Keeping the coal promise in Ontario

- The word "challenging" comes up often when people in the electricity business are asked whether Ontario's polluting coal-fired generating stations can be shut down in 2007.

Another favourite: "Tough."

"Very tight deadlines" is a common refrain.

And that leads to the most crucial word of all: "Cautious."

As in, few companies are yet rushing in to build new, cleaner plants to make up for the power produced by the smoke-belching behemoths in Etobicoke, Nanticoke, Sarnia, Thunder Bay and Atikokan.

Nobody doubts the province would be better off without the noxious emissions that spew from the plants, operated by Ontario Power Generation.

They contribute in a big way to air pollution that the Ontario Medical Association says leads to 2,000 premature deaths and thousands of hospital admissions each year, and adds $1.2 billion a year in health costs and lost productivity.

The Liberals scored with voters when they promised in last year's election campaign to douse the massive coal fires within four years.

But those plants combined can generate more than 7,550 megawatts of power —one-quarter of Ontario's capacity and one-third of its normal peak demand.

That production must be replaced, by reducing consumption or building new plants.

Premier Dalton McGuinty's government insists it has a plan. Energy Minister Dwight Duncan has unveiled parts of it over the past nine months. They're short of what's needed, but Duncan says more measures will be announced this fall.

"This government is moving heaven and earth to achieve its goal in the timeline set out. We believe we'll be able to achieve it."

Power experts say that, at best, keeping the promise will be a Herculean task. Some angrily argue that the way the province is going about it is too flawed and biased to succeed.

It doesn't help that last week, OPG revealed problems with fuel channels — which contain uranium bundles in the reactor — at its Pickering B nuclear station. As a result, the reactors will need more maintenance and be out of service more frequently than planned.

"It's a challenging deadline, but probably not beyond the scope of human ingenuity," says David Butters, president of the Association of Power Producers of Ontario, an industry lobby group.

The province won't suffer power shortages.

"One thing I can say about the coal phase-out is we're not going to let the lights go out," Dave Goulding, chief executive of the Independent Electricity Market Operator, or IMO, which runs Ontario's power system, told the Star's John Spears this month.

At issue are when Ontario's air will get cleaner and whether the government must break yet another election promise.

So far, Duncan has:

Authorized OPG to repair and restart an idle reactor at the Pickering A nuclear station. That will increase the province's generating capacity by 515 megawatts, or enough power to supply 350,000 average homes. The utility says the work can be completed in 15 months at a cost of $900 million.

It's a decent amount of power. But critics say pouring more money into Pickering is a major mistake, given the high cost of nuclear power, OPG's abysmal record with previous repairs and the costly and dangerous problems of dealing with used radioactive fuel.

The Pickering announcement is "the biggest misstep of the McGuinty government," says Jack Gibbons, head of the Ontario Clean Air Alliance, an environmental lobby group.

Approved construction of another huge water pipe to boost the capacity of the Niagara Falls hydroelectric station by 230 megawatts. That's a straightforward, non-polluting project with virtually no critics. Unfortunately, it won't be finished until 2009.

Requested proposals from private companies to generate 300 megawatts using wind, solar or other renewable energy sources. Duncan has been swamped with responses; 90 projects totalling about 4,400 megawatts. Industry observers figure about half are viable. Those that win the competition are required to have their projects up and running by the end of 2007.

Requested proposals for another 2,500 megawatts, either through building new generating stations or curbing industrial demand. This seems very helpful. But the deadline for completing new projects isn't until Dec. 31, 2009. And it's not certain how many companies will participate.

If all four measures pan out, the government can count on adding at most 3,315 megawatts of capacity by the end of 2007 — the promised deadline for shutting the coal-fired plants. That would leave it 4,235 megawatts short.

Add two recently opened gas-fuelled plants in Windsor and Sarnia and the deficit drops to about 3,000 megawatts.

The situation could be improved if homeowners use less power. The government aims for a five per cent cut by 2007. That could, very roughly speaking, cut the amount of capacity Ontario requires by about 1,300 megawatts, Duncan says.

Then, the province would be about 1,700 megawatts short of its target.

But critics say that, so far, the conservation plan is a dim bulb.

Last October, Duncan announced $225 million for Toronto Hydro and other municipal utilities to promote reduced consumption.

But the utilities' profits go down if their customers buy less electricity. Consequently, they haven't spent much of the money. What they have spent has mainly gone toward what Gibbons calls "feel good" TV and newspaper ads with little impact.

The government also plans to spend $400 million to install "smart meters" — which give consumers a price break if they use electricity at off-peak times — in 800,000 Ontario homes by the end of 2007 and all of them by 2010. The meters will cost homeowners $1 to $3 a month.

