Proceedings of the Standing Senate Committee on
Energy, the Environment and Natural Resources
Issue 18 - Evidence - February 15, 2011
OTTAWA, Tuesday, February 15, 2011
The Standing Senate Committee on Energy, the Environment and Natural Resources met this day at 5:31 p.m. to study the current state and future of Canada's energy sector (including alternative energy).
Senator W. David Angus (Chair) in the chair.
[English]
The Chair: Good evening, colleagues, Mr. Butler, ladies and gentlemen in the room, and good evening to all on the CPAC network as well as on the World Wide Web, and people who are monitoring our dedicated website, www.canadianenergyfuture.ca. This is a formal meeting of the Standing Senate Committee on Energy, the Environment and Natural Resources. We continue our study on the energy sector, a major study that we have been working on since June of 2009.
It is quite interesting that the study is so current these days. Some of our viewers and some of our colleagues may have noticed today that Royal Dutch Shell has commissioned and published a huge report in which they say that, by 2050, the demand for energy will be three times what it is today. The population will have exploded. There will be a need for greater efficiency, greater sustainability and greener and cleaner sources of energy, all the things we have been saying. There is all the more reason to deal with this situation when an international company of this stature recognizes the need for some strategic policy making. It will not go away.
I am David Angus, a senator from Quebec, and I am the chair of this committee. I will introduce my colleagues so our witness and our viewers have an idea who they are dealing with. Senator Grant Mitchell, from Alberta, is the deputy chair of our committee. The folks from the Library of Parliament who help us so much in putting together our thoughts and providing us with wonderful research are Marc LeBlanc and Sam Banks. My predecessor is Senator Tommy Banks from Alberta. From Saskatchewan, we have Senator Robert Peterson. Our clerk is Ms. Lynn Gordon. Senator Daniel Lang is from the great Yukon Territory. Senator Linda Frum is from Toronto, Ontario, and from Montreal, Quebec, we have Senator Judith Seidman. Also from Quebec, we have Senator Paul Massicotte. Last but not least, the only elected senator is Senator Bert Brown from Alberta.
Mr. Butler, we are pleased that you could be here this evening. I understand you are the Executive Director for the Canadian Clean Power Coalition. The word "coalition" may have been chosen carefully. Mr. Butler is responsible for helping six power companies and several government agencies find economic ways to reduce CO2 emissions from coal plants. He has twenty years of experience working in the power industry, primarily in the areas of economic analysis and business development. We did receive your deck of material. Everyone has a copy. It was nice to have it in advance, thank you. I believe you are familiar with our procedure here. You are free to make an opening statement of whatever length you deem appropriate. Senators will then be fascinated to question you. Mr. Butler, you have the floor.
David Butler, Executive Director, Canadian Clean Power Coalition: It is a pleasure to be with you this evening. I bring greetings from the management committee of the Canadian Clean Power Coalition. I hope to go through the presentation in your package this afternoon. I want to spend a few minutes discussing the CCPC, who we are and the recent work we have been doing, and then turn to an overview of coal in Canada and three major emission reduction technologies that may be of interest to the committee. The real meat of this discussion is related to the costs of reducing emissions from coal plants. I would like to spend a few minutes discussing some of the results from our more recent studies. Then I hope we will have a discussion this evening. I have a strong background in carbon capture technology, so I will be happy to entertain questions on that.
On page three, I discuss who we are. We are a coalition of Canadian and U.S. coal utilities and coal providers. You see in the third bullet the list of members participating with us. We are happy to include most of the coal users in Canada, the Electric Power Research Institute in the United States and Basin Electric, which is also an American utility. We have been heavily invested in or sponsored economically by Alberta Innovates over the course of time and the Saskatchewan Ministry of Energy and Resources, and we also have task sharing agreements with CanmetENERGY. We do a lot of work with them. They are doing a fine set of research at the national labs on various carbon capture technologies.
It was mentioned earlier that our mandate is to research technologies with a goal of developing and advancing commercially viable solutions that lower power plant emissions. We have been doing that for a decade. Our objective is to try to demonstrate that coal-fired electricity generation can effectively address environmental issues and move us towards a clean, energy future.
Why does the CCPC exist? Coal is vital for electricity generation nationally and internationally. Coal will be around for the long term. We need to address pressing air quality issues associated with coal-fired generation, and we recognize that. Technology is a long-term solution.
We cannot do this alone because of the technical risks and economic factors, so we continue to value our collective industry and government action on these issues. There is also the potential for transferable and exportable technology development, and we hope that comes to fruition.
What does the CCPC do? We have been focussing and spending our attention on three main things. We do a lot of work studying clean combustion technologies. We have been doing that for a decade. We are heading into our fourth phase of study work in that area. We also do a lot of collaboration with national and international organizations, working with them in the various areas we have discussed here. Finally, we try to do a lot of work educating people throughout Canada and the world about the information we have acquired as it relates to the cost of carbon capture and the designs of those technologies.
Turning to page 7, I would bring to your attention that our members have spent over $50 million in the last decade in advancing CCS technologies. All our members have developed CCS projects of their own. Unfortunately, most of those have not proceeded at this point. Some of our members are involved in the four projects that have been sponsored in Alberta for carbon capture. If all four projects go forward, I was discussing this earlier with Senator Brown, we will have several times as much carbon capture in Alberta as in any other location on the face of the earth.
Right now there are locations that are capturing one or two megatonnes here and there. In five years we may have as much as five megatonnes of CO2 being captured in Alberta if all four projects go forward. We are happy to be involved in some of those projects.
The Chair: In our travels and our studies in our mission, we have been told that a number of coal-fired power plants in Ontario will be closed down by government edict, but that their operations will continue with the firing replaced by another energy source. Some of us have asked whether it is economic and proper to replace a coal-fired power plant with gas, for example, especially if you have new technology which will reduce emissions. We are advised that in Ontario in at least two or three of these cases, they have replacement sources in mind, if not on line.
You might want to comment as you go along. We would like to understand that.
Mr. Butler: I will address biomass coal firing in particular, which is what they are doing in Ontario. When I get to that section I can speak to that.
On page 8, I want to give an indication as to how coal fits into Canada's fossil resources. Coal represents almost two thirds of the fossil energy resources in Canada. Right now that represents about 89 billion tonnes of coal, most of it in places like Alberta and Saskatchewan.
If we can tap into technologies like underground coal gasification, which is one of the projects being advanced in Alberta, the Alberta government figures there is close to 2 trillion tonnes of coal that could be taken advantage of. If that were true, then coal would dwarf this graph in terms of the amount of energy available from underground resources in Western Canada. I want to give an indication that if some of these new technologies advance, there is a huge amount of additional energy that could be brought to bear in places like Alberta and Saskatchewan.
On page 9, I want to give an indication of how electricity in Canada is being produced. Canada is blessed with a substantial amount of hydro, so many places like B.C., Manitoba, Quebec and elsewhere take advantage of hydro resources. That represents almost two thirds of Canada's power production. The next largest source of power production is thermal and most of that is related to production of electricity from coal.
You can see that nuclear represents a fairly substantial chunk, and then there are other components like gas turbines, internal combustion and some green projects like wind, which still do not represent a significant amount of generation yet in Canada.
I do not want to spend too much time on this, but there were some rumours that regulations may affect coal plants once they reach a certain age. On page 10, I attempted to show the age of coal plants in Canada in 2020. You can see that there would be a handful of plants that would be 40 or 45 years old, at which time they would have reached the end of their economic life. From the graph you can also see the location of coal plants in Canada. You can see that the vast majority are that light blue shade at the top of most of the graphs, which means most of the coal plants in Canada reside in Alberta.
At the beginning of December we had about 6,000 megawatts of coal plants in Alberta. Since then, 550 megawatts of coal plants had been terminated because of technical problems. Over the next month or so we will be bringing on Keephills 3, which is a 450-megawatt coal plant and so we will be back to about 6,000-megawatts of coal generation in Alberta.
The Chair: Can you tell us how many coal-fired power plants there are in Canada?
Mr. Butler: If you assume that all the coal plants in Ontario have gone away or are going away, there are around 40.
Senator Banks: This graph presumes there are none in Ontario.
Mr. Butler: That is correct. The expectation is by 2014 all the coal plants in Ontario will be gone, so in 2020 they would not be represented here. My understanding is roughly 40 coal plants.
The Chair: We have also been told also, and I heard something or saw something in the media today, that in China, today, every week there is a one new coal-fired power plant put into operation. Is that true?
