TransCanada to terminate coal power contracts due to higher emissions costs
Ian Bickis, The Canadian Press
Published Monday, March 7, 2016 10:31AM EST
Last Updated Monday, March 7, 2016 4:11PM EST
CALGARY -- TransCanada Corp. (TSX:TRP) plans to end its agreements to buy power from three coal-fired plants in Alberta, saying the contracts are continuing to hurt their bottom line.
The Calgary-based company said Monday costs associated with carbon-dioxide emissions from the plants have risen and are forecast to increase further over the remaining term of the agreements.
The power purchase contracts can be terminated under a provision where a change in provincial law makes them unprofitable, TransCanada said.
The decision affects 913 megawatts of generating capacity at TransAlta's Sundance A and B plants west of Edmonton, and 756 MW at the Sheerness power plant near Hanna, Alta., owned by Atco Power and TransAlta.
The purchasing agreements now go back to the provincial regulator, which can continue to buy and distribute the power itself, resell the capacity to another distributor, or end the agreement entirely by paying the owner the net book value of the contract.
TransCanada said it expects to write down the remaining value of the power purchase agreements for a total non-cash charge of $235 million before taxes and $175 million after taxes, representing the remaining book value of the company's investment.
Bill Taylor, president of TransCanada's energy business, said the company continues to see investment opportunities in the Alberta energy market, citing new wind projects and the need for gas-fired power capacity.
"The company does not view this action on the (power purchase agreements) as a full retreat from the Alberta power market," Taylor said in a statement.
The NDP government of Rachel Notley announced in November that it planned to impose a carbon tax and phase out coal-fired power plants in order to reduce carbon dioxide emissions, a contributor to global warming.
The next month, utility company Enmax ended its power purchase agreement to buy up to 663 MW from Atco Power's 689-MW, coal-fired power plant.
AltaGas president David Harris said on a Feb. 25 conference call with investors that the company was evaluating the impact of the new climate regulations and considering terminating its power purchase agreement with the Sundance B plant.
But while companies are looking at the impact of new climate regulations, Ben Thibault, electricity program director at the Pembina Institute, says current electricity prices that are close to half the five-year average are having a much bigger effect on profitability.
"That difference is much larger than any impact of the actual carbon price," said Thibault.
David Gray, an electricity market analyst, said the relatively low cost of buying natural gas and the increasing efficiency of gas-fired power plants have helped erode the profitability of coal contracts.
"The power purchase agreements for those coal plants have gone, I think to everyone's surprise, out of the money," said Gray.
Gray said Enmax's decision to cancel its power purchase agreement marked the first time a company had done so.
He said the move means consumers could be on the hook if power plants continue to lose money.
"They're putting the risk back on to the general consumer," said Gray.