Breaking the Triple-E equation

Steve Snyder – TransAlta President and CEO – speaks to the Edmonton Chamber of Commerce about our collective ability to meet the climate challenge and achieve a sustainable future which includes secure, reliable and affordable electricity for North Americans. This speech was given in Edmonton on Nov. 19, 2008.


Good morning. Thanks so much for the opportunity to join you today. I especially want to thank the Edmonton Chamber of Commerce for hosting this event. The Chamber is certainly one of Alberta’s most influential business organizations. I admire the work you’ve done on behalf of Edmonton’s business community.

On the way up here, someone asked me about TransAlta’s business and more specifically, about our plans to celebrate our 100th anniversary next year. It really made me reflect on two things.

First, despite being one of Alberta’s oldest companies, many people don’t know us well. Even here in our own backyard.

Alberta’s 200 hospitals, 2,100 schools, 1.4 million homes – the 470 hockey and curling rinks – are all powered by electricity. Our company supplies more than 50 per cent of that electricity. The vast majority of that power comes from fossil fuels. That’s because historically, and still today, they have provided Albertans and our industry very competitive low-cost power.

Coal is an important part of our business mix, just as it is for Alberta’s electrical needs. But TransAlta is much more than just coal.

Today, renewables account for almost 15 per cent of TransAlta’s generation capability. And, we’ve got growth plans to add another 2,300 megawatts of generation over the next five years – close to half will be in renewables.

In addition to being Alberta’s leading power producer, TransAlta is also a leader in sustainable development.

We are:

  • a founder of the World Business Council for Sustainable Development;
  • one of North America’s early players in the cogeneration business;
  • a recognized leader in emissions offsets trading; and
  • one of only two Canadian utilities named to the Dow Jones North American Sustainability Index. We were named to this prestigious list for the third year in a row.

This leadership extends into carbon-capture-and-storage too. TransAlta has announced plans to build Canada’s first fully-integrated CCS facility in Canada. By 2012, “Project Pioneer” will be capturing 1-million tonnes of greenhouse gases per year. But, more on that in a few minutes.

The second reflection I had this morning was about all the changes we’ve been through over the last 100 years. Alberta is a dynamic province… and we’ve had to be dynamic to keep up.

We have gone from a regulated utility with assets only in the province to a deregulated, merchant power producer with assets around the world.

We started out as a renewable power producer with Alberta’s first hydro-electric dams …. We then moved into thermal generation …. And today are growing our renewable assets again through the expansion of wind farms. In fact, TransAlta is one of the largest wind power generators in all of Canada.

What changes will the next 100 years bring? After what has happened to the energy sector over the last few years and the financial sector in the last few months, I’m not sure I can answer that question. But I do know that both our province and our company are resilient enough to adapt and succeed as required.

I’ve told you a few things you might not have known about TransAlta. Now let me turn to something we all know: safe, reliable and reasonably-priced electricity is the lifeblood of our economy and our quality of life. Indeed, it powers our prosperity. That’s a fact, and we take it for granted. We all expect electricity will be there, when we need it, at the flick of a switch. That’s the way it should be.

But never before has the relationship between affordable, reliable power and our economic growth and security been so apparent – or so problematic.

Since the dawn of the Industrial Revolution, we have lived according to an equation that has been a reality in Canada and much of the world.

At TransAlta we call this reality the Triple-E equation. That is, economic development = energy consumption = environmental impact. In other words, our quality of life and economic health are directly tied to the consumption of energy. In turn, energy consumption has environmental impacts.

Until recently, the triple-E equation has provided acceptable tradeoffs in society’s eyes. But today, society is saying “hold it”. Many feel the environmental impacts are too great to continue as we have in the past. Few would disagree with that. But the economic consequences are a big hurdle for all of us.

Canada’s vast energy resources can either be constrained or liberated by how we address their emissions and other impacts to land, air and water.

But think about what it would mean if we could look at fossil fuels in the same way we look at so-called “clean” energy sources – small renewables, hydro, nuclear. All the environmental benefits of the latter AND all the economic value delivered from fossil fuels – dependability, intensity, transportability – and all leveraging existing infrastructure.

