/Far from the spotlight, small-town Alberta suffers in upheaval sweeping energy sector

Far from the spotlight, small-town Alberta suffers in upheaval sweeping energy sector

Chris Warwick is the mayor of Hanna, Alta. The town has hit on hard times as provincial climate policies have left the future of its main employer, a coal-fired power plant, in doubt.

Mike Drew/Postmedia News

Geriatric orphan wells, boomtowns going bust and the fate of coal-mining towns in the age of renewables. In a four-part series, FP visits Alberta’s forgotten communities to see how rural Alberta is struggling with changes in the broader economy.

HANNA, ALTA. – Chris Warwick, Hanna’s Mayor and owner of the local Home Hardware franchise, was working at the store in November 2015 when he was blindsided by a call from a reporter informing him of the province’s climate-change plan.

The plan included a carbon tax that would make operating the town’s major employer, the Sheerness coal-fired power plant, more expensive in the short term and accelerate the phasing out of coal.

Residents in this east-central Alberta town of 2,500 feared they would lose as much as 10 per cent of their jobs if the plant, and the adjacent mine 30 minutes away, was forced to either shut down or be retrofitted to run emissions-free by 2030 as the previous NDP government’s climate-change plan demanded.

Since that call, Warwick said he’s been through the five stages of grief identified by psychiatrist Elisabeth Kübler-Ross: denial, anger, bargaining, depression and, finally, acceptance. Others are still working their way through the process.

“There was a lot of anger there in the beginning,” Warwick said. “There are still people who are in that anger stage.”

Multiple residents and business owners used the word “disappointing” to describe their reaction to the coal-power phase-out, but also expressed extreme frustration about how their companies have been hurt.

“It’s a joke,” said Lane Rees, who owns Big Country Construction & Building Supplies Ltd. “That one hurt. It’s basically a whole complete economic shutdown.”

But Hanna’s problems were only beginning when the NDP announced its plan in 2015. The province soon entered a brutal depression, from which it has only had a nearly imperceptible economic recovery.

Hanna, Alta., has a population of 2,500. Major regulatory changes to Alberta’s electricity sector have put towns dependent on coal, like Hanna, on high alert.

Mike Drew/Postmedia News

And then Westmoreland Coal Co., which runs the mine that feeds Sheerness with coal, entered bankruptcy protection in 2018. Housing prices collapsed to the point where detached three-bedroom homes — admittedly in need of repair — are being listed for as little as $20,000. People fled town.

“We just kept getting bad news after bad news after bad news,” Warwick said, adding that the three-year stretch between 2016 and 2018 was “devastating” for the town.

The challenges facing Hanna are daunting and encapsulate the economic pressures playing out across rural Alberta as the demand for lower-emissions energy has forced major structural changes in the energy and power markets, resulting in job losses and a sense of unease about how to prepare for the future while continuing to pay the bills.

Although the oilpatch’s woes affect Alberta’s large cities as well, they at least have more diversified economies to help reduce the pain and their populations are large enough that policymakers in Edmonton, though perhaps not Ottawa, can hear their anger.

In small towns such as Hanna, Warwick has found there are no easy solutions and few people are listening to their troubles.

For instance, in busier times, Big Country Construction employed as many as 13 people. Now, Rees said, there are just five employees including himself since very few people are spending any money on home construction projects.

“What’s happened lately is people are doing only what they have to in order to keep functioning,” he said. “No one is spending any money they absolutely don’t have to.”

But Hanna’s string of hard luck has shown signs of abating.

Westmoreland Coal emerged from bankruptcy in March. A few months later, Atco Ltd. sold its 75-per-cent stake in Sheerness and other coal-fired power plants such as nearby Battle River to a new company called Heartland Generation Ltd., which is backed by private-equity fund Energy Capital Partners LLC.

The New Jersey-based fund has invested $14.2 billion in North American energy infrastructure companies during its 14 years in business, and its investment in forming Heartland Generation includes the purchase of Atco’s coal-fired power plants as well as the capital required to convert those plants from coal to natural gas.

