On a grassy plot in Saskatchewan, developers are about to test a technology that some think could be the savior of the global coal industry.

There, Canadian utility SaskPower is rebuilding a 43-year-old coal plant at its Boundary Dam Power Station to capture roughly 90 percent of its carbon dioxide emissions and store the gas deep underground.

The 110-megawatt project may be a game changer in two ways -- it could become the world's first commercial demonstration of carbon capture technology on a power plant at large scale. And it differs from other proposals in that it is a retrofit of an older coal plant and the retrofit might later be applied to similar plants.

The project's builders say they are setting an economic and technology standard for the world's existing coal fleet to continue operating in a carbon-constrained world.

Boundary Dam Power Station

"Boundary Dam will make the first benchmark. It will define the costs, which is so important," Mike Monea, SaskPower president of carbon capture and storage initiatives, said at a briefing in Washington, D.C., last week. "Whoever builds the next one won't have to spend as much money as us."

Globally, more coal is expected to be burned in 2017 than now, despite changing dynamics in the United States, according to the International Energy Agency.

Monea's visit to the nation's capital comes during a pivotal time for SaskPower's $1.24 billion initiative. The capture project on Unit 3 of the Boundary Dam station is more than 50 percent built.

Last month, the utility took Unit 3 offline to rebuild its boiler and operating parts over the next several months. It plans to begin extensive tests in October, with a plan for full operation of the carbon-capture-enabled plant in April 2014.

The trip also comes as SaskPower is set to host delegates from around the world next month as part of a multiday symposium centered on the project, which envisions capture and underground storage of 1 million metric tons of CO2 annually.


China keeps visiting

China -- which has a memorandum of understanding with the province to pursue energy investment opportunities -- is dispatching officials to Saskatchewan with interest in building a similar plant, according to Monea. "Every month it seems there is a delegation," he said. During the trip to Washington, Monea met with U.S. senators.

In many ways, Boundary Dam is going against the wind. Companies that made similar attempts in the past to retrofit a large, existing coal plant with CO2 capture, including American Electric Power and Canada's TransAlta, abandoned their plans amid spiraling costs.

The reason the Canadian plant is moving forward when other "clean" coal efforts are not is a unique mix of circumstances, including Canadian regulations on existing coal plants, access to oil fields for CO2 storage and a provincial financing system that is different from others in the world.

SaskPower is a crown corporation, meaning it is owned by the people of Saskatchewan and is the only entity authorized to provide provincial power. That also creates a streamlined process for the utility to increase revenue and raise rates.

"Companies elsewhere are competing with other suppliers," said Chris Severson-Baker, an analyst at the Pembina Institute, a Canadian-based environmental think tank. "They don't have that same way of passing along costs."

The Canadian government supplied $240 million for the Boundary Dam project, but SaskPower otherwise tapped into the provincial financing mechanism to cover the rest of the more than $900 million cost.

In the United States, by contrast, carbon capture and storage proposals on old coal plants similar to Boundary Dam were eligible for a 50 percent cost share from the Department of Energy, leaving a significant challenge getting half their financing, said Kurt Waltzer, an analyst at the Clean Air Task Force. Some proposals were denied rate increases by regulators before they could scale up.

There will be a "small" one-time rate increase for Boundary Dam customers, Monea said. He emphasized that rate increases must go through an independent review process.

Rich neighbors that want CO2

SaskPower has another financing advantage via access to abundant oil fields in Saskatchewan where the greenhouse gas can be pumped underground to release more crude, providing the power plant with a revenue stream from selling CO2.

In December, SaskPower inked a 10-year deal with Cenovus, which plans to build a CO2 pipeline and buy almost all the project's captured carbon dioxide for use in enhanced oil operations near Weyburn, Saskatchewan. In the province, oil producers get a rebate on royalties owed to the government from CO2-enhanced oil recovery, giving an additional boost, said Larry Hegan, an analyst at the Global CCS Institute, in a blog posting.

But the final impetus for the project -- and one with relevance for the United States -- may have been Canadian greenhouse gas rules for coal-fired power.

