SaskPower natural gas plans could be derailed by federal regs

The future of SaskPower’s natural gas plans, and therefore its emissions reductions, could be in jeopardy after new regulations from the federal government.

On Friday, the federal government released final regulations on the carbon tax system, which include those for natural gas plants. It means that any new plant that starts operating after 2021 will have to be down to zero emissions by 2030, or pay for any emissions released.

“This just changes the whole equation,” SaskPower CEO Mike Marsh said Friday.

Natural gas was SaskPower’s first choice for power generation as it transitions out of coal. In its 2018-19 annual report, SaskPower said: “The presence of a strong natural gas-fired generation fleet will be critical in providing a potential baseload replacement for conventional coal generation while also providing the flexibility required to operate during peak demand periods in support of intermittent renewable generation.”

But that’s all up in the air after the new regulations, which are meant to discourage power companies from building natural gas plants.

Marsh said SaskPower will have to take a careful look at what the new regulations mean, what the cost implications are and what technologies the Crown corporation will be able to use.

“Before we make any decision, we have to have a good thorough look at what this may mean for our supply plan that we had in place as of last week,” he said. “With these changes, this could create considerable cost going forward for utilities like SaskPower … that are transitioning away from conventional coal, and are trying to do it in a prudent way — manage the emissions, but also manage the cost, because the costs are significant.”

Marsh explained these types of regulations add costs which could put upward pressure on customer rates.

Dustin Duncan is the minister responsible for SaskPower. He said the picture for the future of natural gas in Saskatchewan looked a lot different on Thursday than it did on Friday after the regulations were announced.

“We’re going to have to go back and now look at those regulations and look at what it actually means for future decisions including, for example, Moose Jaw,” said Duncan.

SaskPower is in the middle of the designing and procurement stage to build a new combined cycle natural gas plant in Moose Jaw’s industrial park. But Duncan said SaskPower is going to have to pump the brakes on that project.

“(We have) to do a deep dive in terms of what these regulations will do for the ability to operate, on a cost-effective basis, a natural gas plant like what we were thinking for Moose Jaw,” said Duncan.

The Chinook station near Swift Current won’t be impacted by these new regulations because it’s expected to be online later this year.

Marsh said the new rules for natural gas could make coal with carbon capture and storage (CCS) more attractive. He explained that if SaskPower determines natural gas is too expensive to operate, then it’ll turn to CCS.

Marsh went through other options, discarding them one by one. He said nuclear power isn’t at a development stage where it’s an option. And he said things like solar and wind can’t provide Saskatchewan’s baseload that needs to be available 24/7, so SaskPower had been looking to natural gas as part of its emission reductions plan.

A recent report from The Global Energy Monitor said the increased use of natural gas for power generation will work against emission reduction goals in the Paris climate change accord, though industry groups have come out against the report.

Clashes with the feds

Duncan appeared exasperated when talking about the new regulations.

Duncan is also Saskatchewan’s environment minister. He said he and his provincial counterparts were in a meeting with the federal environment minister the day before the natural gas regulations were announced, and Duncan said she didn’t say anything about them.

“Even if this federal government is returned (in the fall election), we need to somehow get back to — whatever disagreements we may have — to get back to having a relationship where we can feel like we’re actually at the table, and not kind of an afterthought or an annoyance for the federal minister,” said Duncan.

Duncan said there’s a lot of regulatory uncertainty around the federal government, and it’s making decision-making and capital deployment much more difficult.

Some might say Saskatchewan has a part to play in the current adversarial relationship between the federal and provincial governments. But Duncan feels the federal government threw the first stone when the prime minister announced, in the House of Commons during an environment ministers’ meeting, that the carbon tax would be applied to provinces that don’t have their own.

Duncan argued that went against every principle agreed to in the Vancouver declaration, and the Sask. Party government has a responsibility to do the best thing for the province.