IndustrialWoodPelletsinAlbertaWhyCo-FiringandFull-FiringMakesSense

PresentedbyWilliamStrauss

Ara%onal,pragma%c,andeasytoimplementsolu%onfortransi%oningtowardazerocoalfuture.

FutureMetrics

IntelligentAnalysisandStrategicLeadershipforthePelletSector

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Dr.WilliamStrauss,President,FutureMetrics

Recipientofthe2012Interna2onalExcellenceinBioenergyAward

JohnSwaan,SeniorAssociate,FutureMetrics

Recipientofthe2014Interna2onalFoundersAward

AwardWinningTeamMembersHereToday!

FutureMetrics-GloballyRespectedConsultantsintheWoodPelletSector

FutureMetrics has formed a World Class Team

•  Leadingglobalconsultantinthewoodpelletsector•  ProvidesinformaTon,analysis,operaTonsguidanceandstrategicadviceto

manyoftheworld’sleadingcompaniesinthewoodpelletsector

•  Majormanufacturerofwoodpelletsproducedfromsustainablymanagedworkingforestsforuseasarenewable,low-carbonfuel

•  SubsidiaryofDraxGroup,theworldleaderinindustrial-scalebiomasstechnology,logisTcsandoperaTons

•  GloballeaderinprovidingengineeringservicestopowerstaTons•  Significantexperienceandin-houseexperTseinpowerplantmodificaTons

fromcoaltoco-firingorfullconversiontowoodpelletfuel

•  Globalleaderinbuildingandmodifyingpowerplants•  Significantexperienceinconversionprojects,includingEPCrolesthatinclude

guaranteesonbothreliabilityandraTng

Wood pellets can replace coal in large pulverized coal power sta<ons

• Optimizationofexistingasset • Costcompetitive • Reliable/sameuptime• Flexible,dispatchable

generation• Demonstratedatscale

inmanylocations• Highoutput/

node-rate• Lowcarbon • Renewable&sustainable • LowerSOx,NOx,Hgemissions

WhyWoodPelletsareanEasySubsTtuteforCoalinPulverizedCoal(PC)PowerPlants

•  Woodpelletsareupgradedsolidfuelmadefrombiomass.•  Theyaregrindable.•  Theyaredry(~6%moisturecontent).•  Theyhandleeasily.•  Theyhaveanenergydensityof~18Gigajoules/tonne.Atlowco-firingraTos(lessthan~6%whitewoodpellets)nomodificaTonsarerequired.AthigherblendraTosmodificaTonsareneededbuttheyarewellunderstoodandproveninlargePCplants.

Drax Power Sta<on in the UK – Three 645 MW lines: two running on 100% wood pellet fuel and the third on 85% pellets / 15% coal

Storage domes

Rail unloading

Screening building

Transfer tower

Rail unloading Screening building

Storage domes

Transfer tower

Boiler and generator

Screening building

- 3 unit conversion - Negligible impact on efficiency and no loss of output

- Flexible output from 200MW to 645MW per unit

7.5millionmetric

tonnesperyearofindustrialwoodpellets

OPG’s240MWATkokanOntarioPlant

Fullfiringonindustrialwoodpellets

FromtheTorontoStar,September8,2016,byGillianSteward

Alberta is planning to phase out all its coal-fired electricity plants by 2030. Now the federal government has confirmed it wants other provinces to do the same thing. This is a big turnaround, for sure. Alberta was never considered a leader when it came to carbon reduction strategies before Premier Rachel Notley and her NDP government were elected just over a year ago. But now Justin Trudeau’s Liberals are using Alberta’s climate change action plan as a model for other provinces that still burn coal to produce electricity — namely Saskatchewan, Nova Scotia and New Brunswick — and intend to keep doing so until the 2040s. Trudeau needs those provinces to drastically reduce their use of coal for firing up electricity generators much sooner than that if the federal government is to reach its stated goal of reducing Canada’s greenhouse gas emissions by 30 per cent under 2005 levels by 2030. He is obviously counting on the notion that if Alberta, formerly known as a “laggard” when it came to climate change policies, is taking steps to eliminate all coal-fired electricity in just under 15 years so can the other provinces. That’s because Alberta is Canada’s most coal intense province: it produces more coal pollution than all other Canadian provinces combined.