But there's no clear evidence how much electricity the meters will save. And much of any effect they'll have won't come until well after 2007.

The biggest part of the government's plan is construction of new generating stations, likely fuelled by natural gas. They are far more efficient than coal-fired plants and emit a small fraction as much pollution.

Under the plan, companies must bid for the right to build projects. Those that offer the lowest price and meet other criteria will be picked, until the goal of 2,500 megawatts is achieved.

The idea, at its simplest, is that project owners will be contracted to produce a certain amount of power — much less than their plants' full capacity because demand fluctuates and is usually below its peak — which they will sell to the provincial system at the price they bid. If the system buys more than the contracted amount from a project, its owner repays any excess revenue. If it buys less, the owner gets reimbursed for the lost income.

It's called "revenue assurance," and it sounds like a good deal for plant operators.

Building enough new plants by the end of 2007 is theoretically possible: Mexico has constructed 8,800 megawatts of capacity since 2001. Whether it will happen in Ontario is another matter.

The IMO has a long list of potential gas projects, totalling about 3,100 megawatts of capacity. It includes every company that agreed to pay for a very preliminary assessment of how it would fit into Ontario's transmission system. Some projects won't go ahead, so while the list is impressive, it's not necessarily meaningful.

The IMO has just begun revising the list to include only the most likely players. Final proposals for new plants must be submitted by Nov. 22. Winners are to be announced Feb. 1, 2005.

One solid prospect appears to be the Portlands Energy Centre, a 550-megawatt plant being developed on Toronto's eastern waterfront by OPG and TransCanada PipeLines Ltd. It's getting special treatment because Toronto needs a new generating station.

Sithe Canadian Holdings, Inc. has proposed projects — about 800 megawatts each — in Brampton and south Mississauga. Because of their location, those, too, get a break in the bidding.

Other potential bidders hedge their bets.

"We're looking very closely at Ontario" but "we have no firm project," says Susan Dowse, of California-based Calpine Corp., which runs a small plant in Whitby. The company has concerns about the method of selecting projects, she says. "We think there's room to optimize it."

"We're considering participating," says John Jenkins of Calgary-based Atco Power, which last month, in partnership with OPG, opened a 580-megawatt gas-fuelled plant in Windsor. "It's a complex situation...we'll have to see.

"We'd like to participate but we're very cautious."

If Atco were to propose another plant, Jenkins says: "2007 will be a very tight schedule."

Another Calgary company, TransAlta Corp., recently began production at a $500 million, 575-megawatt gas-fuelled plant in Sarnia. When construction began, under the previous Conservative government, it appeared Ontario would have a deregulated electricity market, says spokesperson Tim Richter. Because that's no longer the case, the plant is running at only 25 per cent of its capacity, and losing money.

TransAlta won't participate in the first round of bidding, Richter says. Before doing anything else, it must get things sorted out at Sarnia: "We want to ensure our investment in Ontario is protected."

Companies are being cautious for several reasons.

They're worried about the supply and cost of natural gas.

Opinions are mixed on whether Canada can continue to produce enough of the increasingly popular fuel. But as the Star's Spears has reported, one of Canada's experts on gas supply, David Hughes of the Geological Survey of Canada, warns of an energy squeeze in Ontario and suggests closing the coal-burning plants would create unprecedented pressure on gas supplies.

Some in the industry dislike the selection process.

It's long and extremely complicated: It doesn't always take into account how projects will link to the electricity transmission grid. Many fear the rules of Ontario's energy market, radically altered several times since 1995, will be transformed again.

Duncan advises critics to be patient. "We're moving as fast as we can."

The measures he might announce this fall include restarting two idle reactors at the Bruce nuclear station, developing smaller hydroelectric projects, pushing for more renewable and gas-fuelled generating stations.

He's considering moves to increase conservation. "The folks that advocate we need regulatory changes are right. We're looking for the best way to do it."

And he has a big card up his sleeve. The province could tell OPG to convert some or all of the coal-fired plants to natural gas. It would be expensive. The two biggest plants are a long distance from adequate gas supplies. And converted plants are only about half as efficient as new designs.

OPG isn't spending "a lot of time or effort" on plans for converting the plants, says spokesperson John Earle. "We will continue to operate the plants as currently designed. If we're directed by our shareholder (the government) to change the operation, we will."

But that option "is part of the main mix," Duncan says.

It likely must be done. On top of replacing the coal-fired megawatts, the province will require thousands more by 2020 as nuclear plants and other sources reach the end of their operating lives.

"We've got a lot of work to do," Duncan says. "Nothing is easy. There are no simple answers."

No one is disagreeing with that.