Mr. Butler: That is my understanding.
The Chair: That would be 52 a year, more than we have in all of Canada.
Mr. Butler: We built one that is coming on line this year. The most recent one before that was built in 2005, so we are building one every five years or so. My view is it will be quite some time before we build another one, particularly in the absence of certainty around greenhouse gas legislation.
Except for one company, there are few plans I am aware of to build any more coal plants at this time.
The Chair: Is that notwithstanding the advent of new technology and what have you?
Mr. Butler: As we will see later on in this presentation, most of the new technology we are aware of, at least the stuff that is almost commercial, is still pretty much cost-prohibitive. I will get to the economics around that later on in the presentation.
The next page gives an indication of generating capacity by province. Going from west to east, B.C. has a significant amount of hydro at its disposal. Alberta and Saskatchewan employ a significant amount of coal. Manitoba is mostly a hydro system. Ontario currently has some coal but that slice will go away and largely be replaced by natural gas fired units, potentially some hydro and potentially some nuclear.
Quebec is mostly, as you would expect, hydro. Further east, there is some coal and hydro, and then Newfoundland and Labrador generate a significant amount of electricity from hydro.
I want to transition into talking about some of the new technologies related to carbon capture. Page 12 gives three basic ways we can use to reduce the emissions from a coal plant.
The first is to improve the efficiency and we have done that by employing something called supercritical pulverized coal plants. Essentially we have gone to much higher steam temperatures and higher steam pressures to make the plants more efficient. To take advantage of that you need to go to much more exotic types of metals and alloys to withstand those types of temperatures and pressures. That is the technical limitation at this point on trying to improve the basic efficiency of the coal plants.
The decision was made five years ago to build the first supercritical coal plant in Canada, which was Genesee 3, and in a matter of weeks Keephills 3, which is another supercritical coal plant, will be brought on line. One of the key decisions behind building that plant was to try and improve the efficiency to reduce its carbon footprint and to employ some of these more exotic alloys and metals to make the plant more efficient.
That gets you only so far. As you mentioned, there are other options, around fuel switching. So, people have looked at using certain proportions of biomass mixed in with the coal. In Ontario they are proposing to do 100 per cent biomass coal firing, completely replacing coal with biomass. In places like Nova Scotia, they are proposing to partially replace coal with biomass to reduce the emission footprint of the plants.
There are other places in North America where people are looking at potentially replacing coal with natural gas, but economically that does not make sense. There was a decision in Ontario a number of years ago not to do that with natural gas. It made more sense to build new natural gas combined cycle units, which were more efficient at burning natural gas than a typical coal plant would be if you tried to do that. Therefore our members are continuing to study biomass coal firing. We are not studying replacing coal with natural gas for a number of reasons.
The third option relates to new technologies to capture carbon dioxide. Basically this is applying new technologies to separate the CO2 coming out of the plant and store it in some fashion.
Over the next two or three slides, I want to give a high level overview of the three basic ways of doing that. There are dozens and dozens of ways to do this, but I want to highlight three generic ways to do that.
The first one is post-combustion capture. That is, after you have combusted the coal, you then go in and try to capture the CO2. For those of you familiar with Project Pioneer, the project that TransAlta is moving forward with, it is a form of post-combustion capture.
The schematic on page 13 shows coal and air going into the power plant, producing power. You take the flue gas and use some technology to capture the CO2 and let the remaining components, mostly nitrogen, go up the stack. Once you have captured the CO2, you have the option of storing it underground in some fashion, and hopefully keeping it there indefinitely.
The second option is similar to the first. Instead of burning the coal with air, which is full of nitrogen, if you burn the coal with oxygen, you get a fairly pure stream of carbon dioxide, which is much easier to capture. It is not diluted by a huge amount of nitrogen. People are looking at various ways to use oxygen in the front end to get a more concentrated stream of CO2 to take a run at and capture at the back end.
The third technology is integrated gasification combined cycle, or IGCC. The premise is that you can take a solid fuel like coal, and partially oxidize it with oxygen. That will give you a synthetic gas composed of hydrogen, carbon monoxide and carbon dioxide. You can take the carbon dioxide out of that and that leaves you with hydrogen that you can then use either as a fuel or a feed stock for other purposes.
Some of you may be aware that over the last year or two, Capital Power, which used to be EPCOR, did a $33 million FEED study on this technology. It was one-third funded by the Government of Canada. They did the most sophisticated study in Canada on this technology. I will show you some of the results from that study later on, in terms of the costs related to that technology, but Capital Power has focused their attention on that particular technology.
Going back one page, I should mention that SaskPower did a FEED study on oxyfuel technology a couple of years ago. That was a technology they felt at that time had promise, and they did a lot of internal work on that particular technology.
On page 15 gives a bit of a status on the nature of the three technologies that I have described. The first one is a little distressing, and that is there are no commercial-scale, coal-fired production facilities with carbon capture anywhere in the world. For those of us in the power industry, we are dealing with a technology that is not commercial.
There may be a few plants built in Alberta over the next couple of years which will be some of the first partial-scale technologies. For instance, the Project Pioneer plant that I alluded to earlier will capture maybe 30 per cent of the CO2 from that facility, but it will not be capturing 90 per cent. It will only be a partial demonstration project, even in 2015.
We are a long way from having commercial-scale technologies. There are dozens and dozens of these technologies being developed right now, but it will take another decade for those to mature before we can figure out which of those new technologies are worth developing going forward.
Hopefully in five years there will be half a dozen commercial-scale units sprinkled around the world. There will be a lot to be learned from that.
For the first projects, it will likely cost more than $90 to capture a tonne of CO2. To put that in perspective, right now there is a carbon tax in Alberta at $15 a tonne on part of the CO2 emissions. That will not be nearly enough to recover the costs related to doing carbon capture, based on the studies we have done.
Project Pioneer is the project that TransAlta is advancing; they claim their technology will be on the order of $90 to $100 per tonne.
This adds about an extra $70 per megawatt hour at 90 per cent capture to the cost of power production. That assumes no CO2 sales at that point. Depending on what power price you are familiar with, that could add anywhere from 60 per cent to 100 per cent to the cost of power production.
That is the quandary we are in. At this point, with regard to the stage of the technology, that is an expensive proposition, particularly for consumers and for our utilities. That is why we have been working for the last decade, along with numerous other groups, to find technologies that will reduce that cost significantly.
The CO2 you do capture has an economic benefit to some extent. It can be sold to enhance oil recovery, and that is being done in a substantial way in Saskatchewan. It may be used to generate CO2 credits. Depending on how the legislation works going forward, there may be an opportunity to get some benefit for that.
In Alberta right now, presumably the credits you can generate might be worth $15 a tonne, but that is only part way towards compensating you for the $90 a tonne it took to capture it in the first place.
Starting on page 16, I would like to go back a couple of years and disclose some of the information we found from some fairly large studies we did in phase 2 of our study work. To let you know what the quality of these studies is, these are feasibility level studies; they are plus or minus 30 per cent in terms of the cost estimates. They were derived in 2007 dollars and they are still some of the best information we have in terms of Canadian costs for these technologies. However, since they are in 2007 dollars, they will need to be escalated a little bit to get the current costs.
The Chair: Mr. Butler, two things. First, two additional senators have arrived since we began. Senator Dickson is from Nova Scotia and Senator Neufeld is from British Columbia.
The other thing, as you move on with this is that you have made a point that there is all this new technology being developed, but in the real world, there is not one coal-fired power plant that is benefiting from the new technology to reduce CO2.
In other words, all these ones opening in China, one a week, are the old methods with an equal amount of atmosphere pollution. In the U.S., where we understand they are heavily reliant in at least 16 states on coal, they are building new coal-fired plants almost as quickly as China. I was down there last week and I understand they are building new plants; is that correct?
Mr. Butler: To my knowledge, there have been no new coal plants built in the last two years, although there are plans to build more.
The Chair: Maybe it is the planning I heard.
Mr. Butler: I would say that there are demonstration plants sprinkled around the world, but there are no plants, to my knowledge, using coal that are capturing more than 20 per cent of the CO2 emissions. To my way of thinking, until they cross that threshold, that is not a commercial scale. That is still the demonstration stage.
There are a handful of gasification plants in the world capturing CO2. One is in North Dakota and they send the CO2 to Saskatchewan, but they are not producing electricity. A handful of plants around the world are capturing CO2 to produce chemicals for other purposes. There are a few in China and other places.
