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SaskPower paid $1.2 million in penalties for carbon capture, among other difficulties

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WATCH ABOVE: SaskPower's billion dollar carbon capture and storage facility is facing millions in additional costs this year thanks to contract penalties and what unexpected expenditures. Provincial affairs reporter David Baxter has more on how the numbers break down – Dec 14, 2016

The vast majority of the CO2 captured by SaskPower’s Carbon Capture and Storage (CCS) facility at Boundary Dam Three is sold to Cenovus for its drilling operations.

When the Estevan, Sask. based plant can’t meet demand, SaskPower pays a penalty to Cenovus. This fiscal year, the Crown corporation paid $1.2 million in penalties.

“The shortfall payments to Cenovus are much less than last year. As we look to the end of this fiscal year we are looking to a net positive of $15 to $16 million,” SaskPower CEO Mike Marsh said.

A representative from SaskPower said they are still calculating the annual costs of the $1.5 billion CCS facility and plan on releasing them in the near future.

Marsh said that this penalty clause isn’t uncommon in these types of contracts, and if Cenovus doesn’t buy carbon, they pay SaskPower.

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However, details of the contract aren’t public. Marsh said this is due to commercial sensitivity, but Cathy Sproule, the NDP critic for SaskPower, said they want to see more transparency.

“It’s frustrating… I’m not sure why [SaskPower won’t release details] because I don’t think there’s a large market for this kind of product in Saskatchewan. We don’t even know if they’ve found another customer yet,” Sproule said.

Marsh said that the Crown is negotiating with potential clients in the oil and gas sector and hopes to sign a second customer next year.

Another cost overrun at the CCS facility relates to amine, a chemical solution essential for the carbon capture process.

Costs related to amine in the first year of the plants operation were $17 million, and grew to $18.5 million this year. Next year that cost is expected to be $20 million.

In SaskPower’s business plan, they anticipated spending $5 million annually on the solution.

“It’s an operational cost that is going to continue to be four to five times what the business plan originally said,” Sproule said.

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“So any profits they make from Cenovus is immediately wiped out by these extra costs.”

These costs relate to a process called amine degradation.

“The degradation is higher than what we anticipate, and we continue to work on that technical problem,” Marsh said.

Marsh said that issues like this are common in new technology, and anticipates everything will be running smoothly at the plant in the next few years.

Some good news for the CCS facility, it did surpass the goal of capturing 800,000 tonnes of CO2.

This is still down from the original target of capturing one million tonnes annually.