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Dial Down Coal. Dial Up Renewables Accelerating The Transition October 2015
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“The Dial Down – Dial Up strategy will enable the province to achieve its GHG reduction targets from coal, protect consumers from price spikes, accelerate new renewables gener-ation, protect jobs and support economic growth.”
3Dial Down Coal. Dial Up Renewables
Immediately reduces emissions by “dialing down” coal-based generation by 20 per cent, starting in 2016.
Dials Up renewables to 25 per cent of Alberta’s energy generation by 2030.
Imposes a hard cap on coal- fired emissions.
Accelerates hydro generation with new capacity and storageon the North Saskatchewan River.
Protects jobs and electricity consumers while supporting economic growth.
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2
3
TransAlta’s Policy Proposal
4
5
4Greenhouse gas (GHG) reductions + new renewable capacity
Immediate, measurable environmental impact
Immediate 20% reduction in coal plant output
GHG reduction of 9 megatonnes/year
Protects consumers from price shocks
Delivers backup supports for new renewables growth
DIALING UP RENEWABLES
10% of energy supply in Alberta
25% of energy supply in Alberta
20202030
5Impact of Dial Down – Dial Up
Greatest GHG reductions with lowest consumer impact
By 2030Cumulative reductions (tonnes)
Residential consumer impact
Under a dial-down approach
175M from coal
$42/yrCompared to no carbon policy
The current carbon policy would be converted to a mass-based approach immediately, applying a tonnage cap on coal-based emissions.
Generators would reduce coal unit output throughout the year to operate below their cap
The 20% reduction would equate to compliance with the Specified Gas Emitters Regulation (SGER), essentially funding the value of lost production by generators
Emissions below the cap would create flexible emission reduction instruments, tradeable within and outside the sector
This produces the lowest cost, least impact to consumer costs to achieve tonnage reductions
Current 2021 2026 20300
1,000
2,000
3,000
4,000
5,000
A HARD CAP DRIVES COAL REDUCTIONS
= Megawatts
6
Five steps to successful transition start with coal Dial Down + immediate renewables Dial Up
1
7Growth for Greatest Impact
Renewable generation growth aligned with the parallel reduction of coal generation.
The Dial Up target is equivalent to adding 400 to 500 megawatts (MW) of wind equivalent capacity annually.
The renewables target would include existing renewables.
A government agency such as the Balancing Pool would offer long-term contracts for renewables.
Current offset credits under Specified Gas Emitters Regulation (SGER) would be grandfathered.
The policy could provide specific allocations for technologies such as hydro and solar.
Tota
l Pro
duct
ion
(GW
h)
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Renewables Natural Gas Coal
0
10,000
20,000
30,000
40,000
50,000
60,000
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“We are committed to protecting the jobs of our employees during the coal transi-tion, and we look forward to working with environmental groups, communities, the province and our unions on a joint agreement to move forward.”
9Maximizing new renewables investments
The Dial Down – Dial Up proposal has a fixed timeframe for coal plant closures, enabling TransAlta to explore a significant investment opportunity on the North Saskatchewan River.
Instead of using capital to add NOx and SO
2
controls to plants already scheduled for shut down – with a maximum 5 to 8 year impact – TransAlta will instead invest in long-term renewable energy
TransAlta would enter into a long-term Power Price Agreement with the Alberta Electric System Operator (AESO) for energy and system support – eliminating the need to compensate generators for early coal-plant closures
A transparent and open process will be used to reach final terms on Power Purchase Agreements (PPA)
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North Saskatchewan River: Potential to quickly Dial Up renewables
2
11Harnessing hydro — a potential $1.75B investment
Edmonton
Calgary
Opportunities under evaluation include: Brazeau Forks new hydro (75 megawatts); expansion at existing Brazeau Dam (200 MW); Bighorn Dam (60 MW) pump storage at Brazeau Dam (50 MW). Total: 350-400 MW total hydro expansion on the North Saskatchewan. TransAlta is also exploring at 500 MW solar project in the Wabamum area, site of our current coal mine and plant facilities. To put this in perspective, 100 megawatts is enough to power 130,000 homes a year, depending on the energy fuel source.