My point is, this technology has not been employed with coal for the production of electricity at a commercial scale anywhere at this point in time.
This study here, the phase 2 numbers I am about to show you, contains some of the best Canadian estimates we have. On page 17, on the left side, we have the cost of producing the power in dollars per megawatt hour.
If you had a supercritical coal plant, the cost of producing power from those plants in the first year is on the order of $90 a megawatt hour. If you were to put amine scrubbing on these plants, assuming a healthy amount of revenue for the sale of the CO2 that is embedded in these numbers, the numbers will go to at least $130, if not more. Remember, these numbers are four years old now.
The first number there is for amine scrubbing, which is a form of post-combustion capture similar to the technology TransAlta is employing.
The next number is for oxyfuel. That is similar to the FEED study work that SaskPower did a number of years ago, which, again, is comparable costs. The bar on the right-hand side is related to gasification in an integrated gasification combined cycle. In those days, four or five years ago, we found that was a very expensive technology.
Again, these numbers are still fairly good. I would say that they are understated now because, as inflation and the cost of things have gone up over the last few years, I would have expected these numbers to go up. Nevertheless, they still illustrate the point that capturing CO2 from these technologies will significantly increase the costs for these plants, even assuming that you can get some benefit from the sale of the CO2.
On page 18, we have tried to indicate what it would cost to capture a tonne of CO2. For amine scrubbing, which is similar to the technology that TransAlta is applying, based on these four-year-old studies, we came up with numbers like $90 a tonne. With oxyfuel we came up with numbers similar to that. With IGCC we are talking much more than that. The last column is "Polygen," and I will talk about this later. One of the advantages of gasification technology is that once you produce the hydrogen you can take the hydrogen and use it for various purposes. For instance, you can burn it in a power plant to produce electricity. You can take the hydrogen and use it for heavy oil upgrading, or you can use it as a feedstock to produce other chemicals. What "polygen" refers to is taking part of the hydrogen and producing power and then taking part of the remaining hydrogen and selling it as a commodity into the hydrogen market.
Because hydrogen, at least based on that study, has more economic value than power did, it tended to reduce the effective cost of capturing the CO2. We have an interest in looking at what is the best way to use our coal in this technology. If that means producing something other than power, that should interest us.
I want to leave you with a few comments here about the incremental cost of capturing CO2. On page 19, CCS refers to carbon capture and storage. The incremental cost of carbon capture and storage will be significant based on the technologies we have now. The costs of gasification were much higher than we anticipated, given the literature. I want to caution you about the literature. There is a lot of propaganda in the literature about the cost of this technology. As we start doing FEED studies, we are finding that the costs are a lot higher than we had anticipated. That is the reason the majority of gasification plants in the United States have been cancelled. They thought the costs were reasonable. Once they started doing the very expensive studies, they found that the costs were high. For that reason most of the gasification plants in the United States have been cancelled.
To give you some idea, it can take upwards of $50 million to get a good cost estimate for some of these technologies. We spent $33 million looking at the IGCC technology with Capital Power Corporation and they would have liked to have spent more money than that because they did not quite complete some of the costing around certain components. It is an expensive proposition to get to the bottom of what this costs. My point is that, until people have done this quality of study and built a few of these plants, it is tough to know how much this technology will cost.
Again, CO2 compliance costs or mitigation costs need to approach $90 a tonne before people would be interested in physically adopting these technologies. The point there is that, as a utility, we would likely prefer to buy our way out, if you want to call it that, as long as the cost did not exceed $90 per tonne. That is the point at which you start to do the trade-off between paying the financial cost of buying credits at $90 a tonne versus adopting a technology that is very risky and not commercial. Those are the trade-offs that you would have to make at that point in time.
On page 20, there is no one silver bullet with regard to clean coal technologies. I spoke earlier this week with one of my counterparts who works for the National Energy Technology Laboratory, the DOE laboratories in the United States. They are investing $900 million, basically studying 30 new emerging technologies. Based on his initial work and review of those technologies, he is agreeing that there is no silver bullet even coming out of their $900 million studies. It may be quite some time before we find technologies that can capture CO2 at much less than $90 a tonne. The good news is that there are dozens of carbon capture pilot plants being built around the world. There are a few plants in Alberta and some other places in the world where people are beginning to adopt these technologies to try to figure out how they work and how to reduce the costs.
For this reason, and since carbon capture costs are high, we believe that further development in a wide variety of technologies is recommended to try to sort out which technologies make sense going forward.
I would like to spend a few minutes talking about the more recent study work we have done over the last few years. We have been involved in a large study with the Electric Power Research Institute (EPRI) in the United States on post-combustion capture. We have looked at things like coal beneficiation. We have done a lot of work with CanmetENERGY labs.
Senator Banks: What is coal beneficiation?
Mr. Butler: Coal can contain a lot of water and it can contain a lot of ash, neither of which you want to burn. The premise is that if you can get that stuff out of the coal to some extent, you can make the plant more efficient. We are looking at those technologies to see if that is possible. We have been studying that with the Electric Power Research Institute and Sherritt Technologies. We should have a study completed in several months looking at whether or not that makes sense. It does have the benefit of reducing CO2 emissions to some extent — not a huge amount, but it is worth looking at from that perspective.
I mentioned earlier that one of our members did a $33 million FEED study on gasification. We are looking at other advances related to gasification with EPRI. We completed a $1.3 million study with Jacobs Consultancy looking at a host of gasification technologies, some of which I will speak to in a minute. We also studied biomass coal firing. Let me talk about that for a second.
There are various forms of biomass at our disposal throughout Canada, everything from flax and straw to wood chips; there are beetle-killed forms of wood in the stands in Alberta and British Columbia; there is the opportunity to put crops in like poplars and others to grow to provide biomass for coal plants. The difficulty with that is that biomass is expensive to move around because it is largely full of water. Economically, you can only move so much biomass within a certain radius of a coal plant. For that reason, most biomass plants we have in Canada today are relatively small.
Ontario is going ahead with completely swapping out coal for their plants and using biomass from various sources to fire those plants. The difficulty they will have is finding enough biomass at a reasonable price to do that, because to completely fire a coal plant requires monstrous amounts of biomass. That means bringing it in from long distances. We will see where that goes.
One of our members, Nova Scotia Power, is proposing to use biomass to partially fire some of their coal plants, to replace coal. We completed two studies this year looking at various ways to get biomass into coal plants. For instance, in Canada we export 1.3 million tonnes of wood pellets each year, mostly to Europe. We are working with the Wood Pellet Association of Canada to see if there is a way to keep some of that in Canada potentially and use it in some of our coal plants. We are working on that.
This brings me to page 22. This slide shows the cost of capturing CO2 from various gasification technologies we studied last year. This is related to the results of the $1.3 million study we did with Jacobs.
The Chair: Let me come back for a second on the wood pellets. That is part of biomass?
Mr. Butler: That is part of biomass, yes.
The Chair: We are exporting that to be used as fuel in other countries?
Mr. Butler: That is correct. In other countries CO2 mitigation costs are much higher than in Canada, so they can afford to buy these materials to reduce their emissions. It is cheaper to do that than to buy the credits in those countries.
The Chair: Those are countries that have a carbon tax or cap and trade?
Mr. Butler: That is right.
The Chair: Thank you.
Mr. Butler: This slide shows the cost of capturing CO2 from various gasification technologies. We looked at about eight or nine different technologies. Many of them are in different stages of development, so it is hard to get a good handle on the cost for some of those technologies. For instance, for the Siemens technologies, the one that says Siemens 500, a few of those plants are being built. The number on the left-hand side there, which says Cap FEED, is the number related to the Capital Power FEED study completed earlier this year. The Alberta government is investing quite heavily in a demonstration plant of the PWR technology. The PWR is sitting at around $120 per tonne. It is an attractive technology compared to other options. Our hope is that that will eventually be commercialized. That gives you an idea of some of the work we have been doing.
The next page is meant to give you an indication of what it would cost to produce electricity from these technologies. On the left-hand side we have the cost of producing power in dollars per megawatt hours. There is a bar on the left that says SCPC, which means supercritical pulverized coal. That is our reference. That is what we would do today if we were to start with coal. It is sitting a little under $100 a megawatt hour, more or less.
From that bar on the left-hand side, the bars are the various technologies we looked at that use gasification to produce power. If you were to add the red bars and the blue bars together, that is the cost of those technologies. The red bars show what we are assuming we can sell the CO2 for. The blue bar is the net cost, if you want to think about it that way.