11

AlbertaremainshighlydependentoncoalforpowergeneraTon.AsoluTonthatleveragesitsexisTngcoalassetsmakesalotof

sense.

12

Capacity (MW) Year Completed AgeBattleRiver3 150 1969 474 150 1975 415 370 1981 35

Genesee1 410 1989 272 410 1994 223 495 2005 11

HRMilner1 150 1972 44

Keephills1 406 1983 332 409 1983 333 495 2011 5

Sheerness1 380 1986 302 380 1990 26

Sundance1 280 1970 462 80 1973 433 406 1976 404 392 1977 395 392 1978 386 392 1980 36

Averages ==> 341.5 33

Alberta’sCoal-firedPowerFleet

Atleastoneplant,the5yearoldKeephillsUnit3,maybeacandidateforafullconversion.Genesse#3also…

Keephills#3isa50/50jointownershipbetweenCapitalPowerandTransAlta.Itcost$1.98billiontobuild.Itislessthan5yearsold.

Itisa495MWhigh-efficiencysuper-criTcalPCpowerplantabout70kmwestofEdmonton.

Keephills#3wouldconsumeabout1.7millionmetrictonnesperyearunderafullconversion.IncreasedcostovercurrentcostofgeneraTonwithcoal,basedonassumpTonsshown,wouldbeabout6.9centsperkWh.Thatincreaseincostofgenera2on($69/MWh)hastohavepolicysupporttoallowtheu2litytoremainprofitable.

HowDoFull-FiringCostsComparetoOtherLowCarbonGeneraTonTechnologies?

Source:U.S.EnergyInformaTonAdministraTon,AnnualEnergyOutlook2016,August2016.

Weques%onthe40%and45%capacityfactorsforwindandthetransmissioninvestments!

Co-firingisthelowestcostdispatchablelowcarbongeneraTonpathwayotherthanhydro.

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PlantTypeCapacityFactor(%)

LevelizedCapitalCost Fixed

O&M

VariableO&M(includingfuel)

TransmissionInvestment

TotalSystemLCOE

LowCarbonTechnologies

Wind 40% $42.80 $13.20 $- $2.80 $58.80Wind–Offshore 45% $109.60 $19.30 $- $4.80 $133.70SolarPV 25% $57.30 $9.90 $- $4.10 $71.20SolarThermal 20% $155.70 $43.30 $- $6.00 $205.00Hydroelectric 57% $54.10 $3.60 $5.80 $1.90 $65.30

USAverageLevelizedCostswithAssumedCapacityFactors(2015$/MWh)forPlantsEnteringServicein2040

CO2Reduction 91.3%Co-firingtoReachabout91%CO2ReductionCoalConsumptionPercentage 0.0%WoodPelletConsumptionPercentage 100.0%

CoalConsumptionCost -$PelletConsumptionCost 295,000,000$AnnualizedConversionCost $27,900,000OtherPollutionControlAnnualCost -$TotalFull-firingCost 322,900,000$NetCostperMWh 93.08$

Thegeneratorcouldsimplypassthroughthecost.Nopolicysupport!TherateincreasefortheendusercanberoughlyesTmatedbyaweightedaverageoftheratesatco-firingorfull-firingplantsandthecostforalltheotherpowerdeliveredintheprovince.Supposetheprovinceproducesabout80,000,000MWh’sinagivenyear.The495MWKeephills3plantwillgenerateabout3,300,000MWh’sorabout4.1%ofthetotalintheprovince.AsimplecalculaTonsuggeststhat4.1%ofthe$69.13/MWhincrementalincreaseatthe100%full-firingrateisabout$2.85/MWh.Thatwouldbethedilutedincrementalincreaseinrates.

ThatisaboutthreetenthsofapennyperkWh:$0.00285!16

Contractfordifference(CfD)–PolicySupportThegovernmentcouldimplementaschemesimilartothatusedinGreatBritain.ThecontractfordifferencesetsapriceperMWhthatishighenoughtoallowtheuTlitytomaintainareasonablebusinessmodelandthusfulfillitsobligaTonsforreliability.TheCfDpaysthedifferencebetweenthemarketpriceandtheCfDstrikeprice.Assumecarbonistradingfor$50/ton.ThedifferencethattheCfDwouldpayanerincomefromcarbontradingin2030isabout$143million.

