Making Sense of Energy

Energy Market Update – April 2013

Alberta

Wholesale natural gas prices have doubled during the last year. Rising production and an unusually warm winter sent prices plunging to under $2 US per thousand cubic feet last spring, causing some to wonder whether the natural gas boom would kill demand for both coal and new renewable energy. But natural gas is now just over $4 US per thousand cubic feet. Energy experts say prices in the $4 or $5 US range won’t affect the increasing use of the fuel by consumers and industry since the price was $8 US just a few years ago. Gas drilling companies are happy with the rising price, and so are leaseholders and states that get revenue based on the market price. The coal industry and renewable energy advocates are cheering the news too, since gas no longer has a huge price advantage over those other energy sources. Some even suggest that at current prices, both natural gas and renewables win. While renewables don’t emit air pollution, they need backup for when the wind doesn’t blow and the sun doesn’t shine. Natural gas is a perfect backup for renewables. Mark Brownstein, an associate vice-president at the Environmental Defence Fund, noted that the price of renewable energy has declined substantially in recent years, and that’s expected to continue, making them even more competitive with natural gas. A Citibank research report states, “Gas and renewables could in fact be the making of each other in the short term,” the report noted, since renewables will cost about the same as conventional fuels in many parts of the world in the very near term. That would allow a surge in demand for renewables, “which in turn will drive demand for more gas-fired” power plants to be used as backup. (Source: Calgary Herald)

Greengate Power Corp. announced Monday it had sold its “construction-ready” 300-megawatt Blackspring Ridge project to Calgary-based Enbridge Inc. and a subsidiary of Paris-based EDF Energies Nouvelles. The Lethbridge-area wind farm is estimated to cost $600 million to build and follows the sale last June of privately owned Greengate’s 150-MW Halkirk project to Edmonton’s Capital Power for $33 million. When completed, it will have 166 turbines, making it the biggest wind power project in Western Canada. Electricity produced by the project — enough to power about 140,000 homes — will be sold into the Alberta power pool with pricing mostly fixed under contracts. ”Blackspring Ridge is an important addition to Enbridge’s fleet of renewable projects as it significantly expands our wind energy portfolio in the Alberta market,” Don Thompson, Enbridge vice-president for green energy says. (Source: Calgary Herald)

Former Conservative cabinet minister Jim Prentice says Canadians need to step up their efforts to maintain free and open energy markets for Canada’s oil, gas and electricity in the United States. “Canada must continue to fight for a continental energy marketplace that is free of national and sub-national impediments. Interventions by government, while well meaning, are nevertheless potentially damaging and counter-productive,” he said. If U.S. markets stay open to Canadian products, Prentice says the Canadian energy sector stands to profit handsomely, not just from oil and gas sales but also from hydro-electricity. He acknowledged that cheap and abundant natural gas in North America means volatility for Canadian oil and hydro-electricity exporters. But as heavy users of electricity look for ways to wean themselves off fossil fuels, Prentice believes the long-term potential for hydro is promising — as long as U.S. markets stay open. (Source: Calgary Herald)

A survey of 600 Albertans conducted in April for Clean Energy Canada at Tides Canada found 68 per cent of those polled want the government to reduce the province’s reliance on coal-fired electricity. Currently, Alberta burns more coal than all other Canadian provinces combined and the majority of people surveyed want the provincial government to find alternatives. “There’s a real opportunity to reduce carbon emissions, demonstrate climate leadership and create opportunities for the renewable energy sector, and to create jobs as well, so it’s a win win win,” says Clean Energy Canada direction Merran Smith. Albertans want coal plants phased out or shut down and replaced with natural gas and renewable energy such as wind, solar and hydro. Fifteen per cent of Albertans want coal plants to implement carbon capture and storage, while 14 per cent are happy with the province’s level of coal consumption. Alberta’s heavy use of coal made headlines last month when a coalition of physician, health and environmental groups released a report that said 3,000 Albertans will die prematurely in the next 20 years due to coal-related pollution. The report also said health costs related to coal-fired power was roughly $300 million a year. Energy Minister Ken Hughes said coal-fired plants provide a secure and affordable source of electricity. “We will be taking further steps to reduce our carbon footprint under the new federal guidelines, as up to a dozen plants representing up to 3800 megawatts of generating capacity will close over the next 17 years. That’s almost a quarter of Alberta’s current generating capacity.” (Source: Edmonton Journal)

