Dawn Farrell, President & CEO TransAlta
Calgary Energy Roundtable, 2017 Conference
Hyatt Regency Hotel
October 11, 2017
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Thank you for the opportunity to address you all today.
This Roundtable is an example of the dialogue that is necessary if we are to move our energy business ahead in a time of many contradictions and uncertainties.
Last week, Albertans faced into news of the cancellation of a major pipeline. Today, many of us wonder if our way of life, our passion for supplying Canadians and export markets with energy, is on the verge of a clear and certain decline.
With oil prices hovering at $50 and gas prices at below $3/GJ – a trend that has persisted for several years now – the profitability of the industry has declined, spending is down, and every day we watch as investment dollars leave the country.
Capital knows no borders, and without a certain price on carbon, a confusing and tough regulatory environment and a clear lack of consensus among voters on the future of mega-projects that support world class penetration into global markets, it has been more difficult to know when and how to make key investment decisions.
As my father would say . . . “It ain’t a job for sissies!”
But what we all know in this room is that change wasn’t invented in the Canadian energy business.
We’ve all endured change, decade after decade.
At TransAlta, we built generation plants that we fueled with hydro in the 1900s – coal in the ‘50s, ‘60s and ‘70s – even as late as 2011 – natural gas in the 1980s, 90s and the turn of the century.
Last week I approved four bids – 3 for new wind farms here in Alberta and 1 for a large solar project in the United States.
Today, we are converting our coal plants to natural gas, advancing the development and expansion of our Brazeau facility, and building out our wind capacity – all part of a plan to reduce our dependence on carbon-based fuels to make electricity.
So today, I want to focus on how our company is making bets in a world that continues to change and continues to demand electricity.
Today I want to talk about innovation and reinvention of an entirely different magnitude.
My predecessors had decades to make the change to fuel sources that would supply customers with clean electricity.
They only had economics to consider, and they had broad social agreement on the need for low cost and low rates, which allowed all jurisdictions the social licence to build power plants based on competitive advantages and economies of scale.
It’s no accident that B.C. and Quebec built hydro plants, Alberta and Saskatchewan built coal plants, and Ontario took on nuclear to provide Canadians with low-cost power sources.
In those days, TransAlta’s mission was to supply low-cost generation – bar none, no exceptions. And we did.
In 2000, when the market was deregulated, our coal plants cost ratepayers an average of 2.5 cents/kwh – they were part of the Alberta competitive advantage.
But today, coal cannot be used to make electricity past 2030.
Our employees, who are loyal, service-oriented and proud of our legacy, are working day in and day out to ensure we stay competitive, knowing full well that their spectacular work will eventually mean the loss of their own jobs.
But to be clear, we are not in any way afraid of the change.
We know the virtue and necessity of innovation, the pace and scale of innovation, the nature of innovation, and the need to redefine innovation, and what we are focused on.
TransAlta is now a 100-year-old company becoming a 200-year-old company.
Two years ago, we announced that TransAlta would be Canada’s leading clean power company by 2030. Today, I expect to cut that timeline in half.
In November, we will reach the one-year anniversary of the off-coal transition agreement we reached last year with the government of Alberta.
Today, detailed engineering work is underway to convert our coal-fired boilers to natural gas, and we are negotiating with pipeline builders to get that gas to our plants.
Since reaching that agreement, we have decided to retire – this December – Sundance Unit 1, which was built in 1970, and we will mothball Sundance Unit 2 for up to two years.
We have advanced the conversion of Sundance Units 3 to 6, Keephills Units 1 and 2, from coal-fired generation to gas-fired generation by 2023 – years before their scheduled shelf-life.
Our team continues to work with the federal government to ensure that we can run our converted gas-fired operations at our Sundance and Keephills plants for at least 15 years on gas.
What that means to you, is that we’ll back up the ambitious renewables build here Alberta with low-cost gas-fired plants. We will invest in producing electricity with significantly lower carbon intensities and emissions.
Many of our large commercial customers are clear that they want a clean power supply – they want electricity to be low cost and clean.
The timelines for renewable energy growth in Alberta are extremely aggressive. In other jurisdictions around the world, where the renewables transition has not been managed or staged well – consumer costs have skyrocketed. It’s early days, but so far, we are not replaying that scenario.
Governments have set the timelines, but we can set our own horizon, getting innovation right ¬– for our customers – and for Albertans.
The fact is that we will all see a day when natural gas faces the same opposition as coal and oil. To be clear, I am not a naysayer. I believe in this province, its people and its energy sector.
I am investing millions of dollars in gas-fired generation – at Sundance and wherever our customers need us to give then behind-the-fence generating capacity.
I’m all in.
