Sarnia-Lambton Case Studies – Sustainability & Eco-Efficiency

Sarnia-Lambton Case Studies – Sustainability & Eco-Efficiency Sarnia-Lambton Economic Partnership March, 2009

Contents • Sustainability and Eco-Efficiency • Kalundborg, Denmark • 1997 Environment Canada Case Study • SLEP Facilitated Case Studies • LGS-Westroc Synthetic Gypsum Opportunity • TransAlta Sarnia Regional Cogen Project • Lessons Learned

Sustainable Development “Development that meets the needs of the present without compromising the ability of future generations to meet their own needs” “Our Common Future” – Final Report Brundtland Commission, 1987 • Recommended that international governments should meet to look at how to best reduce the effects of human activities on the environment for future generations • Led to First Earth Summit in Rio, Brazil - 1992

Sustainable Development • Late 1980s / Early 1990s – concept gaining acceptance in the main stream • October 1990 – International Institute for Sustainable Development – practical examples • Personal Realization – “Hey, Sarnia-Lambton was doing this before we knew what it was.”

Eco-Efficiency • Endorsed at First Earth Summit “the concept of creating more goods and services while using fewer resources and creating less waste and pollution” • Promoted as a concept of sustainability

Town of Kalundborg, Denmark • Classic example of eco-industrial development and industrial symbiosis • Energy and waste exchanges amongst various industrial enterprises • Evolved over a period of 25 years • All resource exchanges were developed with profit maximization as the main goal

Town of Kalundborg, Denmark • Industrial enterprises • Asnaes Coal-fired power plant • Statoil Oil refinery • Novo Nordisk Novozymes pharmaceutical plant • Gyproc Nordic East wallboard manufacturer • Municipal utility

Town of Kalundborg, Denmark • Energy and waste exchanges • All exchanges originate at the Cogeneration Coal Fired Power Plant • Heat is exported to houses in the municipality through district heating system • Steam to pharmaceutical plant and oil refinery • Synthetic gypsum to wallboard manufacturer • Flyash used for road building and cement production

Environment Canada Case Study “Opportunities for Industrial Ecological Parks in Canada, Case Study: Sarnia-Lambton Industrial Complex” • Seven case studies of industrial partnerships for reduction and recycling of process residuals • Two of Note • LGS-Westroc Synthetic Gypsum Arrangement • Energy Joint Venture – Bayer, Dow, and NOVA

Energy Joint Venture • Early 1990s – Ontario Hydro – 3 consecutive years of double digit rate increases – affecting competitiveness of local petrochemical and refining complex • SLEP facilitated meeting of large industrial companies to discuss issue • Result was ongoing negotiations between companies and Ontario government • Spring 1994 – Formal announcement of the Joint Venture • Became operational in 1995

Energy Joint Venture – Key Features • Electricity was generated by gas-fired turbines at the Dow Site and by steam turbines at Bayer • Steam was used internally by Bayer and Dow and was supplied to the NOVA styrene plant • In service generation capacity - 120 MW at Dow and 30 MW at Bayer • Electricity not utilized by Bayer or Dow was sold to Ontario Hydro at a negotiated rate for transmission and was repurchased by NOVA at its Sarnia styrene plant and three manufacturing sites in St. Clair Township

Energy Joint Venture – Case Study Conclusion “In a more competitive electricity market, there could be opportunities for a larger cogeneration facility in the contexts of an eco-industrial park” • This recommendation was the catalyst for the Economic Partnership to explore a large scale regional cogeneration facility

LGS-Westroc Gypsum Opportunity December 1985 • Ontario’s Countdown Acid Rain Regulations • Ontario Hydro directed to reduce sulphur dioxide emissions by 60% from its 1981 rate of 490,000 metric tonnes by 1994 • Four proven technologies for scrubbing emissions – all processes produce a gypsum cake / slurry that would have to be land filled • Generic name for process – Flue Gas Desulphurization (FGD)

LGS-Westroc Gypsum Opportunity Fall 1987 / Spring 1988 • Ontario Hydro begins planning of project • Gypsum byproduct management options – Dedicated land fill or Utilization as a raw material for building materials (cement, wallboard) • Environmental Interest Groups – lobbying to ensure gypsum is utilized as a raw material • Sarnia-Lambton Community - lobbying to have FGD system installed at Lambton Generating Station • SLEP – began to investigate potential manufacturers that could utilize the gypsum – Could we attract a new industry to Sarnia-Lambton?

