Governance

Address to the Alberta Economic Forum

May 4, 2009

Steve Snyder, President and CEO, speaks to the Alberta Economic Forum about TransAlta’s role in sustainable development, the prospects for Carbon Capture and Storage (CCS), and the need for secure, reliable and affordable electrical power. This speech was given in Geneva, Switzerland on May 4, 2009.


Good morning. Thanks so much for the opportunity to join you today. I want to acknowledge the people at Academy and Finance here in Geneva, and the Alberta Enterprise Group – or AEG – for organizing this important economic forum. The AEG is a member-driven, public policy advocacy group that represents all sectors of the Canadian economy, and they do a lot of great work advocating for business at home and abroad. Also, thanks to the folks at Carriere Consulting and GWEST for their assistance in staging this event.

Upon our arrival here in Geneva, one of the organizers asked me “what is a TransAlta?” They wanted to understand how we are connected to energy and climate change. They had heard a lot about Alberta in a narrow sense – the famous oil sands – but wanted to know more about our great Province and its role in the world energy scene. And of course, about Canada’s largest Carbon Capture and Storage, or CCS, project.

Those excellent questions gave me the ideas for my presentation. There are those here today including our Premier, who can do a much better job of talking about Alberta and its energy role.

So, let me start with a snapshot of TransAlta. We are Canada’s largest wholesale electricity generator. We have been in business for 100 years and we supply more than 8,000 megawatts of electricity – that’s enough to power close to 7 million homes. We supply 50 per cent of Alberta’s power. The majority of the electricity we generate comes from fossil fuels; although our renewables portfolio is growing rapidly.

That combination, and all its implications, is what drives us as a leading proponent of CCS, and it’s what I would like to talk you about in a few minutes.

Alberta has been blessed with tremendous carbon resources. Some of the most abundant in the world. The presence of huge quantities of surface coal close to our industrial centres has meant over the years that fossil fuels have been the key driver of Alberta’s electric system. As in other coal-based economies, it has provided Albertan’s with a reliable, low-cost economic driver. But of course, it is increasingly seen now as also coming with an environmental cost that we must address.

One of our approaches is to start the long process to build up our renewable energy knowledge and capabilities. We’ve been at it for 10 years now. Prior to that our only truly renewable resource was small-scale hydro. Our history there goes back to the founding of our company and our first production of hydroelectricity in 1911.

Today, renewables account for 16 per cent of our generation capability. And we’ve got growth plans in place to add billions of dollars in renewable generation over the next five years.

We now have significant wind reserves waiting to be developed in our core markets; and, have a growing business in geothermal energy, which draws on heat below the earth’s surface to generate electricity. TransAlta has significant geothermal reserves in southern California. The utilities in that state are very anxious to purchase geothermal power and we are working to develop our reserves and assist them.

We recognized nearly two decades ago that energy producers had to play a special role in sustainable development, as does the transportation industry. For that reason TransAlta:

  • Was a founder of the World Business Council for Sustainable Development,
  • Was one of North America’s early players in the cogeneration business,
  • Is recognized as a leader in emissions offsets trading,
  • And, for the eighth year in a row, TransAlta’s world-class reputation for sustainable development was recognized by the Dow Jones Sustainability Index, as a leading electric company in its group of equity indexes – one of only two Canadian utility companies to be included in this index of the North America’s and the world’s most sustainable companies.

 

I’ve told you a few things you might not have known about TransAlta. Now let me turn to something we all know: electricity still powers our prosperity. That’s as true in North America as it is in Europe, or anywhere in the world for that matter.

Indeed, electricity remains the lifeblood of our economies and our quality of life. That’s a fact we take for granted. We all expect electricity will be there, when we need it, at the flick of a switch. And of course, that’s the way it should be.

Our world needs more electricity than ever. Never before has the relationship between affordable, reliable power, and economic growth and security been so apparent – or so problematic.

One of the key themes of this forum is Alberta meeting its challenges.