Suncor Energy Inc. is selling the bulk of its Western Canadian natural gas business to a British-Qatari partnership for $1 billion, but will hang on to its undeveloped shale lands in the Montney region of B.C. for now. The deal with Britain’s Centrica PLC and Qatar Petroleum International includes conventional properties throughout Alberta, northeastern British Columbia and southern Saskatchewan. Suncor spokeswoman Sneh Seetal said the company will direct the proceeds of the sale toward three priorities: investing in its base business, pursuing profitable growth projects and returning cash to shareholders through dividends or share buybacks. Under the deal announced Monday, Centrica will own 60 per cent of the newly acquired business and operate it, with its Qatari partner owning the rest. (Source: Calgary Herald)

TransAlta Corp. (TSX:TA) had a net loss in the first quarter of $11 million, or four cents per share, while adjusted profit fell to $32 million or 12 cents per share and revenue fell to $540 million. The company said the year-to-year decline in earnings was partly due to a tax recovery in the first quarter of 2012 as well as a writedown of the value of coal inventory at its Centralia power plant. Dawn Farrell, TransAlta’s president and CEO said, “We have been able to offset declines in revenue from low pricing in our Centralia operations with strong performance by our fleet and growth from our Solomon acquisition. The addition of the New Richmond wind farm (in Quebec) will be a positive contribution to shareholder value going forward.” The $213-million New Richmond wind farm, capable of producing 68 megawatts of electricity, began commercial production on March 13. Overall fleet availability was 91.5 per cent in the quarter, compared with 91.7 per cent a year earlier, while product increased by 1,203 gigawatt hours to 10,644 GWh — a 12.7 per cent increase over the same period of 2012. (Source: Calgary Herald)

Electricity Prices for Alberta

The Alberta power pool price averaged 13.766 cents per kWh in April 2013. This price is 3.214 cents higher than last month’s average of 10.552 cents per kWh. The pool price has averaged 7.337 cents per kWh over the last 12 months.

As of May 8, 2013, the forward market was predicting electricity prices for the calendar years of 2013, 2014, 2015, 2016 and 2017. These prices are 6.625, 5.275, 4.850, 5.200, and 5.500 cents per kWh respectively.

Gas Prices for Alberta

Direct Energy’s gas rate for April was $3.762 per GJ in the North and $3.472 per GJ in the South. The May rate has been set at $4.188 per GJ in the North and $4.146 per GJ in the South. Alberta gas prices have averaged $2.727/GJ over the last 12 months.

As of May 8, 2013, the forward market was predicting gas prices for the calendar years of 2013, 2014, 2015, 2016 and 2017. These prices are 3.41, 3.66, 3.78, 3.86, and 4.05 dollars per GJ respectively.

