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Energy Stocks

The Opening in Alberta’s Coal Closings

By Roger S. Conrad, on Apr. 12, 2017

Alberta plans to shut down all its coal-fired power plants by 2030, an ambitious target that will be a huge adjustment for a province that historically has relied on this thermal fuel to generate more than half of its electricity. Albeit daunting, this transition creates a massive longer-term opportunity for a few specific companies.

Of the 18 operating coal-fired power plants in Alberta, 12 will shut down because of federal rules that require the closure of these facilities after 50 years of operation or the installation of carbon-capture technology–an expensive proposition.

The Climate Leadership Plan, enacted last year by Alberta Premier Rachel Notley’s New Democratic Party (NDP) government, targets the other six coal-fired power plants that operate in the province.

During the spring 2015 election, the NDP took 53 of the 87 seats in the Alberta legislature, a landslide victory that ended the Conservative Party’s decades-long dominance of provincial politics.

The NDP government came to power at a time when the collapse in oil and natural-gas prices had sent Alberta’s all-important energy patch into a painful downturn that hit the province’s tax revenue hard, making it hard to increase education spending.

On the campaign trail, Notley promised—rather ominously from the energy industry’s point of view—to “take leadership on the issue” of greenhouse-gas emissions blamed for climate change.

The Climate Leadership Plan hasn’t pleased everyone. The extent to which the newly instituted carbon tax of CA$20 per ton—which will increase to CA$30 per ton next year—remains unknown.

Fortunately, the province enjoys very low wholesale electricity prices, thanks to an abundance of cheap natural gas.

Although the mandate to phase out Alberta’s coal-fired power plants comes from the government, this transition mirrors the one taking place in the US, where regulated utilities continue to grow their rate base and earnings by swapping out aging coal-fired plants for gas-burning facilities that offer superior efficiency and reduce system costs.

Even better, natural gas priced at the AECO Hub in Alberta trades at a significant discount to what the thermal fuel fetches at the Henry Hub in Louisiana, the delivery point for the futures that trade on the New York Mercantile Exchange.

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