartered in Edmonton, Alberta.
Capital Power is a developer, owner, and operator of generating facilities across Canada and in the United States. We are a publicly traded company with a market capitalization of approximately $2.7 billion.
Thank you for the opportunity to appear before you and to provide our perspectives on interties and their potential role in Canada's transition to a lower-carbon energy system.
As a participant and investor in electricity markets in Alberta, B.C., and Ontario, we are committed to working with governments at all levels in the assessment, design, and implementation of policies that can achieve public policy objectives for the electricity system in an efficient and effective manner.
Capital Power currently owns approximately 4,500 megawatts of power generation capacity in 24 facilities in Canada and the United States.
In Canada we have interests in 624 megawatts of capacity in Ontario from three wind facilities and two natural gas facilities. In British Columbia, we have 427 megawatts of generating capacity from a natural gas facility on Vancouver Island, two waste heat facilities, and a wind facility.
In the United States we have more than 1,100 megawatts of capacity in five states, including wind, solar, natural gas, and biomass.
The majority of our capacity is currently in Alberta. Capital Power has been the leading developer since 2004 and has ownership in nine facilities representing 2,400 megawatts of capacity, or roughly 14% of the Alberta market. Our Alberta fleet includes four coal generating facilities that are the youngest and most efficient coal units in Alberta, three natural gas peaking units, a combined-cycle natural gas facility, and a wind facility.
Alberta is unique relative to other provinces with respect to how generation investment occurs. This has little to do with specific market rules but relates to a fundamental distinction: that investment is made by private investors on an at-risk basis in a competitive market, and with no guarantee of cost recovery. While Alberta is undertaking a market redesign, the fundamental aspect of private investors bearing investment risk is expected to remain unchanged. This presents a significant issue for any consideration of strategic interties for Alberta.
Alberta's market redesign was in large part driven by Alberta's climate leadership plan, announced in November 2015. This plan introduced several policies to transition Alberta's electricity system to a lower-carbon trajectory. These included a phase-out of coal generation by 2030, introduction in January 2018 of a more stringent carbon pricing framework for large emitters, and a plan to add 5,000 megawatts of renewable generation by 2030 through a government-supported procurement program.
Capital Power was and remains supportive of the design and implementation of Alberta's plan and the emissions reduction objectives it's intended to achieve for our sector and province.
We worked with the Alberta government to reach a compensation agreement to reflect that the 2030 coal phase-out date specifically shortened the lives of six of our coal generating units. Alberta also reached agreement with two other Alberta counterparts who are also affected. This sent a positive message from Alberta in terms of investor confidence.
We are undertaking a $50-million program at our coal facilities to further improve their efficiency and reduce their emissions intensity by 10%. This responds to the signals for continuous efficiency provided by both Alberta's competitive market and its new carbon pricing framework.
We are actively exploring the potential for co-firing biomass at our coal facilities and are planning a second test next week. This would allow up to 15% co-firing at one of our units, resulting in immediate reductions in emissions.
We are also assessing design and economic issues associated with potential conversion of our coal units to natural gas prior to 2030. We are developing several wind and solar sites to participate in the competitive process to add 5,000 megawatts of renewables by 2030. We recently entered into commercial agreement with the Siksika Nation to develop projects on their lands.
We also stand ready to continue investing in the new capacity that Alberta will require to replace retiring coal generation and to meet load growth in Alberta and meet Alberta's renewable targets. We have a shovel-ready natural gas facility ready to go when market signals are appropriate.
The Alberta government estimates that the total level of power generation investment required by 2030 will be roughly $25 billion. The market redesign under way is intended to provide a framework to attract this scale of investment. This market will continue to rely on competitive forces and on investors making investments on an at-risk basis. It is in this context that the strategic interties, at least relating to Alberta, need to be considered.
The Alberta government set out three objectives for transition of the electricity sector in announcing their plan. These were maintaining reliability, providing reasonable sustainability in prices to consumers and business, and ensuring that capital is not unnecessarily stranded.
Capital Power believes there are five objectives and considerations that should be incorporated into the assessment of government-funded intertie projects.
First is reasonable costs. Any federal initiative needs to ensure reasonable costs for consumers. The costs associated with strategic interties would include the costs associated with new hydro resources developed to backstop the interties, new generation that would be required in Alberta or any “sink” provinces to provide reliability when hydro imports might not be available for any number of reasons, and direct costs to expand both intertie and provincial transmission grids to manage energy trade in real time.
Capital Power does not believe that the all-in cost of a strategic intertie would be a lower cost, from a ratepayer perspective, than low-emitting and renewable generation developed in Alberta.
Second is reliability considerations. The reliability issues raised by a strategic intertie based on construction of new hydro sites need to be considered. First, the announcement of an intertie would make an immediate impact upon investment decisions in Alberta by reducing the future market opportunity. A single large intertie creates its own significant risk from the standpoint of reliability.
Third is environmental outcomes. Any federal initiative needs to ensure that assessment of environmental outcomes takes into account whether the intertie would be supported exclusively by hydro or non-emitting generation or would be utilized to “wheel” power from other markets. Alberta's existing interties, including the one with B.C., are used to import power sourced from markets with thermal and renewable supply sources. A strategic intertie initiative that expanded the scope for wheeling of thermal generation from outside the province would not provide any benefits from an emissions perspective.
Fourth is community benefits. Federally subsidized intertie projects would displace and pre-empt investment in low-emitting and renewable capacity in Alberta. In doing so, they would also diminish the opportunity for Albertans and Alberta communities to realize the benefits of locally sited generation that will be required to replace retiring coal generation and meet demand growth. This is a particular issue for Alberta communities in which coal facilities are located, but also an issue for communities looking for the opportunity to host renewable energy projects.
Fifth is a level playing field and investor confidence. As noted, Alberta's market will continue to expect investors to bear risks of investment decisions and to seek a return through a competitive market. A federal initiative to subsidize imported supply will create an unlevel playing field for Alberta-based generators. Ensuring fair treatment of existing investments must be considered for any federal initiative, in the same way that Alberta has established this as a principle for its market redesign initiative.
In respect of Canada's 2050 vision, as a final comment Capital Power notes that the Government of Canada's 2050 vision identifies a role for several sources of non-emitting power generation, including hydro, nuclear, and carbon capture and storage.
Consideration of strategic interties needs to be coordinated with the assessment of those options to ensure that any federal funding is targeted to support the lowest-cost option. In this regard, Capital Power believes that any funding or procurement process to support non-emitting technology should not be fuel-specific but should instead invite proposals from industry on options that can meet the non-emitting criteria.
Successful proposals would be those that would meet objectives in a most cost-effective manner. Proceeding with strategic interties in isolation would close the door on other technologies, such as carbon capture and storage, that may be more appropriate and cost-effective for Alberta over the long term.
In closing, government support for intertie projects, while in certain jurisdictions could be a source of public good, in others might have unintended consequences with respect to consumer costs, reliability, and investor confidence.
Capital Power is a Canadian company that wants to continue to invest in our power infrastructure to support the transition of Canada's electricity system. We are not asking for any advantages or special programs or benefits. We are asking that the government not embark on programs that disadvantage us.
Capital Power appreciates the opportunity to provide its views on this very important initiative.
Thank you.