Long life, high capacity
Minimal transmission upgrades
Within Alberta Environment’s Protective Notation Zone reserved for hydroelectric development
Provides new employment, including Aboriginal job opportunities
Preliminary feasibility work is under way. Downstream water management and fisheries habitat are part of the overall benefits of hydro, a cornerstone renewable which has greater generating reliability than solar and wind.
Hydro expansion on the North Saskatchewan River, has the potential to quickly dial up Alberta’s renewable generation capacity.
12A leader in renewables, since 1911
TransAlta’s first facility, the Horseshoe Plant at Seebe east of Banff, was built in 1911.
a 21 MW solar project in Massachusetts and a 50 MW wind facility in Minnesota
a 20 MW wind facility at Kent Breeze in Ontario
an 88 MW wind facility at Wintering Hills in Alberta
TransAlta this year also launched Alberta’s first large-scale battery storage project, using Tesla technology
In 2013 we acquired a 133 MW wind farm in Wyoming and completed a 68 MW New Richmond Wind facility in the Gaspésie area of Québec.
The North Saskatchewan hydro expansion on the preceding pages is just one of several renewables projects under consideration.
TransAlta has more than doubled its renewable energy capacity in North America since 2008 to 2,300 megawatts this year, including hydro, wind and solar facilities.
This year alone, TransAlta or TransAlta Rewewables have acquired:
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London Economics International: Research highlights consumer impacts
3
13
14Accelerating too quickly drives up consumer costs
Comparison of Alberta to Case Study Jurisdictions
1
2
Note: retail prices were from spring-summer 2015, and converted to Cdn$ using 9/24/2015 exchange rate. *Ontario’s retail rates are likely to increase in coming years due to FIT and other obligations signed by the government. Source: EIA, ERCOT, Germany Energy Blog, Frauenhofer Institute, CA Energy Almanac, UK Government, UK DECC, Hydro Quebec, BDEW
ALBERTA Texas Ontario California United Kingdom Germany
Policy Assessed RPS FIT Energy Efficiency Carbon Tax FIT
Installed capacity (MW) 16,151 MW 80,149 MW 34,780 MW 78,865 MW 84,987 MW 177,140 MW
Capacity by fuel (Top 3)Coal: 39%
Cogen: 28% Gas: 11%
Gas: 63% Coal: 25%
Nuclear: 6%
Nuclear: 37% Gas: 29%
Hydro: 24%
Gas: 59% Hydro: 18% Solar: 7%
Gas: 40% Coal/oil: 29% Nuclear: 12%
Coal: 28% Solar: 22% Wind: 20%
% industrial load 65% 26% 25% 17% 26% 46%
RESIDENTIAL RETAIL (DELIVERED) PRICE ($CAD) 12.18
cents/kWh15.70
cents/kWh16.5 cents/kWh
22.79 cents/kWh
32 cents/kWh
42.81 cents/kWh
INDUSTRIAL RETAIL (DELIVERED) PRICE ($CAD) 5.9
cents/kWh7.3
cents/kWh9.3
cents/kWh16.1
cents/kWh19.5 cents/kWh
15.1 cents/kWh
Type of wholesale marketSingle clearing price real-time
energy-only market
Nodal day ahead and real-time
energy markets
Single clearing price real-time energy market
Nodal day ahead and real-time energy
markets
Balancing Energy Market
Voluntary integrated spot
market with balancing
mechanisms provided by
transmission system operator
Centrally planned
procurement (many existing
generators also under long- term contracts)
Resource adequacy capacity product
Centralized Capacity Market
New investments generally
remunerated through long term PPAs
Contract for Differences (for new investments, climate
change focused)
London Economics International, a widely
respected firm whose global expertise includes energy policy
and infrastructure, conducted a detailed analysis of the
current state of the renewables transition around the world, and various policy models
for Alberta.
Their work included a study of other jurisdictions that
attempted over the past decade or so to rapidly accelerate their
transition to renewables.