Well, here is a challenge we must all meet: Since the very beginnings of the industrial revolution, we have lived our lives in the shadow of an equation that we must solve to ensure prosperity for future generations. Economic development = energy consumption = environmental impact.

In other words, the sense that our quality of life and economic health are linked to the consumption of energy, and, in turn, energy consumption is directly connected to environmental impacts. This needs to change – now.

Until the last few years, living in this shadow has been acceptable in all our eyes. But today, many of us feel – and rightfully so – the environmental impacts are too great to continue in such a manner. But, this isn’t just an environmental challenge. And, certainly not one for Alberta or Canada alone.

Our energy resources can either be constrained or liberated by how we address their emissions impacts. This has tremendous implications. For example, in Canada, oilsands production faces real market challenges from potential constraints of “clean fuel standards” being proposed in other jurisdictions, particularly in the United States. Abundant coal resources for power generation are in exactly the same situation.

Let me ask each of you in this room, to think about what it would mean if we could look at fossil fuels in the same way we currently view the renewable sources of energy I alluded to earlier.

Think about it. All of the benefits of the former and all of the value delivered from fossil fuels – dependability, intensity, transportability – and all leveraging existing infrastructure.

Reducing emissions and other environmental impacts should not – and need not – equate to curtailment of economic activity. Globally, we must break the link between energy and its environmental impacts. Failure to do this will only increase a variety of risks – from exposure to the damaging effects of climate change, to extraordinary and unpredictable compliance costs for industry – and ultimately for the consumers we serve.

Yes, we know that part of the solution is to drive renewable sources of energy – that’s obvious. And, as you have already heard, we are leading the way at TransAlta when it comes to investing in renewables. But one has to be realistic, as there are limits on how far we’ll be able to advance the use of these resources – wind only blows part of the time, and the sun only shines some of the time. The story is similar for conservation. Yes it will help. Yes we need to do it. But, it can’t solve the problem by itself. Consumers are economically rational. When they need to save they will naturally go to the “low hanging fruit” as we say in business. Generally speaking, at least in North America, that is not electricity.

So, what’s the answer then? The issue of the energy industry’s environmental footprint is extremely complex, and by its very nature does not lend itself to simplistic solutions – or as President Obama has said, a “silver bullet.”

Some people are advocating the closure of coal-fired power plants before they reach the end of their natural life expectancy. That would be a terrible mistake. Certainly it would reduce emissions, but it would also result in power shortages, reliability problems and significantly increased energy costs at a time when many consumers are doing everything they can to manage their own costs – not to mention destroying trillions of dollars in shareholder value in the process.

We also need to constantly remind ourselves that the global problem is about emissions…it is not about someone’s view of the “right” kinds of fuels, or “good versus bad” fuels. I firmly believe that the world will require us to use all the resources available to meet global development objectives. We just have to find how to use them in an acceptable way.

I want to emphasize – “kneecapping” our economies for the sake of pursuing a pure environmental agenda would prove catastrophic.

What we do need to do is find is an orderly transition from where we are today to a cleaner generation mix. And to do that properly and sustainably involves appropriate timing and involves keeping the maximum number of options open. The power industry by its nature operates on long timeframes. When capital stock ultimately needs to be replaced we have the opportunity to make major changes, including emissions performance. We want to tailor our emissions management plans, as companies and as countries, to match those opportunities.

Today, fossil fuels provide the bulk of our energy supply and the power behind livelihoods everywhere. They have restrained the rise in energy prices and prolonged the life of oil and gas reserves. Indeed, world-wide, over 40 per cent of our electricity is derived from coal-fired generation.

Some polarizing environmental groups suggest we simply say “no” to coal. To do this without first exploring every avenue possible to cost effectively eliminate its emissions would be a flawed approach. And, would strip away the rights of many across the globe – to affordable and reliable electricity.

At TransAlta, we believe, when it comes to coal-fired electricity generation, technology can be a solution. One leading technology is CCS.

