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

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 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 Learned Development 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 Learned Development 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 Learned Development 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)

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