A wasted opportunity; Planned clean-energy plant powered in part by captured waste gases falls victim to downturn

Toronto Star: Tyler Hamilton - February 2, 2009

Steel maker ArcelorMittal Dofasco and electricity developer Sithe Global Power have scrapped plans to construct a "clean" power plant fuelled partly by captured waste gases.

The 500-megawatt facility would have produced enough electricity for 400,000 homes as well as industrial-grade heat for the Hamilton-based steel manufacturer. The ambitious project, said Dofasco spokesman Jim Stirling, simply got "caught up in the current economic times."

But some industry observers argue the Ontario government, despite talk of smart infrastructure spending and more efficient energy use, shares part of the blame for failing to support such initiatives just when they're needed most.

"For a large project like this the government should be stepping in and asking what they can do to make it happen," said Keith Stewart, an energy researcher with environmental group WWF-Canada. "It would be great for economic stimulus. It would create jobs here in Ontario, and it's going to help save existing jobs."

The proposed facility was a combined heat and power or "co-generation" plant, meaning the waste heat from electricity generation is used locally by an industrial "heat host" or as part of a district heating system.

It's considered a highly efficient use of fuel compared to the production of power and heat through separated systems. Denmark, for example, gets 55 per cent of its electricity from hundreds of small and large CHP plants that also provide heating to cities and towns.

Some of the cleanest plants, like the one proposed in Hamilton, use waste gases from industrial operations that are otherwise flared and vented into the atmosphere. Sithe's plant would have obtained 20 per cent, or 100 megawatts, of its power from waste gases captured from Dofasco's steel-making operations. The rest would have come from natural gas.

The bottom line: one-fifth of the plant's power would come from free fuel that emits no additional greenhouse-gas emissions.

As well, the plan was to recycle the waste heat from electricity generation to produce industrial-grade steam for Dofasco. "The real point of this would be energy efficiency," said Stirling.

As far as power projects go, it made good sense. Ontario needs cleaner electricity that will reduce its dependence on coal. Dofasco needs to become more efficient i n an increasingly competitive sector. Already, amid the economic downturn, the steel maker has had to cut 500 staff since July and its remaining 1,900 employees have been moved to a four-day workweek.

But officials at Sithe and Dofasco just couldn't make the economics of the project work, an even greater challenge during a credit crisis that has inflated the cost of borrowing.

Tom Casten, a pioneer in the recovery of energy from industrial processes, isn't surprised that Sithe and Dofasco pulled the plug. He said the programs set up by the Ontario Power Authority that are supposed to stimulate development of co-generation have been designed in a way that limits the number of projects likely to be developed, even under favourable conditions.

"It's unbelievable how much they've stacked the deck," said Casten, who estimates there is more than 11,000 megawatts of potential industrial and commercial CHP projects in Ontario - more than enough to completely displace the province's reliance on coal power.

Of that, about 3,000 megawatts could come from "waste energy," such as lost heat or flue gases from chemical factories, refineries, glass plants and other operations.

Casten argued that the power authority is only half-heartedly pursuing the opportunity. The agency doesn't value the true environmental benefits of local CHP projects, specifically the ones that recycle waste energy, or appreciate the economic benefits in the form of job creation and improvements to industrial competitiveness, he said.

There's also the fact that local power production requires less infrastructure to support it. For example, generating power and heat where it's used means there's no need to put up expensive transmission lines to bring the power to a remote location.

Compare this to the Nanticoke coal-fired generating station, which requires massive infrastructure to carry that electricity into cities like Hamilton and Toronto. More than half the energy in the coal is released into the air during combustion as waste heat, and "line losses" during the transmission of electricity - energy lost on power lines in the form of heat - averages 7 per cent and can reach 20 per cent during times of peak demand.

The power authority said it takes these factors into account when assessing CHP projects, but Casten said the agency is lowballing the potential cost savings. "If you're putting new (CHP) generation in downtown Toronto you may be able to avoid a new transmission line that costs more than the generation itself," said Casten.

The benefits of CHP have not gone unnoticed south of the border, and many expect the new Obama administration will spur development as part of its massive economic stimulus package.

Last month, the U.S. Department of Energy issued a comprehensive report that praised the potential of CHP and recommended what it called "high-deployment policies" that by 2030 would attract an estimated $234 billion (U.S.) in investments and create nearly 1 million highly skilled technical jobs.

Doing so would save enough fuel each year to provide heat and electricity to half of U.S. households. "Emissions could be reduced by more than 800 million metric tons per year, the equivalent of taking more than half of the current passenger vehicles in the U.S. off the road," according to the report.

Ontario's approach to CHP has been less ambitious, though experts acknowledge the projects can be risky. CHP can help certain industry players become more competitive, but the power authority must also consider whether a weakened company in a struggling industry can be relied on for signing a 20- year contract.

What if, after just a few years, an industrial heat host closes shop? If Dofasco, for example, were to shut down its Hamilton facility, then Sithe would no longer have access to waste gases or have a customer for the plant's heat. As a result, the plant would no longer be viable.

Jason Chee-Aloy, director of generation procurement at the Ontario Power Authority, said it becomes a balancing act - even more so during a recession - between the pursuit of clean and efficient power, the need to make industry competitive, and the mandate to protect ratepayers from unnecessary risk.

"We realize the economy is an issue and we are really paying attention to that. That speaks to some of the complexities with combined heat and power," said Chee-Aloy.

But critics say the agency has been overly cautious. Only seven CHP projects totalling 414 megawatts have been awarded power-purchase agreements from the power authority since 2006. The agency is currently seeking another 500 megawatts through a second round of contracts, but a number of potential bidders - including Sithe and Dofasco - withdrew before last Thursday's application deadline.

Not that these companies didn't invest money and time before getting to that stage, said WWF's Stewart. "They're typically spending $300,000 to $1 million just to do the engineering work. If you're going through the bidding process, that's a lot of money to spend if you're not sure you're going to win."

Enwave Energy Corp., known for building and operating the world's largest deep lake-water cooling system in Toronto, was one potential bidder who decided in the end to withdraw. Enwave wants to replace its natural-gas boiler system used for district heating with a superefficient gas turbine system that would produce both heat and 20 megawatts of electricity, 24-hours a day, for the city.

Get enough of these facilities operating throughout Toronto and building a third transmission corridor into the city could be avoided, some say. It would also be cleaner. "There would be a big reduction overall of greenhouse gas emissions and air pollution," said Kevin Loughborough, vice-president of major projects at Enwave.

The project hinged on Enwave's ability to sell the electricity to the province, meaning it had to snag a contract with the power authority. It tried during the last round of contracts and was turned down. It was considering a second attempt but, after reviewing the rules and assessing the economic outlook, isn't so sure now.

"It's more stringent," said Loughborough. "They've put a cap on how much they're prepared to pay, and with the Canadian dollar going down to 80 cents it makes importing equipment, like generators from the U.S., that much more expensive. So it's putting pressure on our business case."

It's frustrating, he said. "We want to do it badly." (Enwave has since found out all applications for multi-megawatt power projects in downtown Toronto are being turned down until Hydro One does upgrades to a transformer station so it can safely< /FONT> take new supply.).

The power authority has clearly stated that it's not prepared to pay more than $2,000 for every kilowatt of electricity a CHP facility is capable of generating. Loughborough said it seems like an arbitrary cap, and is far lower than current estimates for the cost of building new nuclear plants, some even exceeding $6,000 per kilowatt.

Chee-Aloy called the cap an "informed" calculation. "It's really a guiding measure," he said.

The agency, he added, is open to accommodating broader government policy objectives if directed.

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