SaskPower carbon capture project uneconomical from the start, critics say

SaskPower's president has said it is unlikely the Crown corporation will recommend government pursue more carbon capture and storage projects because of the high cost. Critics say pursuing carbon capture and storage was uneconomical from the start.

Wind, natural gas offer cheaper options, critics of carbon capture and storage project argue

SaskPower's president has said it is 'highly unlikely' his company will recommend pursuing further carbon capture and storage projects in the foreseeable future because they are too expensive. (CBC)

Following SaskPower saying it is unlikely to recommend government pursue more carbon capture and storage projects because of the high cost, critics are saying pursuing carbon capture and storage was uneconomical from the start.

"It's not economic, and it was clear at the time it wasn't economic," said former SaskWind president James Glennie.

"It cost $140 per megawatt hour," to produce electricity with carbon capture and storage technology at a coal-fired plant, he said.

"Clearly, then, it wasn't economic even at the time if that's what it cost, because that's substantially more than wind cost back when the investment decision was taken."

In the fall of 2014, the $1.5-billion Boundary Dam power station near Estevan became the first power station in the world to install carbon capture and storage technology on a commercial scale. SaskPower argued using carbon capture and storage allowed the Crown corporation to reduce emissions while still using coal as a fuel source.

Glennie's organization started a project in 2012 aiming to build a community-owned wind farm in Saskatchewan. He said that after years of being met with many obstacles, he decided to close down SaskWind and leave the province.

In March 2015, he produced a financial analysis of the Boundary Dam project. He conducted a breakdown of the costs versus revenues of the project over a 30-year time frame.

By his count, the carbon capture facility loses just over a $1 billion once the initial investment, the cost for operations and maintenance, and the parasitic load needed for carbon capture are subtracted.

Altogether, considering the profits and losses of both the power station and the carbon capture facility, his financial analysis shows a total $651-million net financial loss for SaskPower and Saskatchewan ratepayers.

Cheaper options

SaskPower's president, Mike Marsh, said the economics of power generation have changed since it decided in 2010 to pursue carbon capture and storage.

Marsh said that with falling gas prices, electricity generated from gas now costs about $60 to $70 per megawatt hour.

But according to the levelized cost of energy analysis by the financial advisory firm Lazard, energy from natural gas combined cycle plants cost between $67 and $96 per megawatt hour back in 2010. With carbon capture and storage costing $140 per megawatt hour, natural gas was still the cheaper option in 2010.

SaskPower president Mike Marsh said the lower cost of natural gas makes the economics of 'clean coal' difficult. (CBC)

However, there were concerns at the time gas prices would rise.

"There were an awful lot of countries … who essentially pursued policies on the mistaken assumption that gas was going to get a lot more expensive," said Gordon Hughes, an economics professor at the University of Edinburgh.

"That assumption was wrong. It was probably wrong at the time, it is certainly wrong now."

Hughes said even with natural gas prices where they were when the decision was made, it didn't make economic sense to pursue carbon capture and storage.

He analyzed Saskatchewan's carbon capture and storage power plant, and argued in a report for the Global Warming Policy Foundation that replacing SaskPower's Boundary Dam carbon capture and storage facility with an efficient gas plant would have also significantly reduced emissions at five to 10 per cent of the cost.

Hughes studied whether carbon capture and storage was likely to become economically viable by 2050.

"Fitting carbon capture to coal-fired plants was unlikely to make economic sense in that time horizon, and would involve, in any case, a very large commitment by governments to go through the learning experience that is necessary to bring the costs down," said Hughes.

Saskatchewan's energy future

SaskWind's former president also says there were cheaper alternatives for cutting down on emissions. Glennie's report stated that wind energy could generate the same amount of electricity for $1 billion less — and free of carbon dioxide emissions.

According to Lazard's levelized analysis, wind energy cost $65 to $110 per megawatt hour in 2010. Wind energy prices have also quickly fallen since then. Today, Lazard's analysis reports wind energy costs $30 to $60 per megawatt hour.

Critics say wind energy is a cheaper option than carbon capture and storage for producing electricity. (David Donnelly/CBC)

However, levelized cost does not consider the variability of wind energy.

"Though wind is cheap in Saskatchewan, it may not be available when needed and so energy must be stored or complemented by readily available, dispatchable technologies like hydro or natural gas," said ecological economist Brett Dolter.

Natural gas plants can act as backup for when renewable sources of energy — like solar or wind — aren't available.

"Think of wind as providing low-cost, emissions-free electricity that reduces the need to run gas plants and therefore saves fuel and reduces greenhouse gas emissions, and the natural gas plants as the dispatchable insurance policy and backup for when it's not windy," said Dolter.

As SaskPower adds more renewables to Saskatchewan's power grid, Hughes said coal-fired plants with carbon capture and storage acting as backup are uneconomical. This is because gas plants can be quickly ramped up to provide backup energy.

Glennie questions whether carbon capture and storage was a responsible use of ratepayers' money, given its poor economics.

"Basically, every single person in Saskatchewan paid $1,000 dollars for a project, which was known to be uneconomic, even when the decision was given to proceed," said Glennie.

"As an experiment, it might have been justifiable, but its results and its costs are far too high to expect that it would make sense in current circumstances to reproduce it," said Hughes.

"That's the unfortunate aspect of doing experiments. Some of them don't work. And unfortunately, when they're very big and very expensive, ones that don't work spread egg on everybody's faces."

With files from Stefani Langenegger