Assumingaprovincialbudgetof$55,000,000,000*in2030.

The2030costisabitmorethanonefourthofonepercentoftheannualbudget–0.0268%17

CO2Reduction 91.3%Co-firingtoReachabout91%CO2ReductionCoalConsumptionPercentage 0.0%WoodPelletConsumptionPercentage 100.0%

CoalConsumptionCost -$PelletConsumptionCost 295,000,000$AnnualizedConversionCost $27,900,000OtherPollutionControlAnnualCost -$TotalFull-firingCost 322,900,000$NetCostperMWh 93.08$CO2Income 179,453,810$NetaddedCostafterCO2Tradesat$50/ton 143,446,190$TotalCostperMWhafterCarbonTaxIncome 41.35$

AnnualDifferentialbetweencofiringandcoal (233,699,000)$CoalOnlyversusCo-firingDifferential($/MWh) $67.369

*Albertabudgetfor2018-19is$49.6billion

AsimilarscenariocouldbetoldabouttheGenesee#3plantwhichisnotfarfromtheKeephills#3staTon.

ItisalsoaJVwithCapitalPowerandTransAltaandisaboutthesamesizeasKeephills#3andisjust11yearsold.

Eachplantiffullyconvertedwouldconsumeabout1.7milliontonnesperyearofpellets.

Capacity(MW)

YearCompleted

AgeAgein2030

BattleRiver3 150 1969 47 614 150 1975 41 555 370 1981 35 49

Genesee1 410 1989 27 412 410 1994 22 363 495 2005 11 25

HRMilner1 150 1972 44 58Keephills1 406 1983 33 472 409 1983 33 473 495 2011 5 19

Sheerness1 380 1986 30 442 380 1990 26 40

Sundance1 280 1970 46 602 80 1973 43 573 406 1976 40 544 392 1977 39 535 392 1978 38 526 392 1980 36 50

Averages ==> 341.5 33 47

Alberta’sCoal-firedPowerFleet

By2030mostofAlberta’scoalfleetwillbeover50yearsold.

TheprovincewillhavegridreliabilitychallengesifallthoseplantsreTreandotherdispatchable

baseloadgeneraTonisnotinplaceby2030.

NewNaturalGasPlantsareProbable…

ExceptforthenewcoalstaTons.

TheuTlitywouldprefertonotstrandtheseverynewandcostlyassets.

Albertaisheavilyforestedandhasamatureforestproducts

industry.

Therearenoindustrialpelletmillsbecausecurrentlyall

industrialpelletsareexportedviashipandAlbertatoport

logisTcscostsarechallenging.

ButifanAlbertapowerstaTon(ortwo)committoconversion,Albertawillhaveindustrial

pelletplants.

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PelletmillsinwesternCanadaareexportoriented.Sotheyareonrailwithgoodmill-to-portlogisTcs.BCproducToncouldraileast.

ButthereareunexploitedindustrialpelletproducTonopportuniTesinAlberta!

Conclusion

ThereisarealpotenTalfordemandforpelletsinAlberta’spowersector.

ButboththeuTliTesandthepolicymakersneedtoknowthebenefits.

WhenplacedinthecontextoftheenTregeneraTngfleetand/ortheprovincialbudget,thecostisalmostaroundingerror.

GiventhecurrentnaTonalpolicydirecTonsoncarbonemissions,AlbertacouldleadthewaywithacTonwaysoonerthan2030.

Butpolicymakersneedtohearthestory,understandtheeconomics,andknowthatthepowersta2onscanusepelletswithnolossofreliabilityoroutput.

SoundslikemoreworkforWPAC!

Thankyou!

WilliamStrauss

FutureMetrics

FutureMetrics–IntelligentAnalysisandStrategicLeadershipforthePelletSector–WilliamStrauss@FutureMetrics.com

<-NearRevelstoke,BC,Feb.,2016