Senator Massicotte: Do they all include CO2 capture?
Mr. Butler: That is right. The red bars represent the value for selling the CO2 that you captured. If you did not think there was any value in selling CO2, then the costs of all these technologies would sit at the top of the red bar. That is our way of indicating what we have put in there for CO2.
The point there is that gasification technology, with carbon capture, in many cases would have the effect of doubling the power price, which is an expensive proposition.
Another way to think about this is that that supercritical reference coal plant that we have there would cost you about $2 billion to build. If you were to build the Siemens 500 unit, which is about the same size, it would cost you about $5 billion. That does not include the fact that that technology is slightly less efficient and that it has a higher operations and maintenance cost. I am saying that this is just one of the costs, being the capital cost. There is a substantial cost difference there. This is part of the reason, as people have started doing the sophisticated studies of this technology in the United States, they have been abandoning this technology.
Our hope is that some of the advances that we have been studying, both on the gasifiers and other parts of this, will bring the cost down. You can see the one in the middle there. The costs look like they are coming down. With other technology advances, we think the costs will come down further. However, with the technologies that we have at our disposal right now, it is an expensive proposition.
Senator Massicotte: What is the cost of capital?
Mr. Butler: For this one, we used the weighted average cost of capital of 9 per cent or little higher than that.
Page 24 illustrates polygen. The idea is that if you put your coke or coal or whatever your feed is with oxygen into your gasifier, you can produce a synthetic gas composed of hydrogen and other chemicals like carbon dioxide. If you separate the carbon dioxide out, you are left with hydrogen. I mentioned earlier that you can take the hydrogen and produce power with that, or you can take it and put it into the hydrogen market or use it as a feedstock for other chemicals. That is what we refer to as polygen. You are producing a blend of hydrogen and a blend of power.
We looked at this because we believed that hydrogen, all things being equal, probably has more value as hydrogen than as power. On page 25, we wanted to look at whether or not it makes sense to use coal to produce hydrogen versus using natural gas to produce hydrogen. The vast majority of hydrogen that is produced for heavy oil upgrading, for instance in Alberta, is using natural gas as a feedstock. They put the natural gas into something called a steam methane reformer. That is what SMR refers to. We compared the cost of producing hydrogen with coal with carbon capture to producing hydrogen with natural gas with carbon capture, because we wanted to know what made more sense. One of the projects that is going forward in Alberta is the Shell Quest project. They are taking three steam methane reformers, and they will put carbon capture on those units. We wanted to know if the gasification of coal would be more attractive than what Shell is doing. This was an attempt to answer that.
The table shows the cost of capturing CO2 in dollars per tonne. If you have a steam methane reformer that only captures 50 per cent of the CO2, it will cost you roughly $60 a tonne, based on our estimates, to do that. If you have polygen, a gasification technology where half the hydrogen will produce power and half will produce just hydrogen, you can see that the costs are expensive compared to steam methane reformers.
We did another case that looked at capturing 90 per cent of the CO2 from a steam methane reformer. That will cost you more because the CO2 that you will go after is more difficult to get at. We compared that to a polygen case where all the hydrogen is being diverted to the production of hydrogen and none is going, for instance, for the production of power. In those two technologies, the numbers were comparable.
Basically, the take away from this is that if you do not have to capture 90 per cent, then steam methane reformers, which take advantage of the high pressure, high concentration parts of the CO2 available, have a relatively low cost of capture, if you consider "low" being $60 a tonne.
The next slide shows the actual costs of producing the hydrogen in terms of dollars per tonne. Typically a steam methane reformer costs about $2,000 to produce a tonne of hydrogen. If you were to put partial carbon capture on that technology, much like Shell is doing, the costs do not go up much. However, if you employ polygen, which is the middle case there, where half of the hydrogen is diverted to power production, then the costs are pretty high. Likewise, if you had a steam methane reformer and decided to capture almost all of the carbon dioxide, that is also a pretty expensive proposition. We were trying to give an indication as to whether it made sense to use coal rather than natural gas to produce hydrogen. At this point, with prevailing natural gas prices, the answer is that it does not make sense in my view to use coal at this point. That may change as the technology advances or the price of natural gas goes up, but that is what we concluded from that work.
I would now like to go to the next slide, which is NETL green field costs. NETL is the National Energy Technology Laboratories, which are the Department of the Environment laboratories in the United States. They have produced some high quality reports recently on various technologies. On page 28, the top table shows the costs in dollars per megawatt hour. That is their estimate of the cost of producing power in the United States. By way of explanation, that first number refers to SCPC, which is supercritical pulverized coal. That is like the technology that we are employing in Alberta in Genesee 3 and Keephills 3. They have the number at $68 a megawatt hour. Apparently it is cheaper to do that down there than in Alberta.
The next number is for IGCC. That refers to integrated gasification combined cycle. You can see that the costs increased by almost 90 per cent with that technology. Amine refers to amine scrubbing, which is a form of post combustion capture. The numbers there go up by almost 90 per cent.
One of the interesting things about that study is they are suggesting that oxyfuel may have a competitive advantage over some of these other technologies. Therefore, that is one of the technologies we want to study in more depth over the next couple of years.
The lower table shows "avoided cost." That is similar to the cost of capturing the CO2. For the first two technologies, you can see it is around $85 per tonne, more or less, and that the oxyfuel technologies from that basic study suggests that the costs could be a bit lower than that. Again, that is a technology that we want to spend more time studying over the next little while.
Avoided cost is different from the capture cost. The capture cost involves throwing a lot of costs and energy at this technology. You take that cost for capturing the CO2 and divide it through by the CO2 you capture. The problem with these technologies, though, is that you produce CO2 to capture the CO2 because you must use energy. Instead of dividing through by the CO2 you capture, you divide through by the CO2 you capture less the CO2 you produce to capture the CO2. It is the net. By definition the net amount is less than what you capture and that tends to drive the avoided costs up above the capture costs. There are various ways to express this, but that is what that avoided cost means.
By way of conclusion, I want to bring a few messages from our management committee to you. CCS technology, or carbon capture and storage technology, is not ready yet for full scale adoption for power production. We are almost there. In five years we hope to have a few of these plants up and running, but it is really not a commercial full-scale technology at this point in time.
The other message is that carbon capture and storage is an expensive technology and it is very risky. It is risky because no one has actually built them so we are not really sure how they will run, how well they will run and what kind of technical problems we will face if we try to adopt this technology. It is one thing to build a green field unit from scratch. It is quite another thing to do what TransAlta is doing, which is to go into an existing plant, do surgery on it and add $1 billion of capital to that plant and try and get that to run. There are all kinds of risks even related to that part of the technology, and they are adopting that technology on a brand new plant. If you try to adopt these new technologies on a 40-year-old plant, you are in for a world of technical issues. You probably need to spend a couple hundred million to extend the life of that plant for another 20 years to make it worthwhile to have put these technologies on.
The third point is that new technologies should be developed and existing technologies should be built. That is the only way we can bring the cost of these technologies down. There are groups all around the world trying to develop and further these new technologies. There are a lot of neat things in the lab and they need to come out of the lab eventually, in 10 years from now, and hopefully they will be available.
We also need to do what TransAlta and others are doing, which is to build these things so you know how to do it better next time. Until you do that, you will not be able to drive the costs down because you will not have learned how to do it better the next time. For these reasons, government and industry support will likely be required to promote wider adoption of carbon capture and storage technologies in the future.
Those are some of the messages that I would like to leave you with. I would be happy to entertain further questions if there are any.
The Chair: Thank you Mr. Butler. That was a thoughtful and for us perhaps quite a technical presentation. We are all interested and we are trying to get our minds around it. I have a list of questioners. The first one is Senator Mitchell.
Senator Mitchell: Thank you, Mr. Butler. This was an intense presentation and it was very good.
I have a specific question to begin with. On page 15 you mentioned that for the first projects it will likely cost more than $90 to capture one ton of CO2. On page 22, I look at the cost per ton and I do not see any of those bars that go to $90; they are all above that. How do I square that?
Mr. Butler: Those numbers are for gasification technologies. The technologies that I am referring to on page 15 are the ones that are likely to go ahead, which are not gasification technologies. They are more things like post-combustion capture technologies; the technologies that TransAlta is investing in.
Senator Mitchell: Have you just thrown this gasification thing in because you show that it does not work even though it is discussed?
Mr. Butler: I threw it in because we spent a fair amount of time trying to answer the question about whether it made sense to do those technologies.