I am also a realist. Natural gas will confront the same social opposition as coal. When that happens – and how soon that happens – will depend on successful we are at innovating now.
There is no time to waste.
The Conference Board of Canada, of which I am a member, estimates that the investment required to meet the Paris Accord will require up to $3.4 trillion – give or take – between now and 2050 to reduce emissions by 60 per cent.
The question of whether that is or isn’t achievable is irrelevant. It is the expectation and the immovable direction. We can argue the details, or roll up our sleeves and accelerate the pace of reinvention.
Innovation is both opportunity and risk management. We are already in a Low Carbon Growth Economy. We need to square up now to that cost, and not shy away from ambitious targets.
The Conference Board, for example, urges closer look at offshore wind, increased east-west distribution grids, enhanced use of scalable nuclear generation and much more.
That’s a discussion for another day. What we need from governments now are policies and regulations that encourage innovative thinking, action and investment.
Now let me take a moment on what it means for employees as we move our strategy to be more in line with what society and customers re asking of us today.
TransAlta is a company that thrives because of the skills and loyalty of our employees.
We have changed every decade since the company was born. But change in the past was about growing and adding capability. We added new forms of generation and we excelled at the operation and maintenance of our fleet.
For the first time in the history of the company, we’ll be retiring one capability – coal – and we’ll be doing that faster than expected.
Employees who work for us will effectively work themselves out of a job. The new technologies are simpler, and the optimization of value takes more expertise in systems and big data.
But overall, far fewer people will be required to run our fleet. Our real challenge is to keep our employees working for us, and at the same time ensure their skills are growing, so they’ll be among those who are in demand for the new economy. We want them. We need them. And I will do everything in my power to keep them through this transition.
Which brings me to Brazeau Hydro Pumped Storage. This is the kind of innovation that has supported TransAlta decade after decade.
We are proposing to expand hydro generation in Alberta with up to an additional 900 MW of renewable energy.
That’s enough renewable power in any given hour to power the equivalent of Edmonton or Calgary.
Brazeau would be the largest hydro facility of its kind in Canada. You can think of pumped storage as a rechargeable battery: it pumps water up into a reservoir and stores it when demand for energy is low, and releases it to generate electricity when demand is higher. Over and over. I’ll show you how in a moment.
Brazeau will create local jobs and invest more than $1.8 billion dollars in Alberta’s economy — made in Alberta, for Alberta.
Within Brazeau’s current footprint, it would use the existing reservoir, spillway and transmission right-of-way and is close to labour supply, roads and rail — and where the power is needed.
But as we’ve seen, a solid economic case is not enough. Aside from the cost-effectiveness and economic growth, pumped storage is proven, environmentally responsible technology.
That matters to you, because the energy we provide from Brazeau – and the energy created by gas-driven former coal plants – is the energy we hope you will use to power your own growth.
That makes it part of the green energy equation Canadians want and demand – part of our collective commitment to raise the environmental bar.
My predecessors worried about costs and competitive advantage. I must grow our company using the principles of sustainable development – development that accounts for environmental, social and competitive advantages.
Our challenge is more complex, but it is also doable.
Brazeau will be low-cost, effective and will supply enough clean power to remove the equivalent of more than 465,000 cars from the road.
We are speaking with stakeholders and Indigenous communities now, to understand their interests in the project. This collaboration will continue throughout the entire project including environmental assessment and design, regulatory permitting and approvals, construction and start-up, and ongoing operation.
Now let me introduce you by video to my colleagues, Brazeau project leader Alex McNichol, and Shannon Young, our Managing Director of Government Relations.
We are learning more this week about the Innovation Supercluster Initiative, being led by the Innovation Science and Economic Development Canada.
I see great potential, and I believe that the feds are looking for game-changers.
I’m also encouraged by the fact that it’s business-led innovation, because there’s nothing like competition to drive creativity. Canada’s business leaders are up to the task.
So, let me finish where I started. It’s imperative that Albertans continue to sell resources in the world market and that we build the Canadian brand of safe, reliable and environmentally responsible oil and gas.
Oil and gas will be used globally for many years to come. Canadian oil and gas has to be the most competitive and the most sought-after, and our society will continue to be strong.
At TransAlta we are working with our employees to help them see that change and innovation – done well – ensures we continue to sell our electricity. They will build their skills, and together we will underpin a strong Alberta.
Of course, critical to that equation is an Alberta power market that supports innovation for long-term projects like Brazeau. We clearly believe that a power system built on renewables, with gas and storage from projects like Brazeau and our gas transition will underpin a competitive Alberta.
That’s what we’re playing for.
We’re playing for Alberta that will be vibrant, great jobs and a prosperous, globally competitive future.
With that, thanks for listening to our story, and for continuing the dialogue.