It’s not as far-fetched as it might seem.

At TransAlta, we argue that reducing emissions and other environmental impacts should not – and need not – equate to curtailment of economic activity. That’s why TransAlta is determined to play a role in making the triple-E equation obsolete by breaking the link between energy development and consumption and its environmental impacts.

Failure to make this break will only increase a variety of risks – from exposure to the damaging effects of climate change, to extraordinary, unpredictable, and probably very damaging compliance costs for Albertans.

We know that part of the solution is to drive renewable sources of energy such as wind. And, as I said earlier, we are leading the way at TransAlta when it comes to developing wind power. But one has to be realistic. There are limits to how far we’ll be able to advance the use of renewables. 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.

The issue of the energy industry’s environmental footprint is extremely complex. Its very nature does not lend itself to simplistic solutions or a “silver bullet.” Some have suggested that shutting down coal plants before they reach the end of their natural life expectancy might be an option. That would be a mistake. It would reduce emissions to be sure. But it would also result in power shortages, reliability problems and increased energy costs.

“Kneecapping” the economy for the sake of pursuing a pure environmental agenda is unthinkable, undesirable and simply undoable.

Today, fossil fuels provide 81 per cent of the world’s energy and the power behind our livelihoods. In the global electricity sector, coal is the largest single source of generation. In fact, about 50 per cent of North America’s electricity is generated from coal. The world simply cannot meet its growing energy needs without using fossil fuels.

Much of the world, particularly Alberta, is fortunate to have huge reserves of coal – more coal than oil, in fact. Alberta’s proven coal reserves of 33 billion tonnes account for 70 per cent of Canada’s total coal reserves. Coal is reliable and relatively low cost. To simply say “no” to coal without first exploring every avenue possible to eliminate its emissions cost effectively would be a flawed approach.

So, what is the answer? I believe the future of clean electricity in Alberta – and the solution to breaking the triple-E equation – lies down four paths:

  1. Technological Innovation
  2. Market Tools
  3. Government Policies
  4. Public Attitudes and Behaviors

 

It will take industry and government and consumers all working together – all playing their part.

As producers, we will have to change our technologies. As citizens, we need to help our political leaders find smart government policies to support the realistic and successful transition to a cleaner future. As consumers, we will have to change our behavior – and probably we will have to be willing to pay more for power.

So, this brings me to the first path for a clean power future … Technical Innovation

When it comes to coal-fired electricity generation, an important part of the solution is carbon capture and storage – or CCS. CCS is essential if Canada and the world are to address the carbon challenge and not waste natural resources.

The science exists to separate carbon dioxide emissions from the exhaust of industrial facilities. It can then be compressed and injected underground to be stored permanently back in the same geological formations that held hydrocarbons for millions of years before we extracted them.

Last year I had the privilege of chairing the Canada-Alberta Task Force on CCS. We determined that by 2050, CCS has the potential to eliminate 600 megatonnes of greenhouse gas emissions per year. That is roughly 40 per cent of Canada’s total projected emissions or equivalent to removing 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 energy infrastructure. The fact that most of Canada’s industrial emissions 20 years from now will still be from facilities already in existence makes this solution highly attractive.

By retrofitting coal fleets across the country, CCS has the potential to make coal a carbon-neutral fuel. That’s right, I’m talking about “greening coal.”

It would be a huge step towards breaking the triple-E equation.

This April, TransAlta and Alstom Canada – a world leader in power generation technology, announced an agreement to develop a large-scale CCS facility in Alberta. As I mentioned earlier, we call it “Project Pioneer.”

Project Pioneer will pilot Alstom’s chilled ammonia process. We consider this process one of the most promising, lowest-cost solutions for CCS. We intend to test the technology at one of our coal plants west of Edmonton.

We have the technology. We have the geology. We have the expertise. We have a proven track record as a safe and reliable operator in Alberta. And, we have the leadership and will to make Project Pioneer – and Alberta – a global leader in CCS by 2012.

