POWER February 2016 - 41

GENERATION TRANSITIONS
1. TransAlta's policy proposal
imposes a hard cap on coal-fired
power. Source: TransAlta
5,000
4,000
3,000
2,000
1,000
Current
2021
2026
2030
compared to the government's plan, which
could have impacts as high as $103 billion.
The Financial Post quoted an analysis from
iA Securities analyst Jeremy Rosenfield that
the Notley policy could leave TransAlta with
C$1 billion in stranded assets.
A billion-dollar hit would be hard for
TransAlta to take. The company has about
C$3 billion in annual revenues on an asset
base of about C$9 billion.
TransAlta has been experiencing financial
problems for some time. Last year, it trimmed
486 positions, 239 from its Calgary headquarters
and 247 from coal generation and
mining operations, in a cost-cutting move.
That's out of about 1,300 employees (and
thousands of others who depend on the company's
business). On September 30, Moody's
Investors Service announced it was reviewing
TransAlta's debt rating, with the likelihood
of a downgrade to below investment grade.
Moody's senior analyst Gavin MacFarlane
said, " TransAlta continues to generate weak
financial metrics for an investment-grade
rating. Management has been implementing
its strategy to delever TransAlta; however,
it increasingly looks like too little, too late. "
TransAlta holds C$4.2 billion in debt.
At the same time as the Moody's announcement,
TransAlta agreed to pay C$56 million
to settle a dispute with the province's Market
Surveillance Administrator for alleged market
manipulations in 2010 and 2011. While TransAlta
insists it followed the market rules, the
market monitor found that the company had
shut down power plants during peak demand
periods in order to push up power prices.
The Canadian genco may also be a takeover
target. In late October, Bloomberg reported
that TransAlta " has held talks with
more than one potential suitor in the past
several months, people familiar with the matter
said. " Bloomberg quoted Patrick Kenny at
National Bank Financial in Calgary as saying,
" Fundamentals have changed here in
Alberta and that creates an opportunity for
a buyer who might take a more constructive
February 2016 | POWER
view. " Bloomberg reported, " Private-equity
investors could be drawn to TransAlta's high
cash flow, relative to its beaten down share
price, Kenny said. The company's free cash
flow yield is now about 20 percent, he said. "
Generation Then and Now
TransAlta began in 1911 with construction
of the 14-MW Horseshoe Falls run-of-river
hydro project, which is still in service. When
power began flowing from the project, the
Calgary Power Co. was born. The company's
first fossil-fueled plant, in the 1920s, was a
small generator powered by coal gas, a 19thcentury
fuel. The company remained dependent
on hydro for several decades (Figure 3).
That changed in 1956, when the company
built its first coal-fired plant at Wabamun,
west of Edmonton and adjacent to a coal
reserve of more than 50 million tons. That's
where the three major coal-fired stations, including
the 2,141-MW Sundance project, are
located today. By 1968, Calgary Power was
adding a fourth unit at its original Wabamun
plant and had started construction on the
Sundance plant. In 1970, the utility commissioned
the first 286-MW Sundance unit. Five
more units went online through 1980.
Alberta's GHG Plan
Alberta Premier Rachel Notley's platform
to reduce greenhouse gases (GHGs) from
Alberta's energy economy, unveiled (with
many details missing) late last November
(http://bit.ly/1MLifPz), focuses on electric
power generation. The plan would
phase out " all pollution created by burning
coal " by 2030 with a move to gas and
renewables through a hybrid carbon tax
and cap-and-trade regime. Renewables,
mostly wind, would replace " two-thirds
of coal-generated electricity, " with gas
providing baseload capacity. Renewables
would constitute " up to " 30% of the
province's " electricity production, " which
presumably means energy rather than capacity,
by 2030.
The province's plan would set a CO2
emissions cap for all fossil generation
at 0.37 ton/MWh, which combined cycle
gas plants can achieve today. Generation
above that would have to pay C$30/ton
for the shortfall; generation that can come
in under the limit would have emissions to
sell. According to TransAlta's Don Wharton,
coal cannot achieve that emissions
standard. Coal's best CO2 emissions rate is
1 ton/MWh. (For more on low-carbon techwww.powermag.com
nology
options for coal-fired generation,
see " CHP and Other Technologies Could
Breathe New Life into U.S. Coal-Fired Power
Plants " in this issue.) The Notley plan
claims it would maintain reliability, offer
price stability, and ensure " that capital is
not unnecessarily stranded. "
The Notley approach relies on a carbon
tax, starting at $20/ton in 2017, rising
to $30/ton in 2018, and increasing at
inflation plus 2% thereafter. The Notley
plan also claims that it would be " revenue
neutral " and that " one-hundred percent of
the proceeds from carbon pricing will be
reinvested in Alberta. "
That claim of revenue neutrality has
drawn some skepticism. In a detailed, and
generally favorable, analysis of the Notley
plan in the Canadian magazine Maclean's,
economist Trevor Tombe at the University
of Calgary argues that revenue neutrality
means that every dollar from the carbon
tax means a reduction in an existing tax.
Under that definition, he says, " The Alberta
carbon tax plan is not revenue neutral-not
at all. " He says that nothing in the Notley
panel outlining the greenhouse plan " suggests
any existing tax will be lowered. "
41
2. TransAlta's plan for fuel
changes. Source: TransAlta
■ Renewables ■ Natural Gas ■ Coal
60,000
50,000
40,000
30,000
20,000
10,000
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Calgary Power renamed itself TransAlta in
1981. The next year, the company relocated
the rural village of Keephills away from its
coal mining operations in the area and commissioned
the Keephills generating plant in
1983. The end of the 20th century saw the
rise of competitive wholesale markets in the
province and TransAlta's expansion outside
of Canada, successfully bidding for the Centralia
plant and mine in the U.S. With market
deregulation, TransAlta sold off its distribuMW
Total
production (GWh)
http://www.bit.ly/1MLifPz http://www.powermag.com
POWER February 2016

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