The Canadian rules -- completed in September -- went beyond U.S. EPA regulations by setting restrictions on existing plants. In Canada, plants now essentially have to meet the emissions profile of natural gas within 45 to 50 years of their commission dates. At the time of the rules release, then-Environment Minister Jim Prentice said the electricity sector was one area where Canada could cut emissions without regulatory alignment with the United States.

Canadian environmentalists slammed the 45-year lag, but it gave little wiggle room for SaskPower, considering the age of the utility's coal fleet, according to Monea.

Saskatchewan "got hit worst by the law," he said. The Boundary Dam unit being retrofitted for capture now is almost 45 years old, and two additional coal units at the power station will reach that threshold by the end of the decade, he said.

While SaskPower was moving forward with Boundary Dam before the coal regulations came into the picture, the utility was anticipating greenhouse gas restrictions in its decisionmaking several years before, Monea said.

With coal supplying about half of the province's electricity, the power generator had to decide whether to abandon the fuel for natural gas.

Large nuclear and full-scale renewables were not an option to replace Boundary Dam's power because of the province's grid, among other things, Monea said. The province is importing some of its gas.

Competitive with gas

With that in mind, Monea said, he was not willing to count on the stability of future gas prices. With a coal plant, one-third of anticipated costs come from fuel, while two-thirds come from capital investment. The ratio is flipped with a gas plant, he said.

After a detailed economic analysis, SaskPower concluded it could rebuild a coal plant with carbon capture more cheaply than a new gas plant.

"Shale gas is going to start coming up with its own warts," he said.

The project is significant for being the first of its type, but it will not alone jump-start a new wave of carbon capture retrofits in the United States, several analysts said. Without a carbon price or similar EPA regulations on existing plants, there is not enough of a financial driver for Boundary Dam-style projects, they said.

"Post-combustion capture on power is a nonstarter right now in the U.S.," said Cheryl Wilson, an analyst at Bloomberg New Energy Finance. The CCS plants that are still moving forward generally are not retrofits, but gasification plants that can produce other chemicals for additional sales revenue, she said.

A recent study in Energy Policy concluded that challenges for CCS globally are "greater than often recognized," and that current policies will not allow the technology to be implemented in time for significant CO2 reductions.

Some environmentalists further charge that CCS is a technology that will never work, and governments should instead funnel money toward renewables and natural gas to cut emissions, rather than boosting fossil fuels.

Many are anticipating that EPA will regulate existing power plants eventually, but such regulations could still be a "ways off," Wilson said.

What is going to be critical for Boundary Dam, analysts said, is whether the project sticks within its estimated costs and whether SaskPower proceeds with similar coal retrofits at other aging coal units at the Boundary Dam station. If it does, it could fine-tune the technology to a degree that it becomes cost-effective elsewhere.

Carefully watching the costs

Monea said he would make a decision about coal units 4 and 5 at the power station in the next few years, partially based on what happens with Unit 3.

One of the biggest economic challenges with CCS is that capture units require energy to run, sapping 20 to 30 percent of the juice from a power plant. Monea said last week that this "parasitic load" is estimated to be on the low end -- 21 percent -- at Boundary Dam, but the final number will not be known until the plant is operational.

In the past, unforseen engineering issues -- such as improper sizing of components with capture tests -- have spiked costs up, Wilson noted.

Additionally, some of Boundary Dam's captured CO2 is slated to be stored outside oil fields, in deep underground rock formations, as part of a research project managed by the Petroleum Technology Research Centre, founded by the University of Regina, the Saskatchewan Research Council, and the Canadian and Saskatchewan governments. That could prove critical in testing how the greenhouse gas interacts with surrounding rock, analysts said.

In the meantime, SaskPower is aiming to launch a global consortium of companies and policymakers -- paid for by member fees -- to learn from the project's data. The consortium will fund additional research on CCS and promote public acceptance of the technology, Monea said.

The utility also is partnering with Hitachi on a $60 million test facility at SaskPower's Shand Power station, so that other companies can test carbon capture in real-world conditions.

"Coal can play a role in the generation of power. And it does not have to be a negative business case," Monea said.