British Columbia

B.C. has consistently aimed for an energy system that is independent, low-impact, and as affordable as possible. For many decades, the province has benefited significantly from the abundant and affordable supply of hydroelectricity provided through dams built by BC Hydro between the 1920s and the 1980s. Demand now significantly exceeds these aging sources of supply. A much larger surge in the province’s energy demand is now underway as energy-intensive industrial development — natural gas extraction, new mines, and liquefied natural gas (LNG) export facilities — begins to take place across northern B.C. To meet the expected future high demands, B.C. could either build large new fossil fuel power plants or produce clean, emissions-free electricity from wind energy. Wind power is the best option as it can meet new energy demand, is cost-competitive with any alternative supply, strengthens the existing sustainable electricity system, and can play a crucial role in limiting greenhouse gas emissions. B.C.’s wind energy resources greatly exceed total current demand for electricity and is the ideal complement to B.C.’s existing hydro-dependent electricity system. With the adoption of more wind power project in B.C., the Canadian Wind Energy Association (CanWEA) reported that the province has potential for 4,700 gigawatt hours per year of electricity – or about eight per cent of B.C.’s total electricity generation capacity – at a cost of less than $87 per megawatt hour. “The one thing you have some certainty of when you are building with wind is that you know what that cost is going to be for the entire period – and you don’t know that with gas. Wind at worst will have stable prices but it’s likely to continue declining in cost as technological evolution continues to proceed,” says Hornung, CanWEA president. One major advantage is that B.C.’s wind energy resources produce more electricity in winter, when demand for power is at its highest and there is less water available to generate hydroelectricity. Combining new wind energy resources with B.C.’s heritage hydroelectric resources will create a stronger hybrid electricity system better suited to the needs of the province. Finally, wind energy also protects local communities and the natural environment from the air pollutants produced by natural gas generation, which is something of increasing concern to local residents given the scale of energy demanded and the constricted nature of the local airsheds in which these new industrial developments are being proposed. (Source: Vancouver Sun)

B.C. consumers will face Hydro rate increases after the election. Currently, Hydro charges customers less than what it requires to cover the cost of projects. This serious problem may cause the next government to have to absorb billions of Hydro’s rising debt rather than passing it directly along to Hydro customers. Stout’s association, which is comprised of Hydro’s major industrial customers, has calculated that rates may have to rise 10 per cent annually for the foreseeable future in order to clear out deferred debt as well as finance new infrastructure. As a source of cost savings, Energy Minister Rich Coleman pointed to the smart meter program, which has the ability to detect power theft. “The smart meter program pays for itself and returns about half a billion dollars over the life of the project, over the next 15-20 years, to ratepayers. It is saving us about two per cent on the rates right now,” Coleman said. (Source: Vancouver Sun)

The Peace River, site of a controversial, planned third BC Hydro dam, has been named the most endangered river in the province for 2013 by the 100,000-member Outdoor Recreation Council of B.C. The lower Fraser River ranked second on the council’s annual list due to urbanization, industrial development, and habitat loss, while the Elk River in southeastern B.C. ranked number three based on development, coal-related chemical levels, and wildlife migration issues. Mark Angelo, the council’s rivers chair, said the environmental impacts of the Site C hydroelectric dam would include loss of important wintering wildlife habitat, recreational values, aboriginal and historic sites, and class-one agricultural land. Domestic needs do not currently justify the Site C project and there is a large opposition to the dam. Therefore, it is important for BC Hydro to complete an Integrated Resource Plan, offering a 20-year plan for meeting future growth in demand for electricity. BC Hydro proposes to construct an earthfill dam 1,050 metres long and 60 metres high, a 1,100-megawatt generating station, an 83-kilometre reservoir, realignment of four sections of Highway 29, and two 77-kilometre transmission lines connecting Site C to the existing provincial power grid. (Source: Vancouver Sun)

Canada’s traditional export markets are shrinking. Exports to the United States, Canada’s only natural gas export customer, have dropped 16 per cent over the past five years and are projected to drop further because of abundant domestic natural gas supply in the U.S. Canada is trying to secure long-term supply contracts with countries in Asia. Canada’s natural gas industry must adapt to this new market reality and is focusing on West Coast LNG terminals to export natural gas to countries in Asia where demand is growing at a rapid pace. The International Energy Agency estimated global demand for natural gas is expected to increase 50 per cent by 2035, driven primarily by demand in countries like Japan, China and South Korea. By exporting the cleanest-burning fossil fuel, B.C. can help displace higher-emitting and often more expensive fuels in countries that rely on less environmentally friendly fuel sources. This provides a global net benefit from an environmental perspective. B.C. is already taking a leadership role in demonstrating how natural gas is a cleaner-burning and affordable on-road transportation fuel for fleets. (Source: Vancouver Sun)

