TransAlta Corporation ("TransAlta" or the "Company") announced that its Board of Directors has approved a strategy to accelerate the transition of the Company to gas and renewables generation. This strategy includes the following steps:
The retirement of Sundance Unit 1 and mothballing of Sundance Unit 2 reflects the limited economic viability of the units upon the expiry of their Power Purchase Arrangement ("PPA") due to the current oversupplied Alberta power market and low power price environment.
The benefits of converting units to gas-fired generation for TransAlta include:
"The Company is taking steps today that will position us as a leader in clean power generation and improve our competitive position as we consider a future where carbon is a high cost input to power generation," said Dawn Farrell, President and Chief Executive Officer. "TransAlta is committed to providing reliable and competitive power to our customers. Supplying markets with renewable power and competitive clean capacity from gas conversions will serve customers with low cost and low carbon electricity for decades to come," Mrs. Farrell said.
Sundance Units 1 & 2
Federal regulations stipulate that all coal plants built before 1975 must cease to operate on coal by the end of 2019, which includes Sundance Units 1 and 2. Given that Sundance Unit 1 will be shut down two years early, TransAlta intends to apply to the federal Minister of Environment to extend the life of Sundance Unit 2 from 2019 to 2021. This will provide the Company with flexibility to respond to the regulatory environment for coal-to-gas conversions and the new Alberta capacity market.
Sundance Units 1 and 2 collectively comprise 560 MW of the 2,141 MW at the Sundance power plant, which serves as a baseload provider for the Alberta electricity system. The PPA with the Balancing Pool relating to Sundance Units 1 and 2 expires on December 31, 2017.
The Company expects that the capacity of Sundance Units 3 to 6 and Keephills 1 and 2 will not change following conversion, which will result in a reduction of approximately 40 per cent of carbon emissions while maintaining approximately 2,400 MWs to the Albertapower grid.
"The total capital commitment for the coal-to-gas conversions is approximately $300 million, and we anticipate funding the conversions with free cash flow," said Donald Tremblay, Chief Financial Officer of TransAlta. "These units are expected to provide low cost capacity and to be very competitive in the upcoming capacity market auctions; we expect the first auction to occur in 2019 for 2021." Mr. Tremblay said.
The Company expects that Federal and Provincial regulations will be adopted to facilitate coal-to-gas conversions and continues to be engaged with government in the development of the required regulatory regime.