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Domtar mill deal signals opportunity for B.C. industrials

When the federal government unveiled new funding – the $1 billion Pulp and Paper Green Transformation Program  (GTP) – a year ago, a team at BC Hydro rolled up their sleeves and went to work.

“The GTP was really just a great catalyst for change,” says Lisa Coltart, BC Hydro Director of Power Smart. “We brought our teams together from Power Smart, customer care, and power acquisition and said let’s use this as a way to integrate our agreements and help our B.C. based companies really take advantage of these funds.”

What emerged was the Integrated Power Offer (IPO), an effort to capitalize on the synergies between energy efficiency measures and renewable power generation – and to make life simpler for industrial customers.

"Over time we have put a variety of programs before our customers with pricing signals for different energy products," says Richard Marchant, BC Hydro's Director of Power Acquisitions.  "These range from the electricity rate structure to calls for power to efficiency incentives to seasonal winter curtailment, that may be hard for the customer to interpret.

"What we wanted to do is integrate those so that we have a comprehensive offer for energy efficiency, clean and renewable generation and demand response projects and we work with customers to pursue those opportunities on a joint integrated basis.”

The Integrated Power Offer approach gives customers a single window to access and work with BC Hydro to optimize the available Power Smart technical support and financial incentives for energy efficiency improvements, consider demand response options and obtain electricity purchase agreements.  The IPO approach encourages industrial customers to commit to pursuing energy efficiency, and the security of long-term sale revenues from their generation projects provides them with an opportunity to go much further in their energy efficiency upgrades than they would be able to afford to otherwise.

Marchant and Coltart took the idea on the road last fall, meeting with pulp and paper producers across B.C. that were eligible to receive GTP funds. They found widespread interest. And earlier this month, the initiative was highlighted when Domtar announced a $57.6 million dollar investment in its Kamloops pulp mill, to be funded by  the Green Transformation Program, that the IPO supported and helped move ahead.

Positioning for the future in Kamloops

Domtar’s project in Kamloops is the latest step in a history of environmental stewardship. The work will increase the mill’s capacity to produce renewable energy, and will reduce its particulate emissions by acquiring new equipment and modify existing equipment to conserve electricity.

“In a pulp mill like ours, the recovery boiler is like the heart of the operation, like the motor of a car,” says Eric Ashby, General Manager of Domtar’s Kamloops mill. “It’s a big piece of the mill and very expensive. So we’ve found ways to modernize it, rebuild it, re-life it, and at the same time  improve its energy efficiency so we can save power.”

When work is complete, the recovery boiler will be the first of its kind in the world to be retrofitted with a dissolving tank vent gas heat recovery system. 

Saving power means saving costs, but the benefits don’t stop there. The new IPO also brings another great value to the mill. 

Along with the efficiency improvements, the boiler rebuild also increases the amount of renewable energy Domtar can generate, by burning black liquor and sawmill residuals. With the increase in energy and improved efficiencies afforded by the upgrade, and the integrated approach from BC Hydro, the mill is entering an agreement with BC Hydro to sell its excess power – a welcome development for both parties.

“We’re getting what we call clean and renewable, cost-effective, firm energy,’” says Marchant. “Firm energy means they’ve made a commitment to deliver that energy so the company [BC Hydro] can count on it. We think it’s a very significant step to turn to our customers for new power supply.”

The contract helps BC Hydro meet the needs of BC Hydro’s customers and maintain its commitment to self-sufficiency using clean and renewable sources of power production. For Domtar, it helps improve the sustainability of the mill. 

“The framework in the past was not there for us to [sell power] efficiently, so we were selling power more on an ad hoc basis,” says Ashby. “The new framework enables us to do it in a consistent manner and we know exactly what we’re going to get for the power. It’s more predictable for us, and it’s a lot easier to operate a mill that way.”

Ashby sees the steady stream of income as an important hedge against unpredictable pulp prices and currency swings typical in the industry, and a key to his company’s competitiveness.

“When you look at finance, it’s always about risk,” he says. “A contract like that gives reassurance. We can generate a business model with Kamloops that is sustainable in the long-term that takes into account different fluctuations of markets and everything that’s going on. How do we improve our competitiveness? I think that was a major building block.” .

Opening the door to other industrial customers

Although the Integrated Power Offer has been offered to the pulp and paper sector first, Coltart and Marchant say it’s an example of how BC Hydro hopes to develop its relationships with other industrial customers in the future, many of whom have self-generation facilities and potential for improved efficiency.

“The integrated power offer is not a program, it’s a new approach,” says Marchant. “We’re trying to treat customers on an integrated basis, as a customer and a supplier at the same time. We’re almost trying to take the meter out of the equation.”

“We’re very excited. We’ve identified 1,200 GWh/year of new generation and 200 GWh/year of energy efficiency from various pulp and paper operators, and we think we’ve opened the door to working interactively with our customers and viewing them as a major source of new energy. We’d like to expand this approach to all industrial customers, and if we’re successful here we could even carry on into the commercial and residential customers.”

Is BC Hydro interested in working with all industrial customers on an integrated basis? He answers “Absolutely!”

Coltart agrees to this expansion. “Industrial sites are usually in a community," she says. "So we’ll look for ways to leverage our work with community energy planning, district energy, and sustainable communities. It will be a challenge, since the IPO was very tailored to our eight pulp and paper customers, but we’ll look at the lessons learned and see what we can do to make this scalable.”

“We’ve got some pretty aggressive conservation targets, to meet at least 50% of our future growth through energy efficiency and conservation,” Coltart continues. “To do that, you can’t keep relating to the customers in the same way that you used to. You really have to embrace them in a different way.”