FortisBC has filed an application with the British Columbia Utilities Commission (BCUC) to reconsider the BCUC’s recent decision that denied FortisBC’s request to combine its three gas utilities, FortisBC Energy Inc., FortisBC Energy (Vancouver Island) Inc., and FortisBC (Whistler) Inc., and adopt common rates throughout FortisBC’s gas service areas. The BCUC originally denied the application in February 2013. If the amalgamation proceeds and common rates as proposed are adopted, FortisBC natural gas customers on Vancouver Island and in Whistler will see lower rates while customers on the Lower Mainland will see slightly increased rates. (Source: FORTIS BC)

Ontario

The combined total cost for the cancellation of the Ontario gas plants is $585 million. The decision to scrap and move the Oakville power plant to Napanee will cost $310 million. This is almost eight times higher than the $40 million the minority Liberal government has long claimed. Also, cancelling the generating station in Mississauga and moving it to Sarnia will cost $275 million, which is $85 million, or 45 per cent, more than the $190 million former premier Dalton McGuinty claimed. Of this amount, $190 million will come from taxpayers while the other $85 million will come from electricity rates. (Source: The Star)

Householders and small businesses on time-of-use electricity rates will see the electricity portion of their bill rise by more than 5 per cent starting May 1. The Ontario Energy Board has approved the rates, which will add $3.63 to a typical consumer bill, a 2.9 per cent increase on the total bill. This price hike is contributed by the addition of renewable power sources and the decision to cancel the Oakville gas-fired power plant. The increase for the off-peak rate will rise from 6.3 to 6.7 cents per kWh or 6.349 per cent. The increase for the mid-peak rate will rise from 9.9 to 10.4 cents per kWh or 5.05 per cent. The increase for the on-peak rate will rise from 11.8 to 12.4 cents per kWh or 5.085 per cent. That means that the off-peak rate increase is 25.72 per cent more than the mid-peak rate increase (6.349/5.05). Energy minister Bob Chiarelli defends the new price by saying, “The increase reflects catching up on previous energy infrastructure deficits and represents our significant investments to create a strong, reliable, clean energy system.” The wholesale market price of electricity has averaged about 3 cents a kwh. Private firms that provide gas-fired plants or renewable power all hold contracts with the power authority for prices considerable higher than the current market price. To collect the money to pay for those contracts, the power authority adds a surcharge called the “global adjustment.” The global adjustment is now higher than the market price. It has averaged about 5 cents a kilowatt hour so far this year. A study by Navigant Consulting Ltd. shows that payments to nuclear and gas-fired generators are responsible for two-thirds of the “global adjustment” charge, which is the biggest component of the “electricity” line in hydro bills. Navigant calculated that the global adjustment for a year was $6.3 billion, or more than 60 per cent of the total. Renewable power — including hydro, wind and solar — accounted for just 17 per cent of the global adjustment. (Source: The Star)

Construction of the 270-megawatt South Kent wind project is now under way. This is the first wind farm sprouting from Ontario’s $7 billion Samsung green energy deal. Samsung agreed to set up four manufacturing plants in the province to make components for wind and solar power systems. The South Kent project will have 124 turbines constructed in the Chatham area. (Source: The Star)

Toronto Hydro has been cleared to spend $750 million to replace aging equipment. As a result, ratepayers can expect their bills to jump by $3 a month to pay for the two-year spending program approved by the Ontario Energy Board. Projects include: building a $184 million transformer station, $108 million to replace aging poles and overhead equipment, and $172.3 million for replacing underground cables, transformers and vaults. (Source: The Star)

Electricity Prices for Ontario

The weighted-average Hourly Ontario Energy Price (HOEP) was 2.886 cents per kWh in April 2013. This price is 0.04 cents lower than last month’s 2.926 cents per kWh. The weighted-average price has averaged 2.708 cents per kWh over the last 12 months.