The world clearly sees CCS as a critical solution to reducing the world’s CO2 emissions. Without it one simply cannot see any realistic way to achieve the targets necessary to help our planet. As a result, billions will be spent around the world to find the technological answers for CCS. Canada and Alberta should make their fair share contribution also, and reap the resulting benefits.

At this time I would like to commend Premier Stelmach for his leadership and for his government’s commitment to make CCS a reality. This summer Alberta announced a $2-billion fund that will support up to five CCS projects that by 2015 are expected to reduce emissions by up to five million tonnes annually. That is the equivalent of taking a million vehicles off the road, or one-third of all vehicles registered in Alberta. This commitment makes Alberta the clear global leader on CCS.

Alberta’s historic funding initiative is key to accelerating CCS projects across Alberta. But why is government funding necessary?

  • Today power costs using these new technologies are higher given they are only pilot-scale and not yet commercial. However, there are no market mechanisms to differentiate pricing to recover these costs. Without government intervention the introduction of this technology will be substantially delayed if developed at all.
  • CCS will be transformative technology. There is an important role for government in helping industry leaders establish the necessary infrastructure, rules and systems to manage the required structural change. The combined risk of a new technology plus these natural barriers makes government involvement mandatory if we are to accelerate this technology into our arsenal to reduce CO2.

 

Commercializing CCS technology in Alberta is a worthy and ambitious public goal just as it was for Canada’s most famous infrastructure projects, such as our nation’s great railroad. CCS has the potential to secure our economic growth and leadership for a new age, break the triple-E equation once and for all, and for Canada to make a major contribution to the GHG battle.

But as I said, there is no silver bullet. Technological innovations take time. Society needs to be reducing its environmental footprint today.

This brings me to the second path to breaking the triple-E equation – market tools such as offsets and emissions trading.

One tool we have available to us right now is domestic offsets. They represent real emission reductions that typically occur outside the boundaries of a company’s operations.

Offsets are a bridging mechanism. They are there to help move us from where we are today to a lower-carbon world, where control technologies have matured.

A second market tool is emissions trading – something we have experience with at TransAlta. Emissions trading is exactly what the name implies – a commercial exchange where companies and countries that do better than their emissions targets can sell and trade their credits to companies and countries who exceed their targets. The goal is to balance out the needs of buyers and sellers to meet emission targets overall.

But there is a big cost to pay for trading mechanisms. They can end-up simply being a “wealth transfer” from one region or country to another. Now, the fact is ALL environmental market tools cost money – and money moves from jurisdiction to jurisdiction, from one region to another.

The challenge is to minimize that wealth transfer by keeping as many low-cost options open to industry to meet its emission obligations.

TransAlta does not want to send money out of the province to purchase offsets if we can use solutions at home. We want to preserve our own capital so we can invest as much as possible in our own technological innovations for a made-in-Alberta solution. A technology fund is one way to do that. But technologies take time to develop and deploy. As of this point, we need to rely heavily on offsets to meet near term government reduction targets.

All of this leads me to the third path for breaking the triple-E equation and moving to a cleaner power future – government policy.

Government policies can help to break the triple-E equation – with incentives to support renewable power and accelerate the development of CCS. Government policies can also hinder the transition to a clean energy future. Let me give you two examples where government policy can assist with breaking the triple-E equation.

The first example is transmission. Earlier I spoke of TransAlta’s plans to continue its investments in wind power in Alberta. New transmission capacity is essential in southern Alberta if we are to add more renewable power and maintain the stability of Alberta’s electricity grid.

We know the wind resources are there and the desire to develop those wind assets is alive and well in Alberta – but the transmission capacity is simply inadequate to get more clean wind power to market.

Despite Alberta’s phenomenal growth, there have been virtually no new transmission builds in the last 15 years. Transmission interconnections within Alberta and to other systems need to be approved and must be built quickly. Alberta lags behind almost all major jurisdictions in terms of interconnections that help support reliability of supply.

We are pleased that the Alberta government has initiated a fair and open process to advance transmission projects and is committed to new capacity to meet Alberta’s needs. Utility corridors have been discussed as one way to facilitate the development and security of our infrastructure backbone. But these discussions must lead to action and not just more discussion.

