OPG’s biomass-converted stations positively contribute in Q3

Ontario Power Generation recently released its third quarter results, reporting increased earnings from its contracted generation portfolio segment due to the new hydroelectric units on the Lower Mattagami River and the conversion to biomass fuel at the Atikokan and Thunder Bay generating stations.

OPG reported net income attributable to the shareholder before extraordinary gain for the three months ended Sept. 30 of $80 million compared to $118 million for the same quarter in the prior year. Lower nuclear generation and higher operations, maintenance and administration expenses contributed to the decrease in earnings. The decrease reflects the planned vacuum building outage (VBO) at the Darlington Nuclear Generation Station.

Net income for the nine months ended Sept. 30 was $503 million compared to $475 million for the comparable period in 2014. The overall increased earnings over the period were mainly attributable to higher sales prices for OPG’s regulated facilities authorized by the Ontario Energy Board beginning in November 2014, and to income from the new hydroelectric units and the converted biomass generating stations.

Jeff Lyash, OPG’s president and CEO, said in a statement that he is impressed with the consistently strong performance of the company’s hydroelectric and thermal fleet. “This provides the base that we need as OPG prepares to proceed with our major investment in refurbishing the Darlington Nuclear Generating Station,” he said.

Overall, OPG received an average of 7.1 cents per kilowatt hour (kWh) for its power in the third quarter, which was significantly lower than the average non-OPG commodity cost of electricity in Ontario, according to the company.

Net income attributable to the shareholder after extraordinary gain for the third quarter was $80 million compared to $361 million for the third quarter in 2014. Net income attributable to the shareholder after extraordinary gain for the nine months ended Sept. 30 was $503 million, compared to $718 million for the comparable period in the prior year. This decrease is primarily reflected in the recognition of an extraordinary gain of $243 million in the third quarter of 2014 related to the 48 previously unregulated hydroelectric facilities prescribed for rate regulation beginning in July 2014.

OPG’s income before interest, income taxes and extraordinary items from the electricity generation business segments for the third quarters in 2015 and 2014 was $232 million and $220 million, respectively. This increase in income reflected higher earnings from the regulated-hydroelectric and contracted generation portfolio segments, partially offset by lower earnings from the regulated-nuclear generation segment. Earnings increased from the regulated-hydroelectric segment due to the new regulated prices effective November 2014.

Earnings from the electricity generation business segments were $927 million for the nine months ended Sept. 30, compared to $666 million for the comparable period in 2014. Total electricity generated during the three months ended Sept. 30 was 19.1 terawatt hours (TWh) compared to 21 TWh for the third quarter in 2014. The decrease was mainly due to lower nuclear production as a result of the VBO at Darlington GS, which required the shutdown of all four units for the duration of the outage, as well as decreased hydroelectric generation as a result of lower water flows in eastern Ontario. Total electricity generated during the nine months ended Sept. 30 was 61.2 TWh, compared to 61.3 TWh for the same period in 2014.

Income before interest, income taxes and extraordinary items increased by $64 million during the third quarter of 2015 and $157 million for the nine months ended Sept. 30, compared to the same periods in 2014. Besides the higher revenue from the stations of the Lower Mattagami River project, higher revenue from the Atikokan and Thunder Bay facilities contributed. The increase was partially offset by a higher depreciation expense, which was primarily due to the new assets placed in service as part of these projects. The higher income for the nine months was also partially offset with higher restructuring expenses in the second quarter of 2014 related to staffing requirement changes at Thunder Bay prior to its conversion to biomass.

In Rentech’s recent quarter three earnings, Keith Forman, company president and CEO, said its Atikokan, Ontario, pellet production facility has been meeting its contractual obligations, and the plant is ramping up on schedule. Electrical issues that were inhibiting production earlier in the year have been resolved via installation of a larger transformer. “Through early November, we’ve produced approximately 42,000 metric tons of pellets,” he said. “We have delivered under our contract 34,000 metric tons of pellets. The quality of our production remains good, the value of the pellets, supply to OPG, continues to be higher than the minimum requirements of the contract, which actually results in little bit higher revenue to us.”

Brent Boyko, senior manager of business development with OPG, shared at a recent Wood Pellet Association of Canada conference that OPG has been evaluating the use of biomass to repower existing assets since 2006, including full-scale testing at all sites, exchange with many utilities on best practices and evaluation of conversion technologies including second generation pellets.

In July 2014, conversion of the 205-MW Atikokan Generating Station from coal to wood pellets was finished, ahead of its original target completion date. OPG expects the project cost to be within the budget of $170 million. The converted station is subject to an energy supply agreement with the Independent Electricity System Operator, OPG reported.

Late last year, OPG also completed conversion of its 153-MW Thunder Bay Generating Station to advanced biomass pellets, and placed it into service in January, ahead of schedule and within the project’s $7 million budget. OPG and the IESO executed an energy supply agreement in June.