I believe CCS is essential if the world is to address the carbon challenge it faces and not waste natural fossil resources. Alberta can certainly meet this challenge – and provide the model that makes CCS a reality in many jurisdictions around the world.

Most of you are probably familiar with the basic concepts of CCS. Carbon dioxide emissions are separated from the exhaust of industrial facilities, like coal-fired power plants, compressed and the injected underground to be permanently stored back in the same geological formations that safely held hydrocarbons for millions of years before we extracted them. The science says over 90 per cent of the CO2 can be captured. That makes coal a “clean” fuel – in fact, cleaner than natural gas.

I recently chaired a Canadian taskforce on CCS, and we determined that by 2050, CCS has the potential to eliminate 600 megatonnes of greenhouse gas emissions per year, or roughly 40 per cent of Canada’s projected emissions. That’s the equivalent of removing more than all of Canada’s current industrial emissions – without losing critical economic services and value.

What makes CCS so powerful is that it can be retrofitted on existing fossil energy infrastructure. The fact that most of the world’s industrial emissions 20 years from now will be from facilities already in existence, makes this solution highly attractive.

And, in meeting our challenges, we would be able to assist other nations in meeting theirs.

Last year, TransAlta and Alstom – a company I’m sure you’re aware of here in Switzerland, and a world leader in power generation technology – announced an agreement to develop a large-scale CCS facility at one of our coal-fired power plants. Project Pioneer, as we call it, will pilot Alstom’s chilled ammonia process. Now, we consider this process to be one of the more promising and potentially lowest cost solutions for CCS.

CCS technology is in its infancy. As yet there are no full commercial-sized projects anywhere in the world. It certainly needs to be tested for scale – which our project will accomplish. But, there is growing confidence in the world-wide research community that it will work. The benefit of that is tremendous. North American governments have earmarked a combined $6.5B for CCS development, not to mention financial resources from industry.

A bigger unknown for CCS is its costs. And that’s troubling – particularly in today’s economic climate. Clearly, it must prove to be both technically capable and cost competitive on a relative basis to be a viable option for CO2 reduction. Project Pioneer will play a major role in determining these costs.

There are few countries with the financial resources, technical expertise, and abundance of coal resources to initiate these projects. Canada is one of them. Although Canada only produces 2 per cent of the world’s CO2, and TransAlta a mere decimal point, Alberta can play a key role in accelerating the advancement of CCS technology.

I know not everyone supports the development of CCS. They either argue that coal should be shut down as a matter of principle, or that it’s a waste of money. There are some groups that believe the energy industry should just focus on renewables.

I look at the issue pragmatically. Every scientific chart I have seen that shows the business-as-usual production of CO2 vs the targeted levels and the solutions to get there has CCS as a key player. If we are not successful with CCS what will replace it on these charts? And, by the way, all those other solutions also have real risks with them. And, are based on trends with only upside and no downside.

So yes, no one knows if CCS will be cost effective. But given the immense magnitude of the problem that needs solving, I strongly believe we must at least test that hypothesis before adopting such a pessimistic attitude. In the end, it’s the relative cost of CCS, compared to other energy sources that will determine its competitiveness – and, certainly not its absolute cost. Why is it okay to subsidize a very inefficient source of power – solar – and not a very efficient one? The goal is the same – reliable, low-cost, low-emitting power.

The one thing we need to guard against is impatience. We cannot set impossible emissions reduction timeframes that don’t allow sufficient time for CCS technologies to be developed. What would be the point of doing that? If you believe like I do that cleaning coal will be one of the few options the world has to make major inroads in greenhouse gases, then you need to stick with it and allow the time to make it work.

I see CCS in a similar situation to wind power 10 years ago. Many were saying at that time that wind power would never be competitive with more conventional sources of generation. Today it is. Through improvements in technology, increased scale, support from governments, industry risk-taking and innovation, we’ve brought wind into the mainstream. The same may be possible with CCS.

I don’t think there are any of us who doubt that CCS will be expensive. Capturing CO2requires the addition of a large scale plant to an existing facility. The new facility itself, plus sequestration, requires energy usage and operating costs. All of these are additive to the costs of producing power itself.

