Current contract prices too low -- TransAlta looks for upside in emerging carbon market

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Canada's TransAlta Corporation, a power plant owner operating out of Calgary with a diversified portfolio of generation assets, is planning to build a 66 MW wind farm in southern Alberta as a merchant project. In doing so it will bypass the security of a long term power purchase contract in an effort to maximize its return on both the electricity, which will be sold directly into the wholesale market, and the project's environmental attributes.

Right now, says TransAlta's Dawn Farrell, executive vice-president of commercial operations and development, people are not willing to sign contracts for wind power at a price that provides full value for its environmental benefits. For this reason TransAlta is taking the merchant approach. "I'd say fundamentally the CO2 offsets are under priced," she says. "At this point in time, we would like to keep it merchant and then to the extent we start to see the pricing for wind pick up for both of the attributes, we might close in some of the value for that. But I don't really want to sell the CO2 for less value than I think it is worth in the long term."

Carbon offsets market

Farrell believes there is a market developing for offsets from wind. "You see carbon offsets trading in Europe at C$30/tonne. You see them trading in Australia. That market is starting to emerge in Canada and as each locale sets up different regulations you will see things trading differently jurisdiction by jurisdiction. But over time we expect those markets to converge. We do expect to see a fully functioning carbon market in the next five years."

TransAlta can use Blue Trail's environmental attributes against emissions from its own generating portfolio or sell them separately from the electricity, says Farrell. "I'd like to sell a few of them to see if they really do have the value everybody says they have. At the same time that gives us an implicit value for using them in-house for our own CO2 commitments."

The C$115 million Blue Trail wind farm is scheduled to come on line by December 2009, in time to help alleviate supply concerns in the province's ever-tightening power market. The company will take delivery of the project's 22 Vestas V90 3 MW turbines starting in mid-2009.

Fifty to 100 MW a year

TransAlta has a total generating portfolio of nearly 8500 MW, although it recently sold two gas plants in Mexico with a total capacity of 511 MW in a deal expected to close mid-year. About 60% of the total is fuelled by coal and another 25% by gas. It also has hydro and geothermal assets. With the addition of Blue Trail and the 96 MW Kent Hill project now under construction in New Brunswick, it will have a net wind capacity of 314 MW.

"Where I would like to be, if we can make it work, and it may seem like a little goal, but it's actually pretty big because you've got to get the right projects and the right returns, but I would like to see us add fifty to one hundred megawatt of wind per year over ten years," says Farrell.

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