Hurdles included the public’s opposition to rising electricity costs, the cost of government
subsidies or tax incentives that didn’t yield desired renewable growth trajectories for renew-ables, budgets and economies
under pressure, and other financial constraints.
From a consumer perspective, in Alberta where about 38
per cent of our generation is fired by coal, retail electricity
rates this year were just under 7 cents per kWh. At the
other end of the spectrum, in Germany it is now almost
43 cents.
15London Economics International reviewed policies that targeted reducing carbon emissions and policies to increase renewables
This chart illustrates the consequences of a variety of carbon policy approaches
1
2
Cap and Trade Carbon TaxRenewable Portfolio
Standard (RPS)Feed In Tarriff (FIT) Energy Efficiency
Jurisdiction reviewed California United Kingdom Texas Germany Ontario California
Primary Objective
Reduce carbon emissions
Modify behaviour of consumers to use less carbon-intensive fuels (“energy efficiency”) and substitute with
non - or low- carbon options
Increase the development of
renewable capacity
Increase the development of
renewable capacity, with broad diversity
of technologies
Developed to encourage and
promote greater use of renewable energy sources
Reduce system load
Achievement [“pros”]
Reducing carbon emissions
Other markets have joined
Provided for recognition of carbon costs and started the process of reducing carbon emissions
New renewable capacity developed
Usually cost-effective approach as long as target practical and not too many
carveouts
New renewable capacity built
If scale sufficient, can also attract jobs
New renewable capacity built
Steady, sustained consumption reduction in
demand with needed incentives
and monitoring and verification
CONSEQUENCES [“CONS”]
To date, prices at floor prices
Original policy not as effective as
expected due to lack of links to carbon content, and has
required more explicit carbon-based pricing
Low cost focus of many RPS programs
has lead to mainly just wind being developed
Original FIT implementations were expensive and inflexible
Version 2.0 appears more moderate
Program resulted in major increase
in retail rates
Subsequently, caps on total renewable
capacity and decreased rates put in place to moderate
program expense
Although California has been able to
contain costs, in other jurisdictions, subsidies
may be high
KEY TAKE AWAYS
In Alberta the cost of power to consumers and commerce is relatively low, and creates a competitive advantage for us
compared to other jurisdictions.
Poorly implemented renewable policies can lead to unintended
consequences.
This is a big change — and if we don’t do it thoughtfully it will
cost us more than we want it to.
Let’s take the best from other jurisdictions — and stamp it
‘Made in Alberta’.
16Balancing emission reductions, consumer costs & job protection
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2
*Cumulative GHG reductions assume greater natural gas % replacement early, more renewables % later **Customer impacts can be compared against a business-as-usual cost forecast of $68B over the same period. Includes energy, transmission and all out-of-market costs.
Dial Down – Dial Up Cap & Trade Accelerated Shutdown RPS
GHG reductions (cumulative 2016 – 2030) (net of replacement*)
95 Mt 127 Mt 61 Mt 111 Mt
Cost per tonne reduced (net of replacement)
$72/t $278/t $186/t $206/t
Air quality co-benefits Early reductions Uncertain Later reductions Uncertain
Renewables by 2030 Large ~25% 20% 10% – 15% Large ~35%
Gas replacement Modest gas and delayed Larger than Dial Down Early gas replacementLarge gas requirements to backstop renewables
Customer impacts** $75B $103B $79B $91B
Effects on jobs Small increases relative to BAU Uncertain High impacts Short term gains, Mid term Losses
Market design change requirements Small, Mid term review required NoneMid term need to incent
back stop capacityMarket Failure
Transmission impactsSome Transmission costs
for renewablesSome Transmission costs
for renewablesSmall Transmission impacts Large Transmission Build Costs
Stranded capital NoneCosts will force coal out —
strands capitalStrands capital
RPS allocations will force coal out — strands capital
Investment climate impacts Smooth transitionPolicy impacts existing
investment viabilityBreaks regulatory compact
Creates government debt, changes market, winners & losers
This chart illustrates the comparative advantages of the Dial Down – Dial Up proposal
Dial Down – Dial Up achieves government policy objectives at lowest incremental cost to consumers and the economy
Assessment BAU*Accelerated Retirement
Cap & Trade RPSDial Down – Dial Up
GHG Reduced from 2016 - 2030
New renewable entry by 2030
Total cost to consumers through 2030
Net jobs impact
Overall assessment
CommentsDoes not meet GHG
reduction policy objectivesDoes not motivate
new renewablesMost expensive scenario
Achieves policy objectives at high cost to consumers & economy
Achieves policy objectives at lower cost; achieves
immediate GHG reduction
* Business As Usual
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18
Protecting jobs, communities and stakeholder interests
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19Protecting jobs and livelihoods
As Alberta’s largest electricity generator, TransAlta employs thousands of people across Alberta. Moving too quickly on accelerating the closure of plants will have a direct impact on their livelihoods and communities.