LGS-Westroc Gypsum Opportunity Spring and Summer 1989 • SLEP – Receiving requests from GTA realtor looking for large parcels of land in close proximity to LGS • Advised client was Mississauga based Westroc Industries • Westroc analyzing various options and business case for utilization of the synthetic gypsum • SLEP working with Westroc staff to facilitate a greenfield plant in St. Clair Township

LGS-Westroc Gypsum Opportunity September 1989 • Ontario Ministry of Environment grants approval for installation of FGD facilities subject to 12 conditions • Most important condition – “The scrubbing process must be designed and operated to produce commercially quality byproducts, such as cement or wallboard gypsum, instead of a waste which will have to be placed into a landfill site. Ontario Hydro must take steps to sell these products including the documentation of status negotiations with interested cement and wallboard companies”

LGS-Westroc Gypsum Opportunity October 1989 • Ontario Hydro Board – Approval for first pair of FGD facilities at LGS – To be in operation by 1994 at a cost of $450 million • Westroc Analysis – If one pair of scrubbers are installed at LGS, the quantity of gypsum does not justify building a greenfield plant in St. Clair Township • Westroc’s initial proposal to Ontario Hydro – Gypsum will be shipped to existing Mississauga wallboard plant • Decision on Lambton plant will not be made until Ontario Hydro decides on scrubber installation on the remaining units – timing 1992

LGS-Westroc Gypsum Opportunity 1991 and 1992 • Ontario Hydro facing financial crisis • Uncertainty as to provincial energy policy • Corporate reorganization underway • The decision on installation of LGS scrubbers is delayed

LGS-Westroc Gypsum Opportunity June 1993 • Ontario Hydro Board Decision – No scrubbers on remaining LGS units September 1993 • Westroc signs 15 year contract to purchase 200,000 tonnes of gypsum per year from LGS • Decision is made to expand Mississauga plant

Sarnia Regional Cogen Facility June 1997 • Environment Canada Case Study – Catalyst for concept • Ontario Petrochemical Task Force – electricity costs are not competitive with competing jurisdictions in Alberta and U.S. Gulf Coast • SLEP begins to explore opportunity • Could we create a unique Sarnia-Lambton Energy Advantage? – low cost power as an investment attraction tool

Sarnia Regional Cogen Facility Summer 1997 • Initial consultations with local industrial companies • Imperial Oil Manager of Utilities – energy park concept had some merit • Contact information for TransAlta business development personnel is provided November 1997 • Ontario Ministry of Energy releases “White Paper” • Parameters identified for full competition in the Ontario electricity market by 2000 • Encouragement of private sector generation projects where they made economic sense

Sarnia Regional Cogen Facility December 1997 • Meeting with TransAlta and Sarnia Hydro (now Bluewater Power) • TransAlta personnel – Very knowledgeable of the overall steam and electricity requirements of the major industrials • A Sarnia regional cogen facility was feasible given direction of provincial energy policy • SLEP to organize January 1998 meeting inviting all major power users to discuss potential for project

Sarnia Regional Cogen Facility Meeting - January 23, 1998 • Well attended – over 30 attendees – all major industries at the table • SLEP Objective – Can we create a unique energy advantage for industry retention and expansion? • TransAlta presentation – outlined operating parameters of a potential facility • Projected economics with electricity and steam production capabilities generated considerable interest • Catalyst for major industrials to organize as a group and investigate the concept

