Why natural gas matters in Alberta’s move to cleaner electricity

Lonnie Enns remembers a definitive turning point a decade ago for his company, ENMAX Corporation. Up until then, the Calgary-based utility had relied on contracted coal-fired generation to produce electricity. Faced with future expiry of the contracts, ENMAX wanted to own and operate its own generating facilities. But not only that.

To satisfy changing customer expectations, ENMAX wanted to get out of using coal entirely and move to cleaner energy sources. It had already started to invest in renewables, with an interest in a wind farm in southern Alberta. But the biggest decision was saved for last: how to replace coal, the backbone of its electricity supply. Weighing their options, company leaders settled on what they saw as the best choice: natural gas.

“There was an impetus for us to move to cleaner power. We saw natural gas as the best option on a go-forward basis,” says Enns, senior vice president of generation and wholesale markets at ENMAX.

The Best Option

Since making its decision, the company hasn’t looked back. It’s moved from complete reliance on coal to a mix of wind, solar and natural gas. Today, as part of this mix, it owns or co-owns five natural gas power stations that together are capable of generating more than 1,300 megawatts (MW) of electricity to the Alberta grid.

The latest is the Shepard Energy Centre, the largest gas-fueled power facility of its kind in the province. Opened in 2015, the plant’s two natural gas turbines and steam turbine combine to deliver over 860 MW to the grid—enough to meet nearly half of Calgary’s current needs.

“Natural gas is a fantastic fuel. It’s very efficient. It gives you best-available technology for large-scale generation,” says Enns, who estimates the Shepard facility is about 30 per cent more efficient than conventional coal plants.

Not surprisingly, Enns and others at ENMAX are strong believers in using natural gas to meet electricity demand in the province. And these days they’re not alone.

Gasification: Ahead of Schedule

Right now the Alberta government is moving ahead to phase out coal-fired generation across the province. It’s announced plans to have 30 per cent of Alberta’s electricity—as much as 5,000 MW—come from renewable sources such as wind, hydro and solar by 2030. It’s also agreed to allow existing coal plants to convert to natural gas within that timeframe.

This has prompted some aggressive response from a number of the province’s biggest generators.

In April last year, TransAlta said it would accelerate plans to convert six of its coal-burning units to natural gas sometime by 2022, instead of waiting for the 2030 deadline. The conversions will take place at its Sundance and Keephills plants west of Edmonton. In total, about 2,400 MW of coal-fired capacity will be changed over to natural gas.

In May the same year, ATCO Group also announced plans to convert its Alberta coal plants to natural gas by 2020. These consist of the Battle River generating station southeast of Edmonton and its Sheerness plant northeast of Calgary. That means a further 1,469 MW of electrical capacity will be converted to natural gas.

Other major generators, like Edmonton-based Capital Power, are considering options, including timing, to convert their coal plants to natural gas.

Reasons for Taking Action

Besides the new government policies, each of the players has their own reasons for taking action.

ATCO, for one, sees gasification of its coal plants as a way to take advantage of low natural gas prices and address expiring power purchase arrangements.

“We’re actually looking at greening them at 2020, not 2030,” said Nancy Southern, ATCO’s president and CEO, at the company’s May 10, 2017 annual meeting.

At TransAlta, converting sooner to natural gas is part of an overall strategy to enhance competitive edge by converting to a cleaner fuel and lowering what the company could pay in carbon taxes. (The Alberta government’s carbon tax rose to $30 a tonne earlier this year, while Ottawa’s carbon price is expected to reach $50 a tonne in 2022.)

“Given the changes in terms of the province’s Climate Leadership Plan and a cleaner power grid approach in Alberta, converting the plants to natural gas makes a lot more sense,” says Marcy Cochlan, TransAlta’s managing director of market regulation and policy.

As Cochlan explains, the coal-to-gas conversions will cut GHG emissions from the plants and extend their operating lives well into the mid-2030s. Using existing infrastructure also means less time and costs than building new gas plants. And it creates operating flexibility. Once the changes are made, the retrofitted plants will operate as “peakers,” ramping generation up and down rapidly to dispatch power when it’s needed on the grid.

“We’re anxious to do this as soon as we can,” says Cochlan, who adds that the company expects to save as much as $235 million in operating expenses by moving to less complex gas operations.

A Market Opportunity for Producers

All of this adds to up to a huge shift in the province’s power sector where, up until now, a big chunk of its more than 16,600 MW in total generating capacity has been dedicated to coal (about 51 per cent in 2015, with 40 per cent coming from natural gas and 9 per cent from renewables, according to the Alberta government).

It’s a development that comes as welcome news for natural gas producers who are under increasing pressure to develop new markets.

Western Canada has natural gas in abundance— about 1,100 trillion cubic feet, or enough for 300-plus years. For decades, virtually all of Canada’s natural gas exports have gone to one customer, the U.S. But Canadian gas exports to this market over the past decade have fallen as U.S. natural gas production volumes surge upward due to growing shale production.

“We have this huge abundance of natural gas supply, we need to access new markets,” says Stuart Mueller, manager, natural gas transportation and supply at the Canadian Association of Petroleum Producers (CAPP). LNG exports via Canada’s West Coast to Asia is one solution. Another is increased domestic use through natural gas electrification.

The shift to using more Canadian natural gas to generate electricity in Alberta offers a bright spot for the industry. And it’s an opportunity that, Mueller says, makes sense for multiple reasons.

In addition to its abundance, natural gas, when burned to generate electricity, emits about half the carbon dioxide compared to coal. It’s easily transported and stored and can be accessed through a vast pipeline system. It’s also a cost effective fuel source.

According to Mueller, switching to more gas-fired generation will create roughly 1 billion cubic feet a day of new natural gas demand in Alberta. Under the province’s current fiscal regime, this translates into more than $290 million a year in government royalties and taxes—dollars that can be used to support social and infrastructure programs.

“In a world where the provincial government is mandating a huge shift in the power sector, natural gas is an option that provides a lot of value for Albertans,” Mueller says.

Natural Gas and Renewables: Partners, Not Substitutes

Some groups disagree with this position. Rather than using more natural gas to generate power, they argue the province should switch directly to renewables.

But that’s not a realistic solution, according to Kent Fellows, a research associate with the School of Public Policy at the University of Calgary.

“If we make the jump all the way to renewables in a province like Alberta, we won’t have the certainty of supply any more, and that certainty is important,” says Fellows, who in 2016 co-authored a policy paper on different issues involved in integrating more renewable generation in Alberta’s electricity market. Without certainty, residents could face escalating costs and even the prospect of periods where supply can’t meet demand.

Fellows, instead, argues that natural gas and renewables should be viewed not as substitutes but as complements in the province’s diversifying generation mix. As growing volumes of intermittent sources like wind and solar power are added to Alberta’s power system, they will need to be complemented and backed up by reliable supply sources, like natural gas.

“As we get more renewables on the grid, we will have these periods when the wind is not blowing or the sun is not shining, and we will still need to firm up our electricity capacity. In the absence of grid-scale technology for energy storage, we do need a way to cover outages and supply electricity when renewable energy is not there, and natural gas can do that,” Fellows explains.