The Global Adjustment rate for April was set at 5.640 cents per kWh. This rate was 4.374 cents in March. The Global Adjustment is an additional charge paid by non-regulated customers. It has averaged 4.847 cents over the last 12 months. (Source: IESO)

Saskatchewan

Increased costs related to safety and pipeline integrity programs are the primary drivers behind SaskEnergy’s application to the Saskatchewan Rate Review Panel (SRRP) for Delivery Service Rate changes. A proposed two-year Delivery Service Rate increase will have a total bill impact of 2.1 per cent for an average residential customer starting September 1st, 2013 and a 1.2 per cent annual increase for September 1st, 2014. The Commodity Rate portion of the bill remains unchanged at $3.82/Gigajoule (GJ). A typical residential customer could see an increase of $1.46/month in the first year and $0.87/month in the second year. Productivity improvements and efficiency measures have helped offset additional Delivery Rate pressures, as SaskEnergy has achieved $22 million in efficiencies since 2009, with a further $5 million in efficiencies targeted for 2013. Even with the proposed Delivery Service Rate increase, SaskEnergy’s residential delivery charges will remain the lowest in Canada. Using a Gas Price Management Program, SaskEnergy sets its Commodity Rate using the forward 12-month market pricing of natural gas, and anticipates its overall natural gas costs this summer will remain within the range of the present Commodity Rate of $3.82/GJ. However, market pricing has been moving slightly upward over the last few months. (Source: SaskEnergy)

SaskPower recently announced an income of $147 million and $1.8 billion in revenue from its 2012 Annual Report. The $25 million increase in revenue is due to the record demand from customers. “SaskPower set a record in terms of new service connects and electricity supplied to customers in 2012,” SaskPower President and CEO Robert Watson said referring to the 22,129 GW hours supplied in 2012. “We expect those numbers to continue to grow in the next several years, making it even more important that SaskPower renews and rebuilds our system for the future.” (Source: SaskPower)

After publishing their 2012 Annual Report, continued growth was a highlight for SaskEnergy, as demonstrated by the increase to 365,000 in the company’s distribution customer base and the strong industrial demand for natural gas within the province. Transmission volume also increased by 10 Petajoules, or 4.3 per cent, from the previous year, driven by enhanced oil recovery, potash mines and power production. One major operational highlight that contributed to their success was SaskEnergy and CanGas Solutions Inc., a containerized compressed natural gas (CNG) transportation company, signed a three-year natural gas delivery agreement. As part of the agreement, SaskEnergy will develop a CNG loading facility near Weyburn, which will allow CanGas to become the first commercial supplier in Western Canada to provide trucked CNG to oil and gas drilling rigs. “Even as the corporation’s system expanded, SaskEnergy continued to offer among the lowest delivery rates in Canada, in part because of its focus on productivity gains. This commitment to process improvements also resulted in $5.6 million in efficiency savings,” Minister responsible for SaskEnergy Tim McMillan said. (Source: SaskEnergy)

Yukon

Yukon Electrical Co. Ltd. announced today that its application for the Watson Lake liquefied natural gas (LNG) project has been accepted by the Yukon Environmental Assessment Board (YESAB). The project is to be undertaken in partnership with ATCO Gas and ATCO Energy Solutions. ATCO Gas will construct and maintain the storage and vaporization facility that will be required to convert the LNG back to a gas for use in the generator. “We believe that once a supply chain has been established for LNG in the North, the cost savings and environmental benefits from displacing the use of diesel will be very positive,” says Dwight Redden, General Manager of Yukon Electrical. The project will convert one of the six diesel-fired electrical generators at Watson Lake to a bi-fuel system able to accept natural gas. About 50 per cent of the diesel consumed by the generator is expected to be displaced by natural gas, equating to a reduction of on-site carbon dioxide emissions of approximately 300 tonnes per year – equivalent to permanently removing 60 vehicles from the road annually. (Source: ATCO)