Simply put, CCS adds costs and reduces capacity. But, society is saying we need to act and actions will cost money. But new, large-scale hydro and nuclear plants are also very expensive. And all those coal plants in China – a country that relies on 70 per cent of its electricity being generated from coal – won’t be shut down any time soon. It’s a reality that we must all come to grips with.

Let’s be practical. One of the prime benefits of CCS is that it will provide a solution to the pragmatic reality that much of the world cannot afford to – and probably will not – shut down existing coal facilities in a meaningful way in the next 30 to 50 years.

The only way to reduce the absolute quantity of CO2 emissions from them is with some form of CO2 reduction technology. If the world cannot develop a cost effective CCS technology, then it is highly unlikely it can meet the CO2 reduction targets it is setting for itself. That is a harsh reality to recognize.

While there is some skepticism over CCS, the same can be said of other power technologies or fuel sources. At TransAlta, in Alberta and Canada, we have a large stake in coal. We need to do all we can to preserve its value for all our stakeholders – and share the technological benefits with our global neighbours. One just doesn’t give up easily on that journey without some significant investment and some degree of risk.

Overall though, pursuing CCS will also greatly help us answer some vital questions the entire world needs answers to:

  • How will these technologies really perform and what implications will they have for the world’s energy supply reliability and capacity?
  • What public safety issues will need to be resolved for CCS projects to proceed and be embraced by the public?
  • How will enhanced oil recovery demand for CO2 contribute to CCS economics?
  • Should we consider CCS as a public infrastructure issue with economy-wide network planning, or is it more effective to encourage individual industry initiatives that just get CCS technology advanced?

 

One thing is certain – government funding is key to accelerating these projects. There are several reasons for this:

  • As I’ve noted, currently the capture technology is not commercial. With the benefit of the technology really accruing to society in general, it is only right that the broader society help fund this early technology risk.
  • Even with well-performing technologies, the politically-acceptable cost of carbon in the near-term in many jurisdictions will not be high enough to make CCS an attractive alternative to other compliance options for large emitters. Industry’s natural tendency will be to seek lower cost solutions.
  • CCS will be transformative technology. There is an important role for governments in helping industry leaders establish the necessary infrastructure, rules and systems to manage the required structural change.

 

Like the construction of other mega- infrastructure projects for the greater public good, commercializing CCS technology is a worthy and ambitious goal. It has the potential to secure our economic growth and prosperity for a new age.

It is also imperative we encourage the mix of other fuel sources, including renewables and even nuclear energy. We can’t try to eliminate any particular one, and nor can we try to only build one fuel source for the future. Different parts of the world require appropriate fuel sources – or where there is an abundance of a particular fuel source.

Climate change is a global issue that requires bold policy reform, collaboration and action from all stakeholders, including consumers, industry and governments. As citizens of a new age, facing this challenge, all of us need to reduce demand and be more efficient in our use of energy. In our industry, supply responds directly to demand. Obviously there is no storage capability for electricity, and that means in the short term, much of the solution must come from us reducing that demand.

Industry needs to be focused on implementing the best technological solutions that align with clear policy mandates, while diligently keeping control of costs related to new technology and environmental regulations. If we met the challenge of putting a man on the moon, surely we can meet the challenge of putting carbon back underground!

I am very optimistic that we can maintain our economic prosperity, and meet our challenges through technological innovations that don’t harm our environment. Ultimately, the solutions we need will require the courage to try what hasn’t been tried before.

If our goal is to reduce greenhouse gas emissions, we have to do everything we can to deploy cleaner coal-based generation, and green coal on a global basis. CCS is a step in that direction and we must accelerate its deployment.

Thank you again to the organizers of this forum, and for the opportunity to speak to you here today.

Steve Snyder – President & Chief Executive Officer
Geneva, Switzerland – May 4, 2009

 

Steve Snyder – President and CEO
May 4, 2009