Senator Mitchell: Okay, I see.
On page 25 of the deck, I see SMR 50 per cent capture at below $60 per tonne.
Mr. Butler: Yes. The steam methane reformers referred to are the technologies using natural gas typically in industry to produce hydrogen. They are not using coal and they are not producing any electricity. We wanted to compare the polygen technologies that do use coal that produce both hydrogen and power to what is standard in industry to produce hydrogen to see whether we could compete. That first bar there, again, that is the standard technology using natural gas.
Senator Mitchell: That brings me to my more general question, which is this issue of the announced phase-out of coal plants unless they can meet natural gas levels of emissions. Why do you not just go to natural gas and forget coal?
I do not mean to sound as brutal as I did though.
Mr. Butler: That question is not addressed here because we did not look at power plants that use natural gas to produce power. We only looked at natural gas being used to produce hydrogen. It is true that with prevailing natural gas prices, the cost of fuel for natural gas combined cycles is relatively attractive at this point in time. If that changes, there are big issues with that. Natural gas fired plants are fairly risky in nature because you cannot hedge the price of the natural gas for a sufficient period of time. What is happening in Ontario is that the state has taken the gas price risk. Consumers in Ontario are taking that. That is why those plants are being built. Companies that are building the plants are going to their banks with a long-term power purchase arrangement from Ontario, and they are not taking any fuel costs or risks so the banks are quite happy to sit down with them.
If, however, you go to the banks and say we have no way to hedge the cost of our fuel for 20 years, which is the situation we have in Alberta, then it is a different story. You are taking a significant amount of volatility with you on the fuel side, which is the lion's share of the cost of a natural gas combined cycle unit and there is potential exposure then to the power price in Alberta, which is also volatile.
With a coal plant, the vast majority of your cost of coal is locked in day one when you buy all of the drag lines, the trucks and shovels so by definition your coal costs are largely hedged from day one. It is a different story and coal does not represent as much of a cost in a coal plant as it does in natural gas.
Senator Mitchell: Do plants that use coal own the coal? They do not go and buy it.
Mr. Butler: Typically, yes.
Senator Mitchell: Implicit in all of this effort you are making, not explicit in all this effort you are making, is answering the question of what do we do with climate change and carbon emissions. What is your industry's appreciation of the severity of the climate change issue? Do you accept it or are you just doing this because you have to? Would you see it as essential to price carbon? If so, would you like to see a tax or a cap and trade?
Mr. Butler: Our organization has not given me a mandate to discuss things related to positions on climate change or what legislation should be or things of that nature. If you go back to the first bullet here, and I want to emphasize this, our objective is to demonstrate that coal-fired plants can effectively address environmental issues and move us towards a cleaner future.
We do recognize that we need to find viable solutions to lower coal plant emissions. We have been doing that for over a decade. As a testimony to our commitment to that, we spent over $50 million over the last decade doing that.
One of the messages that I can bring on this is that the industry is looking for clarity. It is difficult for us — going back to your earlier question — to answer the question of what to build, because if the carbon price is high, that may dictate we build these kinds of technologies; but if the carbon price or the requirement to mitigate CO2 is lower, that may open the door for us to build other technologies.
In the absence of clarity on that, it is difficult for our members to sort out what to build. They are taking enormous risks on that. If they bet on one technology and things turn out differently, they are in a different situation.
As it relates to the issue of climate change, our members recognize that they do need to do something about the emissions. That is what we have been spending a fair amount of our time on. In the early days, we looked at other emissions, like mercury, sulphur and other things. More recently, we have been focusing our attention on carbon capture technologies.
Senator Mitchell: Ultimately — again, this is more direct than I want to be — what difference does it make to you if whatever fuel you use keeps you competitive? If everyone has to use gas, why does TransAlta mind that it uses gas, particularly if it is saving the planet by doing it?
Mr. Butler: Looking at the economics of one technology versus another, it is not immediately clear that natural gas combined cycles —
Senator Mitchell: Because of this hedging problem. Everyone has that.
Mr. Butler: There is the risk issue but there is also the cost issue. If natural gas prices go back up to where they were three or four years ago, it is not immediately apparent that natural gas combined cycle units are competitive with coal units.
One natural gas combined cycle unit built just outside Calgary a few years ago, ran into financial difficulties because of the risk issues related to natural gas. That is one of the reasons we have so few in Alberta. Coal is abundant. It is essentially dirt; it is cheap and our members own a lot of it. Historically, they have taken advantage of that.
The question I have is that natural gas can be used for a lot of other purposes; and if industry in North America is forced away from coal, the demand for natural gas will go through the roof. It place upward pressure on the cost of natural gas, notwithstanding, in my view, shale gas. There is an issue there.
Senator Brown: These are very interesting proposals and figures that you have given us.
I was thinking that the Canadian Clean Power Coalition would be a coalition of more than just coal. I was thinking that maybe you would make some comparisons against other technologies that are trying to replace coal. Have you done any thinking about that at all — comparing wind power, for instance, where it costs a lot of money to start with and then it gets 20 per cent of what was expected of it, and then you have solar power? Have you done any studies on those?
Mr. Butler: I can speak to that. I will start with solar. In the Province of Ontario, the Ontario Power Authority is granting contracts for people who build solar plants at $440 a megawatt hour. That is six or seven times the prevailing power price as of now. If people want to do that, fine. If the government of Ontario wants to subsidize technologies that cost five or six times the prevailing cost of power they are free to do so. That is well above the cost of any technology I have shown you here today.
On wind, they are offering contracts for projects at $135 per megawatt hour, and that is well above the $90 per megawatt hour I have talked to you about in our presentation here today.
Again, wind is more expensive but it has a very green footprint. One of the difficulties with wind is that it is intermittent. You cannot tell when the wind will blow. If you want the lights to be on all the time, you cannot rely heavily on wind which will not be available all the time.
We do not have any difficulty with it, and most of our members have invested heavily in wind projects. TransAlta and Capital Power and others have a substantial amount of wind in their portfolio; but from a system perspective, you can only take so much because it is so intermittent.
There is room to build more wind projects. We recognize that, but it is difficult to finance them at this point because the costs in places like Alberta far exceed the prevailing cost of power in our markets right now.
Senator Banks: It is comforting, I think, to everyone to know that we will virtually never run out of coal. When we need power, when things get tough and everything else becomes a problem, we have lots of coal.
It is also comforting to know that the people who own it and consume it in our country are working hard. I was intrigued by Senator Mitchell's question and your answer to it as to why you are working hard, but let us ascribe it to altruism for the moment.
Most of the folks who are members of your association are consumers and producers of coal. Capital Power, for example, owns a lot of coal where we live. However, that is not true in Nova Scotia, so they import a lot of coal. They used to use Nova Scotia coal but they do not any more. They import it from Virginia mostly, I think.
There are some pretty big coal-producing companies in Canada who export coal, for example, and whose coal is not used in power generation domestically.
Mr. Butler: That is correct.
Senator Banks: Have you tried to attract to your membership coal producers per se? Have they any interest?
We do not hear much about the coal industry contributing to this research. We read a lot about the consumers of it contributing to this research, but the coal mining industry does not seem to have much to do with this.
Mr. Butler: Sherritt Coal, which is a very large producer of coal in Canada, is one of our members.
The second issue, as it relates to coal, is that there are two basic commodities for coal. There is thermal coal, which is used for the production of power and metallurgical coal, which is used for the production of heat. A significant amount of the coal in Canada is being exported overseas and other places.
We have approached organizations like the Coal Association of Canada about joining our organization. The vast majority of their members are metallurgical coal producers and they do not have a vested interest in doing anything to do with carbon capture because their coal is going to another continent.
Senator Banks: I understand the economic problems with that. You cannot say to someone who is exporting our coal to China that they have to pay more for our coal because we will invest in research to make it cleaner. However, the winds are not observers of national boundaries, and a lot of the pollution which is directly attributable to coal in our country is not generated in our country.
I guess you have answered my question; they are not interested. I think they should be.
Mr. Butler: I tried. We are looking for more members all the time.
Senator Banks: I hope they join you in this effort. With respect, in terms of what is at stake and the numbers that are involved in energy production and electricity consumption from all sources, but certainly from coal, $5 million a year over 10 years is not a lot of money. To me, anything with more than three zeros on it is a lot of money and I do not even understand it, but $5 million a year over a decade in the matter of producing and exporting energy is not a lot of money. That is a comment.
