April 26, 2012 / 6:09 PM / 5 years ago

TransAlta walks away from carbon-capture plant

Dawn Farrell, president and CEO of TransAlta, addresses shareholders at the company's annual general meeting in Calgary, Alberta, April 26, 2012.Todd Korol

CALGARY, Alberta, April 26 (Reuters - TransAlta Corp (TA.TO) abandoned plans on Thursday to build a C$1.4 billion ($1.42 billion) carbon capture and storage facility at an Alberta coal-fired electricity plant because it could find no buyers for the carbon dioxide and no way to sell emission-reduction credits.

Power producer TransAlta, whose first-quarter profit tumbled on weak power prices and high maintenance costs, said it would not proceed with Project Pioneer, a carbon-capture demonstration plant with Enbridge Inc (ENB.TO) and Capital Power Corp (CPX.TO).

The project was also backed by C$779 million of funds from the Alberta and federal governments. It would have captured and stored a million tonnes of carbon-dioxide emissions annually from the 450-megawatt Keephills 3 power plant west of Edmonton.

TransAlta said it found no firm buyers for the carbon dioxide to be captured at the plant, and said there is, as yet, no cap-and-trade system that would let the company and its partners sell emission-reduction credits.

"Two things were instrumental in our decision," said Don Wharton, vice-president, policy and sustainability for TransAlta.

"One was the lack...of a suitable price for the pure CO2 created by the project. The second was the uncertainty around the value of emission reductions that would be created by Project Pioneer under regulatory frameworks that are still being developed."

Carbon capture technology is a key plank in federal and provincial government plans to cut greenhouse gas emissions from Alberta's oil sands operations and power plants, while allowing the growth of the two sectors to continue unchecked.

The Alberta government has earmarked C$2 billion for carbon capture as it looks to improve Alberta's environmental reputation. At the same time it wants to boost production of carbon-intensive oil sands crude and continue to generate most of its electricity from coal.

The province has also backed carbon-capture projects planned by Royal Dutch Shell Plc's (RDSa.L) oil sands operation and Swan Hills Synfuels, which is planning to fuel a 300-megawatt power plant using synthetic gas created by heating coal deposits deep underground.

"It certainly is a setback," said Chris Severson-Baker, managing director of the Pembina Institute, an environmental think tank.

"Within Alberta, this is was the one coal-plant application of CCS and it was the most important application. There are significant emissions from coal operations ... and there are few other options to mitigate greenhouse gas emissions from those types of operations without CCS."

In 2009, the Canadian government earmarked a C$1 billion "clean-energy fund" for CCS projects - which mostly capture carbon emissions and sequester them underground - as part of a goal to cut emissions by up to 20 percent before 2020.

Canada's Conservative federal government has since walked away from the Kyoto Accord, which would have mandated emissions cuts, and the government has made little public progress on implementing a cap-and-trade system. The government's goal is now to reduce emission by 17 percent from 2006 levels by 2020.

Despite the cancellation, Joe Oliver, Canada's minister of natural resources, said the government remained committed to promoting CCS as a way to lower greenhouse-gas emissions.

"We are disappointed that TransAlta's Project Pioneer will not move forward. However, this is a private sector decision," Oliver said in a statement. "Our government continues to invest in a number of projects that are advancing across the country and we will continue research and development ... to help advance carbon capture and storage technologies."

Wharton said about C$30 million has been spent on the initial engineering and design for the project, two-thirds of it from public funds. Yet that funding was also in part responsible for TransAlta's decision to abandon the project.

"They did dictate that it needed to move ahead on a very specific time frame," he said. "If we were unable to meet that, the government funding was in jeopardy as well. In a pure commercial situation you could say 'Well maybe we'll just delay it,' but that wasn't an option in this case."

EARNINGS FALL

First-quarter earnings at TransAlta, which runs coal, gas and renewable energy facilities in Canada, the United States and elsewhere, dropped to C$89 million ($90 million), or 40 Canadian cents a share, from C$204 million, or 92 Canadian cents, a year earlier.

Excluding one-time items, the company earned 20 Canadian cents per share, lagging analysts' average estimates of 22 Canadian cents a share, according to Thomson Reuters I/B/E/S.

Revenue fell 20 percent to C$656 million.

TransAlta said results were hindered by "difficult pricing conditions" and higher than planned maintenance.

The company had unplanned outages at several Alberta plants in the quarter, including at its 466-megawatt Genessee 3 plant.

TransAlta shares fell 34 Canadian cents to C$16.38 on the Toronto Stock Exchange on Thursday. The shares have dropped 21 percent over the past 12 months while the exchange's benchmark index has fallen 13 percent over that time.

($1=$0.98 Canadian)

Additional reporting by David Ljunggren and Abhiram Nandakumar; Editing by Janet Guttsman

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