1,300 direct jobs in plant and mining operations
1,500 jobs in construction and other community-based services
Thousands of indirect jobs in the communities of Stony Plain Parkland County, Wabamun. This includes for example restaurants, housing, grocery stores, banks and other community businesses and services.
20Dial Down – Dial Up supports communities
Jobs and municipal tax revenues
MUNICIPAL TAX REVENUES
More than $13M in communities around our coal and mining operations
PROVINCIAL AND FEDERAL TAX REVENUES
In Alberta, TransAlta’s coal plants today provide more than one-third of the province’s power and are an important part of the province’s economy. The overall impact of TransAlta’s Alberta coal generation and mining facilities, from 2015 to 2020, will include about $2.4 billion in Alberta labour income,
about 5,000 jobs a year; almost $5.4 billion in gross domestic product
a 10B add to the Alberta economy
$4.4 B in labour income (wages)
just under $1.4 billion in government revenue — including $678 million to the Government of Alberta
total federal and provincial tax income: $2.6 billion
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“Other models require substantial new infrastructure while ignoring consumer price impacts. These proposals serve some generators, and leave consumers exposed to price volatility and unreliable supply.”
22Working with stakeholders
Centralia – an historic agreement with environmental groups, unions, communities
In a 2011 agreement with Washington State for an acce- lerated transition for TransAlta’s coal plant at Centralia, we agreed to contribute $30 million to a community investment fund to help with economic development and energy efficiency projects, as well as an additional $25 million to an energy technology transition fund, to be spent on supporting innovative energy technologies. The agreement provided for a clear transition timetable, allowing us to enter into long-term contracts with customers. It gives TransAlta the financial stability needed to invest in the transition to a cleaner energy source. It also provided for a transition that protects jobs and included retraining initiatives. Centralia is also one of the cleanest coal-fired plants in operation today. The plant installed state-of the art controls for mercury emissions in 2012 ahead of the 2015 federal requirements and recycles 80 to 85 per cent of its coal by-products.
A COLLABORATIVE INNITIATIVE
Unions, environmental groups, community and business leaders and the province will be involved in developing a transition agreement that minimizes the impact of the Alberta transition on jobs and communities and ensures affordable electricity for consumers and businesses.
Working with the Pembina Institute in Alberta and other enviromental partners, we believe that we can achieve the same result in Alberta.
We can do what others say can’t be done. Ultimately collaboration and determination to strike the right balance can achieve a lower carbon footprint, a competitive power sector and affordable electricity for consumers and jobs for the future.
23Working with Aboriginal Communities
SUSTAINABLE EMPLOYMENT, CAPACITY- BUILDING, AND COMMUNITIES SUPPORT FOR ECONOMIC DEVELOPMENT
Including:
Capital funding
Sponsorship of schools and cultural events
Support for Aboriginal business development through coaching and mentoring
Aboriginal post-secondary trades bursaries
Reclamation education program for students, teachers and elders
Career experience opportunities for high school students
In 2014, TransAlta proudly achieved Progressive Aboriginal Relations Silver Level designation, one of only 10 companies in Canada to achieve this distinction.