Where does the North Dakota CO2 come from? Is it from a plant that makes something and it is a side product? We have always been intrigued by the fact that NRCan is importing CO2. We blow it up into the air and NRCan is paying a lot of money to bring in CO2 on a pipeline that they largely helped to finance for purposes of oil enhancement, not for sequestration. Where does it come from?
Mr. Butler: There is a gasification plant in North Dakota and they are producing synthetic natural gas. They are actually producing methane or natural gas.
Senator Banks: This is a by-product.
Mr. Butler: Yes. That plant effectively went bankrupt a number of years ago. It is my understanding that the capital related to that plant has been largely written off. As part of the restructuring number of years ago, a plan was put in place to create economic value related to the CO2. A deal was struck between Saskatchewan and different government entities in the United States to bring large amounts of CO2 into Saskatchewan for enhanced oil recovery purposes.
There are about 90 projects worldwide using enhanced oil recovery with CO2. That technology is fairly mature as it relates to enhanced oil recovery. The hope is that more of those projects will go forward.
Senator Peterson: Are you familiar with the IPAC-CO2 in Regina?
Mr. Butler: Yes.
Senator Peterson: In terms of carbon capture, what process are they using?
Mr. Butler: The test centre is set up to test a number of different technologies. They have a supply of flue gas, much like a coal plant, and they can make that available to various people who want to study their technology with that flue gas. They are using a lot of what we call post-combustion capture technologies like the technologies that TransAlta is employing. They would set up test facilities there to take advantage of the flue gas available and that centre would allow them to use various measuring means and technologies to get a handle on how well the technology is working.
Senator Peterson: Did they ever get the demonstration project going at Boundary Dam?
Mr. Butler: My understanding is that they decided for the large scale project to postpone that technology.
Senator Peterson: That is the one with Saskatchewan and Montana.
Mr. Butler: I am not sure how they configured it, but more recently, for the Boundary Dam project, they had a proposal to reconfigure one of their 150-megawatt units with post-combustion capture. They were going to use the Cansolv technology. My understanding is that they made a public announcement several weeks back that they had suspended work on that project. They are going ahead with the rebuild of the underlying coal plant, but they are not going ahead with the carbon capture part of it.
Senator Peterson: I thought they had indicated they thought they were within five years of commercialization for carbon capture. Would you agree with that? That is maybe a little aggressive.
Mr. Butler: We are hoping in Alberta to have a few plants built in five years. I do not know of any plants being built in Saskatchewan other than the Boundary Dam project, which was the one furthest along.
Senator Massicotte: Let me describe how I respond to your presentation and you can tell me where I am wrong. Sometimes a bit of information is dangerous.
I start with the premise that coal is highly polluting. It has serious consequences for our planet. I also acknowledge, you may not agree, that some people say that in the United States, 110,000 people die a year from the ash and the remnants of using coal-fired generation, and in Canada it must be 10,000 or 11,000 people a year. You say, what a disaster. We have to get rid of this stuff.
Then the practical side of me says that, from what I read, the world will spend a lot of money with alternative energy, wind and all kinds of stuff. Many countries doubled the use of alternate forms of energy, solar and wind predominantly, but in spite of that immense investment, I understand the increase of coal-fired production last year was even greater than all the alternative energy combined, predominantly in China. Here we are increasing the use of coal more than the alternative energies, in spite of the heavy subsidies we have.
How do we get out of this pickle? We are dependent on energy and coal. It is immensely important to society, but it has immense consequences.
I go fast forward. I am a big believer in the market. I guess the market will set a price taking in the cost of carbon, to make it fair to everyone else. So let the market decide how to allocate. If I did that speculation, I would not be surprised if we never get to $90 or $100 for a tonne of coal, because people will find alternate ways to reduce their consumption or other technology will arrive where the $90 will never come to. In other words, coal will not be produced because people will find another way to save that $90, if ever they had to pay for it. How do you respond to that? I know there is a lot of speculation there.
Mr. Butler: I am not disputing anything you say up to the $90 a tonne. I do not have too much difficulty with all the commentary before that.
It is hard for me to speculate on behalf of my members. Let us say the carbon price in Canada was two things; one, $90 a tonne and, two, you had to reduce your emissions by 90 per cent. It is one thing if it is $90 a tonne but you only have to reduce your emissions by 10 per cent, and quite another thing if it is $90 a tonne and you have to reduce your emissions by 90 per cent. There are two parts to that.
If you only had to reduce your emissions by 10 per cent, chances are people would try to buy their way out.
At $90 a tonne and if you had to capture 90 per cent of your CO2, chances are people would want to try to buy their way out.
I am speaking personally as I cannot speak on behalf of my members. The reason for that is that even if I had a technology at $90 a tonne right now, the risk of me buying the credits is zero. However, my adopting a technology that has never been built that I think is $90 a tonne is a risky proposition at this point. I would think that the cost would have to go above $90 before I would want to adopt a technology that is risky.
I would tend to agree with you that if the carbon price goes that high, at least in the short term with the technologies we have, it is unlikely that many of these plants would be built. There would be a few. I think you are right. People would try to find other ways to keep the lights on, and maybe there are those ways. I am not sure. Building these technologies is a very expensive proposition and is very risky.
Senator Massicotte: Many countries in Europe and cities in the United States have higher electricity costs than we do. We have a lot of bright people in our country and they all arrive at the same answer, let the market do so. The problem is political. Consumers respond negatively to price increases, in spite of the fact that in Quebec we are super-cheap.
If you look at how much other countries are paying for electricity, can you learn from that? If you try to convert that into a CO2 carbon tax or cost, what would you see happening in Canada if we did go to the full price of carbon? You mentioned earlier we are subsidizing wind, which is probably not the right solution. What would you do?
Mr. Butler: A couple of things would happen. If you went to $90 a tonne, consumers would then have a price that would be an incentive to conserve electricity. That is something they might adopt on their own if the pricing is high enough.
I was speaking to someone at NRCan who lived in Europe, who said that the power prices were so high there that they thought twice before doing certain things with electricity. They might find other ways to deal with it.
There are many provinces and states that are looking at conserving electricity as a cheaper means than generating it. I would agree with you that there are other green technologies that could be adopted more widely than available right now. As I mentioned with wind, there is an opportunity to build more wind, but you cannot rely too heavily on it because it is so intermittent.
Senator Massicotte: If you look at Europe, in spite of very high electricity costs, wind is still being subsidized. Even at $90, I am not sure what the conversion price is, it is not adequate.
Mr. Butler: There are still opportunities to build more hydro facilities. They have not been built because they are so far away from load centres that they are expensive to build. People might look at that. I have not looked at the studies more recently, but things like nuclear might be of interest to people because the carbon footprint is low. That may or may not be attractive to people, but in a small market like Alberta, if you were to build two nukes, which is what you need to do to take advantage of economies of scale, that would add about five or six years worth of generation growth in one year, which would be problematic for that small market. There are market issues for why it would be problematic to adopt that in a small market.
I would agree with you that, at $90 a tonne, there may be other things people would look at, like biomass co-firing. There are other things that you might want to do. I am not trying to push carbon capture. I am just saying that this is what we found about carbon capture, and we found that there may be cheaper ways to reduce the emissions from power production than that technology.
If you want to reduce emissions on a large scale, we cannot ignore that technology. It is something we have to keep in our back pocket. Hopefully, over time, the costs will come down.
Senator Neufeld: Thank you for your presentation. I appreciate it very much. I apologize for being late.
Mr. Butler: It is okay.
Senator Neufeld: Is it? I am sure the chair will chastize me later.
You talked about conservation a minute ago. Conservation is the cheapest form of energy you can get today. There are ways to actually make conservation work. I agree with you that some provinces, but not all, are doing a lot of work. The province I live in is doing a lot of work. It costs a bit, but there are great ways to save a lot of energy.
I have been to Europe and looked at some of the plants there, where they grow the trees on site, burn them, generate electricity and have heat for the community. Their prices are somewhat higher than what we have, depending on where you are in Europe.
When we look at sequestration for coal-fired generation, the U.S. is over 50 per cent coal-fired. Can I ask how closely your organization works with organizations in the U.S.? I know quite a few are doing a tremendous amount of work. They know they have to do something. They have an awful lot of clean up to do in the U.S. Do you work closely with the U.S.? I think governments in Canada and the U.S. ought to be working closely to try to figure out how to use carbon capture, because I think it is one of the answers, along with industry and organizations like yours. Do you actually work closely?