Sarnia Regional Cogen Facility Meeting - January 1998 • Given neutral role, SLEP was asked to become secretary/administrator of the group • Participant Companies - • Bayer (now LANXESS) • Dow • Imperial Oil • Montell (became Basell) • NOVA • Sarnia Hydro (now Bluewater Power) • Shell • Suncor

Sarnia Regional Cogen Facility February 1998 • Request for Proposal created and issued to 6 North American power development companies • Key Information Requested - • Cogen development and operating experience • Financial capacity • Experience and strategy in influencing deregulated electricity markets • Plant’s technical configuration • Project financing plan • Electricity and steam pricing proposal

Sarnia Regional Cogen Facility February and March 1998 • SLEP liaison role between 6 developers and industry participants • Ongoing meetings of project team • SLEP meetings with developers • During process, two developers combined efforts to submit one proposal and one developer decided not to submit proposal

Sarnia Regional Cogen Facility April, May 1998 • 4 Proposals received • Presentations from developers • Evaluation of proposals • By late May, TransAlta was selected as developer • Formal announcement of TransAlta’s selection creating national media attraction – First large scale project announced in the evolving Ontario electricity market

TransAlta – Original Plans and Schedule • Construction to begin April 1999 • Plant to be located on former Owens-Corning Fiberglas site (now VIP Industrial Park • Plant would begin operations by Spring 2001 • Operating Parameters – • 523 MW of electricity • 1.6 million pounds of steam per hour • Capital Cost - $405 million • Electricity and steam to be sold to 7 industrial clients; Sarnia Hydro also a customer • Provide lower cost power to new industries

The Reality • Project negotiations began in June 1998 and formal decision to proceed announced in September 2000 • TransAlta purchased the assets of the Energy Joint Venture and located on Dow Sarnia Site • Construction began in January 2001 • Plant became operational in March 2003 • Electricity sold to Lanxess, Dow and NOVA • Steam sold to Lanxess, Dow, NOVA and Suncor • No sales to Bluewater Power

What Happened • Ongoing commercial negotiations affected by different corporate cultures • Preferential transmission rate not granted to TransAlta – St. Clair Township sites could not be supplied • Delays and uncertainty determining various market rules • Market rules that came into effect were not conducive to a truly competitive electricity market • Indecisiveness of provincial energy policy (i.e. Ongoing delays in opening market to competition) • Inherent bureaucratic nature of provincial institutions – No sense of urgency as related to business development • Politics dictating policy

Lessons LearnedDevelopment of Sustainability Initiatives • Dependent on Government Policy • Ontario’s Countdown Acid Rain Regulations • Byproduct must be utilized for commercial purposes • Transition to a competitive electricity market • Profit motivation private sector investment • Westroc saw a business development opportunity • To improve competiveness of Sarnia-Lambton Industrial Complex, the need to lower power costs • TransAlta – business development opportunity • Both projects were incorporated into existing industrial infrastructure with some modifications

Lessons LearnedDevelopment of Sustainability Initiatives • Long time perspective in project development • LGS-Westroc – 4.5 years • TransAlta – 5 years in development • Government policy and regulatory decisions do not happen quickly and WILL be delayed • Ontario Hydro – 4 years for decision on installation of second FGD facilities at Lambton Generating Station • Ontario Government – 2 year delay in opening electricity market to competition

Lessons LearnedDevelopment of Sustainability Initiatives • Inherent bureaucratic nature of long standing institutions can create delays and barriers • No sense of urgency in addressing business development priorities and issues • Support the status quo and resistant to change • It’s easier to think outside of the box when you have minimal knowledge of complex issues • You can’t always get what you want (with apologies to the Rolling Stones)

Sarnia-Lambton Economic Partnership www.sarnialambton.on.ca 519.332.1820 265 Front Street North, Suite 107 Sarnia ON Canada N7T 7X1

Sarnia-Lambton Case Studies – Sustainability & Eco-Efficiency