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Preparing for future demand, and understanding unintended consequences of alternative proposals
5
2515-year load growth requirements – The Path to Renewables
An estimated $22B in investment is required by 2030 to meet capital investment requirements, including replacement generation and load growth
Natural gas generation is expected to meet the majority of this requirement
Wind investment would be incremental as wind does not provide firm capacity
billion$22 2015 2030
GenerationRetirements
Peak Growth
Peak Growth
GenerationRetirements
26Major risks in other policy options
In Ontario, consumer prices jumped 45% during the accelerated coal closure
TIME-OF-USE (TOU) PRICES
MAY2006
The following chart tracks time-of-use electricity prices since 2006.
10ce
nts
per k
Wh
20
15
5
0NOV2006
MAY2007
NOV2007
MAY2008
NOV2008
MAY2009
NOV2009
MAY2010
NOV2010
MAY2011
NOV2011
MAY2012
NOV2012
MAY2013
NOV2013
MAY2014
NOV2014
MAY2015
O�-peak Mid-peak On-peak
Source: Ontario Energy Board http://www.ontarioenergyboard.ca/OEB/Consumers
%45
27Alternative policy option risks
ON ACCELERATED RETIREMENT
Accelerated retirement of coal units produces reductions less quickly than a dial-down approach, because in most cases retirements would not be implemented immediately.
Accelerating coal retirements by 5 years only achieves 60% of the cumulative emissions reductions as Dial Down.
Accelerated retirement produces GHG reductions at approximately twice the cost as a dial-down approach, resulting in significantly greater consumer price volatility
Approximately twice the impact on jobs than a Dial Down
ON A CARBON TAX ON NEW GAS GENERATION
The impact on consumer electricity prices would be substantial
It is unknown what level of tax would equalize the competitiveness between gas and renewables, and therefore its efficacy is questionable.
ON A RENEWABLE PORTFOLIO STANDARD
High cost to electricity consumer and the economy
Greater net job losses than Dial Down – Dial Up.
Per
unit
cos
t of e
mis
sion
s re
duce
d
over
BA
U (
$/to
nne)
How much will consumers pay for each tonne of GHG emissions reductions over BAU (Business As Usual) levels?
AR = Accelerated retirement C&T = Cap &Trade RPS = RPS DDDU
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+Clear disadvantages for consumers in other proposals
Consumers are not protected from price shocks
Additional transmission investments ($4B-$5B) would likely be required and the need for associated approvals
In contrast, our proposal calls for a paced implementation of renewables consistent with support from baseload sources
It also makes use of existing structural institutions and is appropriate for a competitive market
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“TransAlta believes that a clear and robust Climate Change Strategy for Alberta is both possible and nec-essary, and that it should carefully balance environ-mental objectives with economic considerations.”
IT CAN BE DONE.
30TransAlta’s renewables leadership
many of which continue to operate today. Our Alberta-based hydro facilities have a net capacity of 822 MW and comprise 96 per cent of the prov-ince’s hydro assets, our B.C.-based hydro facilities are capable of delivering 77 MW of clean power generation, and our Ontario facilities have a net ca-pacity of 14 MW. Together, these assets contributed $85 million of comparable EBITDA in 2014.
AND NOW SOLAR …
TransAlta has just announced its first solar acquisition, a 21 megawatt facility in Massachusetts, aligning with our strategy of growing our renewables platform and diversifying our portfolio. The solar facility consists of four ground-mounted projects and four rooftop projects and could lead to similar projects in Alberta.
WIND
TransAlta has 22 wind farms, including 1,021 wind turbines with the capacity to generate 1,522 megawatts (MW) of wind power — this is the equivalent of powering more than one million homes. Wind is now 16 per cent of our total generating capacity. TransAlta was the first large-scale utility company to invest in wind energy, including the first wind projects built in Canada.
HYDRO
TransAlta’s very first power generation assets were hydroelectric facilities built in Alberta,
Canada’s largest wind generator and Alberta’s largest hydro generator