Mr. Butler: Sure. Let us go back to page 3 to Basin Electric, and you see in brackets it says it includes the Lignite Energy Council. The Lignite Energy Council is a coalition of about 30 utilities that produce power with coal in the United States. We have become a member of that organization, and they sit on our technical committees. We share information. We are hoping to share studies going forward. We started doing some of that work. One of their members is a formal member of our organization. We are working closely together on study work and sharing information.
The third bullet down is the Electric Power Research Institute in the United States, which is a large organization that does fundamental work on the electric power industry. They are doing a lot of work trying to find ways to green up coal, for instance. Not only are they a member of our organization, but we have actually commissioned them to do studies for us as well.
The third element is that one of the studies we commissioned the Electric Power Research Institute to do is of particular interest to the National Energy Technology Lab in the United States. They are coming to one of our technical committee meetings in March to sit down and talk to us about the results of that work, and we will share notes in March. We are trying to work closely with them.
I am doing a lot of work with an entity called the CO2 Capture Project, which is a group of seven international oil and gas companies. I have a lot of hats on. I am trying to find ways to work with those folks and to share information with those folks as well.
Senator Neufeld: You talked about pellets. We produce most of the pellets in Western Canada in British Columbia. They are shipped to Europe.
The Chair: These are wood pellets.
Senator Neufeld: Wood pellets, yes.
The Chair: What type of wood does that come from?
Senator Neufeld: It comes from waste.
The Chair: Is it softwood?
Senator Neufeld: It can come from either, but mostly softwood, pine beetle wood or waste from plants, spruce and so forth.
I believe Sweden has a large coal-fired plant where they burn about half of the pellets produced in British Columbia. Sweden is a long way away. Sweden's rates for electricity were not that much different than what we experience.
Can you tell me why they do not use more pellets in Alberta? I noticed you said that we have to keep more of those here. When I talk to the pellet guys, they say it is a matter of actually making a commitment to buy them. It is not about trying to keep them here, but about the industry that burns coal to generate electricity not ponying up to the pump back home. Can you tell me why?
Mr. Butler: The Swedes are doing this not because the fuel is cheap. The pellets are not cheap. They are doing this because their CO2 mitigation costs are expensive. They are doing this as a way to avoid having to pay substantial dollars on a dollar per tonne basis to reduce CO2 emissions. At $15 a tonne in Alberta, it does not make sense for us to buy wood pellets. There are cheaper ways to either pay the $15 a tonne or find other ways to reduce our CO2 emission. Most people are paying the $15 a tonne, I would suspect, and that is much cheaper than buying pellets from B.C.
Senator Neufeld: What is the per tonne cost in Sweden of CO2?
Mr. Butler: I am not familiar with that.
Senator Neufeld: It is actually not much different than here. I do have some difficulty with the industry. You recognize we have to clean up a bit. We have a product that is made in Canada that is actually closer to Alberta than Sweden is to British Columbia, and we are not using that. I think it is mostly because of dollar value, and there are probably no rules in place to make it happen. I hate to see those things happen. I would rather see it happen voluntarily.
On the page about generating capacity by province, page 11, when I look at the colours, do you show Newfoundland, the last one, as having nuclear?
Mr. Butler: No. That is the second bullet down, being hydro.
Senator Neufeld: I got the blue, but there is a little blue mark down at the very bottom. I had to take my glasses off too, sir. That relates to the nuclear. You have none in New Brunswick.
Mr. Butler: That would be heavy oil.
Senator Neufeld: That is heavy oil? Yellow? I can tell the difference between yellow and blue. New Brunswick, which does have nuclear energy, has nothing showing it is there. That is just a comment on your chart.
Mr. Butler: You are right. I will have to talk to Statistics Canada about their statistics.
Senator Neufeld: We have trouble with Statistics Canada and their statistics.
Senator Dickson: I want to follow up on some of the questions Senator Neufeld asked. I apologize as well for being a bit late. It was an excellent presentation.
In the area of cooperation, you enumerated certain agencies that you cooperate with in the United States. Would you like to comment about the SuperGen project in the United States and how closely we work there, or not, and where that stands?
Mr. Butler: I believe you are referring to FutureGen. There was FutureGen 1.0, and now we are dealing with FutureGen 2.0.
FutureGen 1.0 was one of these gasification technologies that we referred to earlier. The thinking several years ago, based on what I call the propaganda literature, was that that technology was the way to go. When the Department of Energy started looking into this and the costs became clearer, it became clear that that was an expensive technology, so they abandoned that technology.
FutureGen 2.0 is an oxyfuel technology, which is what I referred to earlier. B&W, one of the largest boilermakers in the world, is involved in that technology, and they are doing a big study with EPRI on the cost of doing oxyfuel. We are hoping to do a subsequent study with EPRI based on that information. We are not directly involved in the FutureGen project, but we will hopefully get involved in the some of the study work that will be done related to the cost of oxyfuel from the folks who are actually building FutureGen.
Senator Dickson: Perhaps I am wrong on this, but considering the cooperation between the present President of the United States and our Prime Minister in Canada, is there some way or another that we can leverage into that more directly?
Mr. Butler: I am not familiar with that. I spoke with the folks at NRCan today who are doing work with cooperation between Canada and the United States and that certainly has not come up. To my knowledge, there is no opportunity for us to get involved in that project. The closest we can get involved in it is through these other studies that we are hopefully getting involved in.
Senator Dickson: One of the companies participating in the project in the United States was Xstrata Coal, and they have an interest in Canada. Is there any way to work through Xstrata to get closer to that project?
Mr. Butler: If Xstrata were one of our members there would certainly be the opportunity to do that. They are not at this point. It is not something our members have expressed a strong interest in.
Senator Dickson: Let us turn our minds to Australia. Is it so that the former Prime Minister of Australia and our Prime Minister had a cooperation agreement in so far as clean coal technologies were concerned?
Mr. Butler: If there is one I am not aware of it.
Senator Dickson: It would be interesting to pursue that.
Mr. Butler: We are members of the Global CCS Institute as well, which is an Australian organization. In terms of cooperation, we are involved in that organization. We get access to their study work and the insights. TransAlta, which is building the Pioneer Project, also has a separate contract with the Global CCS institute to share information. They are quite involved with that organization as well in Australia.
Senator Dickson: Coming to the cost per ton of producing coal, what kind of figures were you using per ton for production? Are they new figures or old figures? What method of production was it? Was it strip mining?
Mr. Butler: It depends on which province you are in. I do not want to get into the details, but when we looked at some of the study work we looked at three types of coals: The coals that were imported into Nova Scotia, the coals that were being mined in Saskatchewan and the coals that were being mined in Alberta. For Alberta and Saskatchewan purposes, we were using extension of the existing strip mines. For some of the study work we are currently doing for Nova Scotia, we were looking at roughly the cost of importing it into Nova Scotia.
We were looking at $20 or $30 a ton, maybe $40 a ton as the range of the cost of acquiring coal in, say, Saskatchewan and Alberta, in that kind of range.
Senator Dickson: What was it in Nova Scotia?
Mr. Butler: I do not have the numbers offhand with me. It would be higher than that because they are importing it and the transportation costs would be higher.
Senator Dickson: Would you be surprised to learn that production per ton and per man hour has come down really substantially in the past five years with regard to underground mining in Nova Scotia is concerned? In other words, at one time the Crown Corporation employed roughly, do not hold me to these figures, 1,200 miners underground. Now they can produce almost twice as much coal with 250 men. That is a big difference, is it not?
Mr. Butler: That is. We have not taken a look at that. We have been provided with the numbers from Nova Scotia Power that they were prepared to disclose to us.
Senator Dickson: That is right. That is fine, sir.
The Chair: Will you set him straight on Xstrata?
Senator Dickson: I was thinking about doing that, but a bit later.
The Chair: We will be monitoring that conversation on the ethics committee.
Senator Mitchell: The Global CCS Institute is international, as the name suggests. Is it just coal-related industries or does it include other industries that produce lots of carbon?
Mr. Butler: I believe their emphasis is on coal but a lot of the technologies they document could be applied to other things.
Senator Mitchell: That was really the thrust of my next question. Could these technologies you have been experimenting with be applied, say, to the oil sands or to refineries or to other major manufacturers or are there fundamental differences? Either way, do you collaborate with those industries as well and if not why not?
Mr. Butler: For instance, oxyfuel can be used to produce heat just like in a coal plant. The CO2 Capture Project, which is this group of international companies, will hopefully test fire oxyfuel on one of their boilers over the next year or two in order to see what how it performs and what it does to the boilers.
