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Capital Power may speed up Genesee natural gas conversion

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Capital Power may speed up Genesee natural gas conversion

Capital Power Corp. may speed up a plan to convert units at its Genesee power station from coal to natural gas fueling, CEO Brian Vaasjo said.

The Edmonton, Alberta-based company has secured natural gas contracts that would allow "co-firing" of generators at the site by 2019. "We secured additional physical natural gas delivery capacity for the Genesee site," Vaasjo said on a July 30 conference call to discuss second-quarter 2018 earnings results. "This allows for increased natural gas co-firing in 2019, and further natural gas conversion at the core facility as early as 2020."

Capital Power had planned to run the two units at the 860-MW facility on coal almost until an Alberta government-imposed retirement date of 2030 because the plant, whose first unit went online in 1989, is one of the lowest-emitting generators of its kind in the province. Vaasjo said access to gas was a key factor in the decision to speed up the conversion. Genesee is about 50 miles southwest of Edmonton, near TransAlta Corp.'s coal-fired plants in the Wabamun Lake region. TransAlta has committed to early conversion some of its units in the area and is partnering with Tidewater Midstream and Infrastructure Ltd. to build a natural gas pipeline to the region.

Alberta's government has imposed a so-called carbon tax that is set to increase in coming years to mitigate emissions, and increases to the levy are also being considered, Vaasjo said. Co-firing, or burning both coal and natural gas to create steam for the generators, is a faster and relatively inexpensive way to reduce plant pollution. Natural gas sells at a significant discount in Alberta compared with other major hubs because abundant shale supplies have to compete with output from U.S. shales.

Decisions around timing of the conversion continue "to be same as it relates to the clarity around carbon pricing as well as the outlook for natural gas," Vaasjo said. "What we have been doing over the last couple of years is maximizing our optionality and shortening up the time frame in which we can react. Obviously, one of the significant elements around that ability to react quickly is having natural gas to the site."

Still, the company does not plan to rush into fully converting the generating plants until after 2020, Vaasjo said. Alberta is scheduled to hold a provincial election in 2019 and the right-leaning United Conservative Party — which has vowed to end the carbon tax — is leading in the polls.

"As we move forward and through the back part of 2019 and into 2020, we expect to be co-firing and have the capacity to co-fire significantly greater than it is today," Vaasjo said. "Until you see some significant increases in carbon prices ... we don't see conversion to natural gas until at least 2020 or beyond."

Separately on July 30, Capital Power reported second-quarter 2018 adjusted EBITDA of C$223 million, up from C$96 million in the corresponding quarter of 2017. The company booked normalized earnings attributable to common shareholders of C$23 million, or 22 Canadian cents per share, from C$26 million, or 27 cents per share, in the prior-year period. The S&P Capital IQ normalized EPS estimate for the quarter was 31 cents per share.