The second example is competing greenhouse gas plans.

In 2007 and 2008, the Governments of Canada, Alberta, Ontario, British Columbia and Washington State each released their own greenhouse gas plans. Saskatchewan is working on its own right now. Quebec and Ontario want to establish their own distinct emissions trading market.

It’s a good thing to see so many governments move on environmental issues – but that’s also a lot of competing plans with different targets, different tools and different timelines.

If we are to break the triple-E equation and move towards a cleaner energy future, government rules and regulations on the environment must be clear, realistic and integrated. The harmonization of these rules and regulations across provincial, federal and international borders is essential in order for us to move forward efficiently.

If we don’t harmonize these environmental rules, Alberta energy companies face a complex, costly and uncertain regulatory climate that threatens to torpedo the development of electricity infrastructure needed for the continued economic growth of Alberta.

TransAlta encourages all governments in Canada to work together on a uniform and sustainable approach to reducing greenhouse gas emissions.

A lack of clear policy negatively impacts industry just as much as bad policy does. If governments provide one clear set of rules and objectives, industry will marshal the human, financial and technological resources to meet the challenge.

I am confident that the right action on the policy front will be quickly followed by new electricity supply and further investments in electricity infrastructure, including clean-coal technology. We need policies that encourage a break in the triple-E – not ones that let one component – namely the economy – suffer at the expense of the others.

There is no more important role or clearer mandate in my opinion, for the various levels of government, than to ensure society’s infrastructure systems are adequate to allow this great country to meet its full potential.

From a business person’s perspective, it’s my job and TransAlta’s to do all we can to innovate and operate – and deliver our resources while minimizing their impact on the environment. If we do things right, we see the potential to make coal-fired generation near-carbon neutral within the next 10 to 20 years.

That’s right – coal-fired generation – carbon neutral.

Climate change is a global issue that requires bold policy reform, with collaboration and action from all stakeholders, including industry, governments and consumers.

This brings me to the fourth and final path to breaking the triple-E equation – changing public attitudes and behaviors.

As consumers, we need to understand how our demand for energy impacts supply – and as a result, impacts the environment.

In our industry, supply responds directly to demand. There is no broad storage capability for electricity. That means in the short term, much of the solution must come from consumers reducing or adjusting that demand.

Simply put, when a light comes on we must throw another lump of coal in the furnace. There is no escaping that. We applaud the conservation education efforts being exercised by companies such as EPCOR who provide their customers with the tools and information they require to reduce electricity consumption.

I believe we need to move towards technological innovations such as smart metering and smart grids in order to have smart energy consumers. Smart choices about energy demand can assist us – as a society – to make better, more efficient use of our existing energy infrastructure.

Adjustments in consumer behavior can have an affect on energy demand – and that in turn has an affect on energy supply. It won’t be the answer to all our needs, but energy efficiency – not only through conservation but through smarter consumption – can have a positive impact on breaking the triple-E equation by lessening environmental impacts without constraining economic growth.

As you can see, it’s easy to see why the electricity system has been called the world’s largest and most complex machine. It’s the equivalent of keeping nearly every human being in the air on a jet plane every minute of every day – without a single engine failure.

I am optimistic that collectively, we can break the triple-E equation and find ways to maintain our economic prosperity with energy sources that don’t harm our environment. We can’t point our fingers at any one group and task them with the solutions. There is far too much at stake to go down that path.

The causes and implications of the triple-E equation are far-reaching. So are the solutions. Ultimately, they will require the courage to try what hasn’t been tried before – by industry, by governments and by consumers. Personally, I believe we will find that courage.

Thank you again for your kind invitation to speak this morning. I would encourage you and the Chamber of Commerce, to keep up your advocacy and lobbying efforts on behalf of the people and businesses of Edmonton. You have a strong voice and a good message.

Steve Snyder – President & Chief Executive Officer
Edmonton, AB – Nov. 19, 2008

November 19, 2008

Steve Snyder
President and CEO