Amine scrubbing is widely used to clean up natural gas before it gets into the main line. That is already being employed in the natural gas industry. Amine scrubbing is a form of post-combustion capture. Some of these techniques are already being employed in various quarters. The difficulty with the oil and gas industry is that many of the sources of CO2 are very dilute and small in nature. That makes it problematic to take a run at them. One of the advantages of a coal plant is it is a big point source, and the CO2 is at about 15 per cent concentration. It is a natural target. There are a few opportunities in the oil and gas industry with large sources, but for a fair amount of the CO2 coming out of a large refinery or heavy oil industry, the sources are either very dilute or very distributed all over kingdom come.
Yes, many of these technologies can be deployed in the oil and gas industry. For instance, gasification is being employed by OPTI/Nexen for the production of hydrogen, but they have not employed carbon capture on that technology.
Senator Neufeld: At a large gas plant, at least this is what I have been told and I do not know the numbers per tonne, because they already stripped the CO2 out just to use it in our system, and the carbon is just vented to the atmosphere. It is relatively inexpensive to capture that. You have to store it and that is another thing. That is compared to taking it out in a coal plant. That is where the cost comes because you have to strip it out; would that be correct?
Mr. Butler: That is what Spectra is doing, and that is correct. They have to do certain things to the CO2 to get it into a pipeline, dry it up, get the water out and oxygen out, if necessary. Many of those plants are in the middle of nowhere and it costs a significant amount to pipe it somewhere and then deal with it in terms of storage.
Senator Neufeld: Just so you know, I live in one of those place that you call nowhere, so be careful, my friend. Spectra is doing that as we speak. They have actually been injecting CO2 for quite a few years in the province I come from, along with acid gas.
Mr. Butler: That is true.
Senator Neufeld: It is not in the middle of nowhere, my friend.
The Chair: I once asked Senator Neufeld where was Fort St. John and he said 99 miles north and 99 miles south of nowhere.
Senator Banks: These kinds of comparisons are odious given the demand. However, for the purpose of our overall understanding it would be helpful for the record to know what the comparison is.
It would be fair to say that the Genesee 3 plant, if you looked at what is going on in the world today, is at the top of the list in terms of efficiency and reduction of emissions by comparison with practically everything else. Is that a fair statement?
Mr. Butler: It was in 2005. There are a few plants in places in Asia and Europe where they have gone to even higher temperatures using more exotic metals that are not tried and true. In those places coal costs are substantially higher than Alberta so they have an incentive to push the limits on efficiency to reduce costs.
Senator Banks: What is that incentive in Asia?
Mr. Butler: Because they do not have their own domestic supplies of coal, the cost of coal for them is much higher than it would be if you were just mining the coal next door.
Senator Banks: What is their incentive to reduce emissions?
Mr. Butler: They may not have an incentive to reduce emissions, what they have is an incentive to reduce fuel costs. For that reason they have pushed the limits of metallurgy. Back in 2001 or 2002, when they were designing the plant, that was as far as they were prepared to go in terms of risks on metals. Now that more of these plants have been built, maybe their comfort level on the new metals is better than it was.
Senator Banks: We are concerned with the Canadian energy framework. In North American terms, Genesee 3 is at the front of the line at the moment.
Mr. Butler: It is near the front of the line.
Senator Banks: You said the others that made the improvements are non-commercial; they are practically theoretical in terms of the likelihood of their being put in place. Given that, if I am half right, and for the record, what is the difference between the emissions from a gas-fired electricity generating plant on the one hand, and the best we have at the moment, which is Genesee 3?
Mr. Butler: With Genesee 3, there is no carbon capture.
Senator Banks: Right. You said there is not any anywhere in the world.
Mr. Butler: Pretty much. To give you a ballpark number, Genesee 3 and Keephills 3 produce less than 0.9 tonnes of CO2 per megawatt hour. That is generally where supercritical technologies are. A natural gas combined cycle unit will produce anywhere from about 0.36 to 0.42 tonnes per megawatt hour. It is a little less than half. It you go to co-generation, it theoretically could be less than that. Simple cycle gas turbines, because they are less efficient, may be around 0.6 tonnes per megawatt hour.
Senator Banks: In terms of the impact on the direct landscape, I visited Genesee 3 the week after it opened. As coal-fired generating plants go, it is pretty nice by comparison.
We have not talked about anything but CO2. What about mercury?
Mr. Butler: Sure. There are regulations coming in to deal with mercury. We have a number of technologies at our disposal to try and take a run at mercury. It depends how the mercury is bound in the coal, to some extent, as to what kind of technology you want to try and employ.
I know that many of our members have done a fair amount of research trying to sort that out. In Alberta, work is being done to try to come up with more robust mercury reduction requirements. Certainly that is becoming more of an issue in the United States.
However, to my knowledge, there are very few plants that are employing or attempting to employ mercury reduction technologies. From my recollection, Genesee 3 and Keephills 3 should have lower emissions of mercury compared to some of the older plants.
Senator Banks: Because of their efficiency — pulverization and burning it?
Mr. Butler: That is right.
Senator Banks: Would you agree that with respect to CO2, there are questions about the extent to which it could be called a pollutant, but there is no question about mercury being a pollutant?
Mr. Butler: Mercury is mutagenic, which means that it harms.
Senator Banks: It harms everything.
Mr. Butler: It harms the genetics, particularly of children developing in the womb. That is a problem. For anyone who comes in contact with mercury in substantial levels, it is a very destructive material.
To give you an indication, however, this issue was raised earlier around particulates. Most of the coal plants in Canada capture about 99.5 per cent of the particulates that are generated. A very small proportion of the particulates generated make their way into the environment. We are doing a fair amount of work in that regard to try to reduce the amount of emissions coming from particulates.
A fair amount of mercury is in those particulates. A fair amount of it stays in the ash, but some of it is vaporized and makes its way into the environment. There are technologies like activated carbon that could potentially be employed for certain forms of mercury to try to reduce the emissions.
Senator Banks: When we are doing our study, I think we should remember that CO2 is not the only bugaboo and that mercury is a serious one.
The Chair: As you know, Senator Banks, you and I participated in a study about mercury and the toxic nature thereof, and exactly what the witness said in terms of the devastating effects on childbearing women in the Northern parts of Canada.
In any event, sir, it has been a highly enlightening presentation. I would like to ask you one global chair's question, if you will.
If you were designing an energy strategy for Canada for the year 2050 and beyond, would there be a place for coal in that strategy?
Mr. Butler: By 2050, I fully expect that many of the technologies that we have in the lab now could be available. Yes, I would think on that account that there is hope that carbon capture will be there.
The other thing to keep in mind is that we have talked about natural gas, but by 2050 the question is will we have large amounts of natural gas at our disposal, given we will use a lot of it between now and then, notwithstanding the shale gas that is available now. I suspect by 2050 it is questionable whether we will have cheap natural gas at our disposal. That being the case, if you are not interested in nuclear and you do not have the opportunity to do much more hydro, there are not a lot of other options to supply large quantities of base load generation, which is the generation that runs all the time.
Therefore, coal will be something that will be difficult to dismiss, particularly when you have over 100 years of supply of it at your disposal. If you can take advantage of underground coal gasification, there may be hundreds and hundreds of years of coal at your disposal, so I do not think you can dismiss it.
The hope is that some of these technologies will be around; and there will be cost benefit tradeoffs to be made in 2050 if some of these other technologies are not at your disposal, such as natural gas, for instance.
The Chair: Thank you very much. You have focused our attention on an area in the energy mix that we have not addressed in our study yet. We are grateful to you for being here. I hope we can come back to you when we digest this material.
Colleagues, before we adjourn, as some people know that were in Montreal, the new Minister of the Environment, the Honourable Peter Kent, has agreed to dine with the committee as a whole on March 9. We have booked a room in the Sheraton Hotel. You will be getting more details about that later. It will give us an opportunity informally to have a good discussion with him. The Minister of Energy, the NRCan minister, has also agreed to do this. The date has not been finalized but it may well be the preceding, March 8. That would be good; we would have both.
We are at a stage in our study where it is good to engage the political people involved in the energy business to interact with us.
Without further ado, unless anyone has anything to say —
Mr. Butler: I would like to say it has been a pleasure being here this evening. If you would like to chat with me, I would be happy to chat with you in the future.
The Chair: Thank you very much, Mr. Butler.
(The committee adjourned.)