BOUNDARY DAM’S PRICE TAG INCREASES 9 PERCENT TO $1.36 BILLION

SaskPower Remains Mum on Future CCS Plans

Tamar Hallerman
GHG Monitor
10/25/13

A recent asbestos scare, unanticipated engineering work and a shortage of craft labor have caused the projected capital costs for SaskPower’s flagship Boundary Dam carbon capture and storage project to increase by $115 million, the Saskatchewan, Canada-based utility said. The price tag of the world’s first power generation facility with CCS has now crept up more than 9 percent to $1.36 billion, SaskPower President and CEO Robert Watson told reporters Oct. 18. He blamed the increase on expenses related to upgrading the power island of Boundary Dam’s 110 MW Unit 3. “[Unit] 3 is an old system, and it’s like an old house renovation—you really don’t know what you’ll find until you take thing apart and start to rebuild,” Watson said during a media conference call. 

Watson said an asbestos scare over the summer—which halted nearly all construction work on the project’s power half for nearly a month in July—cost the utility about $30 million. New engineering specs required the provincial utility to spend an unanticipated $25 million to build in boiler reinforcement for Unit 3, and SaskPower also paid about $30 million to remove lead paint from the power unit. Other generally unforeseen engineering work cost the company another $35 million, Watson said. He added that the utility has also had difficulty in securing craft labor like welders and pipefitters due to competition from other major energy projects in Alberta’s oil sands and North Dakota’s shale gas region. “There is significant work going on in North America, and quite frankly were vying for [the same workers],” Watson said.

Watson Mum on Future CCS Plans

Watson emphasized that despite the $115 million in cost overruns, the CCS project is expected to go online as planned in April 2014. “We’re happy with the progress. We’re happy with our major partners, SNC-Lavalin, Hitachi, Babcock & Wilcox, to name a few,” Watson said. “It’s something still to really be proud of, and we’re really looking forward to completing the project on time.” Watson said work on the project’s capture unit, located in a separate building from Unit 3’s power island, is “essentially finished” and “well in line.” “It’s only the power facility that’s over budget. That’s why we still think this is a good news story,” he said, adding that interest from others in the CCS world is “incredible right now.” “I firmly believe that when we get this thing running, this is going to be a significant game changer for the industry,” he said. 

Watson, meanwhile, remained non-committal when discussing how seriously the utility is looking at CCS for the two other electric generating units at Boundary Dam that will reach the end of their economic lives within the next several years. Under greenhouse gas emissions performance standards finalized by the Canadian government last year, coal units, once they reach 50 years of operation, must retrofit with CCS technology, switch to natural gas or retire. SaskPower must decide by 2016 what to do with Boundary Dam’s Units 4 and 5, which are fast approaching the end of their economic lives. Watson largely sidestepped questions from reporters about how seriously SaskPower is examining CCS for Units 4 and 5. “We’re just looking at getting Unit 3 done—that’s all we’re looking at right now,” Watson said. “I want to get 3 done and get it up and operational for about two years” before making any other decisions, he added. However, Watson did hint that the fact that since SaskPower has been able to secure a 10-year off-take agreement with the oil company Cenovus for the project’s CO2, it “puts a business model behind possibly doing [CCS on Units] 4 and 5.”

Watson said that if SaskPower does choose to pursue CCS for Units 4 and 5, the learnings from the utility’s flagship project on Boundary Dam’s Unit 3 could help save money, making up for the fact that new CCS projects are not expected to receive large government grants in the future. Unit 3’s CCS retrofit had netted $240 million from the Canadian federal government in 2011. “We’re still quite encouraged about Units 4 and 5. What we’ve found out with Unit 3 will significantly help us engineer and plan 4 and 5 better,” Watson said. “We could get better quotations and costing.”

Proving the Economics for 2019

During remarks at an energy conference earlier this week in Washington, SaskPower’s Manager for Clean Coal Technologies Max Ball offered a similar sentiment, but appeared somewhat more optimistic about the future for CCS at Boundary Dam’s Units 4 and 5. He detailed that SaskPower would need to seriously decide whether to put forward an initial investment of between about $50 million and $100 million for CCS at Boundary Dam’s Units 4 and 5 by 2016, ahead of a potential final investment decision in 2019 and commercial operations in 2024. “We wouldn’t need to prove that [CCS] is going to be cheaper than natural gas in 2016, but we’ll have to prove that when we come back with the final design in 2019 that there’s a good shot that this is an option that the company should be investing in rather than just accepting natural gas,” Ball said.