Profitable power shadowed by green energy
By COLLIN GALLANT on January 15, 2021.
While the city-owned power utility is extremely profitable at this time, city officials are warning residents that there is nowhere to go but down as green energy takes hold.--NEWS FILE PHOTOcgallant@medicinehatnews.com@CollinGallant
A new review that could result in the sale of Medicine Hat’s publicly owned power station was sparked by concerns that green energy could cut the bottom out of the utility’s gas-fired business plan, city councillors tell the News.
City administrators are now seeking “strategic alternatives” for generating facilities, while potential partnerships likely mean offloading generating units, but keeping the municipal distribution network, which is not part of the review.
Coun. Kris Samraj told the News on Thursday that he favours public ownership of utilities and its benefits for consumers.
But, he said, the scope of the business requires contingency planning for the city, if it becomes a stranded asset in a utility sector that faces tremendous flux.
“We’re in a very disruptive market environment,” he told the News, stating that options to reinvest – adding lower cost renewable capacity and meeting carbon compliance requirements – are limited by the long shutdown and continuing costs of city gas production.
“We’re somewhat constrained by the legacy of previous council decisions,” he said. “We’re bleeding $30 million per year from a (gas production) business unit that was once a real behemoth for the city.
“If something similar happened in power, the impact couldn’t be overstated.”
The spectre of losses in the gas production unit tempered comments from other city councillors this week.
Three members of the utility committee all support administrators’ valuation process for facilities that can currently produce about 255-megawatts of gas-fired power for city customers on the exclusive franchise and can export on a limited basis.
“We never thought that gas would go sideways, but it did when shale gas came on the market,” said utility chair Coun. Phil Turnbull, who was re-elected in 2018 on a campaign of stemming losses in petroleum production.
“Are we so sure that that won’t happen down the road with power?”
He said that greater explanation of the changing utility sector and greater outreach to residents may be required, potentially in a townhall format.
Barring a sale, adding renewable capacity to the local plant would lower emissions to avoid carbon compliance costs, but require millions in new spending when an expansion of gas-fired capacity is already underway.
Renewable power has very low input costs once built, and construction costs continue to drop. That could drive prices down on the export market, which is a lucrative part of the city’s business plan.
Coun. Brian Varga says he has already heard residents’ reaction to a potential sale. He is awaiting the results of the review.
“Everybody needs to consider the whole situation; it’s sort of inevitable that it will decline,” he said. “We’ll wait to see any offers and whether it’s the right value and the right time.”
Many utility observers and even the provincial government – which has a 30 per cent green energy goal by 2030 – have said natural gas is a critical bridge fuel as renewables develop. Gas-fired plants are promoted as providing critical, stable power alongside intermittent renewable power production.
But green energy production is set to balloon on the Alberta generation mix in the short term.
For example, solar power production capacity in Alberta totalled 15 megawatts in 2019, but now sits at 109 megawatts. Planned construction would see about 1,000 megawatts online by 2024.
Another 850 megawatts of wind capacity in southeast Alberta alone will come online over the next 24 months in six separate projects.