By the end of the first quarter next year, those bright yellow pipes will allow Sheerness to run the first of its two generating units on natural gas sourced from TC Energy Corp.’s nearby gas transmission pipeline, thereby cutting the facility’s total emissions roughly in half.

The plant’s other unit will go through an identical conversion by the end of the first quarter of 2021, allowing the plant to run entirely on gas.“From my perspective, the skies are way clearer now,” Warwick said, though he noted the power plant retrofit “doesn’t solve all of our problems.”

The yellow pipes will help extend the life of the 480-megawatt power plant and mitigate job losses for roughly a decade, but they are not a panacea and the town must prepare for a future without coal.

Hanna offers a clear example of how climate-change policies can impact a community in unexpected ways.

For example, in the immediate aftermath of Alberta’s accelerated coal phase-out, real-estate prices in Hanna, home to most of the 200 workers at the Sheerness power plant and coal mine, collapsed.

The town has been forced to reassess the value of houses within its boundaries, dramatically reducing values and its tax base. But downward reassessments have not kept pace with the rate of decline in housing prices. Data from the town show that only one in 20 homes is selling above assessed value.

A livable house here costs less than a Tesla. A fixer-upper can cost less than a used car. In early December, there were six houses for sale for less than $70,000, including a five-bedroom, three-bathroom, 1,300-square-foot split-level with a detached garage.

The average price of houses on the market in Hanna is $166,215, which is just 44 per cent of the provincial average, according to Alberta Real Estate Association data.

In Hanna, Alta., the value of real estate has sharply declined along with the future of its coal-fired power plant.

Mike Drew/Postmedia News

“When you can buy a truck or a house for the same price, it’s pretty sad,” said Tracey Grantham, owner of Big Sky Real Estate Ltd. in Hanna.

She said there are fewer and fewer houses being listed, because people see “there’s no value in their home so they’re not selling it.” Many residents, she added, are still paying their mortgages even though they are losing equity seemingly by the day.

The amount of work has declined so dramatically that Grantham said she has been in talks about closing her brokerage’s office and working remotely rather than continuing to pay rent on Main Street.

Mayors in other towns where coal-fired power is the main or a major industry — such as Estevan, Sask. — have been closely watching Hanna’s decline, and calling Warwick to understand how the town has handled its downturn and the future of its power plant, which also supplies all of Hanna and the surrounding region’s water.

Coal-fired electricity from power plants in towns such as Hanna, Forestburg and Wabamun accounts for 36 per cent of Alberta’s electricity supply, according to data from the Alberta Electric System Operator.

The AESO projects that proportion will fall to just eight per cent by 2024, as coal-to-gas conversions are completed, and then fall to zero in 2030. Natural gas and wind power will ramp up over the same period to offset the loss of coal-fired power.

One moonshot idea Warwick and his fellow councillors came up with was to build a massive solar power farm on reclaimed coal mining land near Sheerness.

Warwick said the town had partners in Atco and Greengate Power Corp. and looked for provincial funding, given how the town had been affected by the coal phase-out timelines. They pitched the idea to then-economic development minister Deron Bilous as a symbolic show of Alberta’s transition to renewable energy.

Hanna was a perfect location for a solar farm, according to information from independent studies. For example, a June 2018 report by Albany, N.Y.-based AWS Truepower LLC for the Alberta Electric System Operator said Hanna had the largest potential solar power production in a scenario where fewer new transmission lines are built in the province.

If every potential location identified in Hanna were developed for solar power generation, the study showed the area could produce 501.79 gigawatts of electricity — enough to power Alberta 30 times over — at peak production.

Unfortunately, after many months of back and forth with the province, Warwick said the government declined to pursue the development. Bilous did not respond to a request for comment.

A pile of coal to supply the Sheerness power plant in Hanna, Alta.

Mike Drew/Postmedia News

Warwick is still hopeful that solar power installations will be built in the area, but the town has turned to a plan called the “13 Ways” to deal with its declining tax base and population.

One of the ways is to attract more retirees looking to free up more of their money by cashing in on their homes in cities such as Calgary and Edmonton, which are two and three hours away, respectively. The town is also trying to attract people who can work remotely by luring them with the low cost of living. And it’s hiring lead generators to try to bring other businesses to town.

Cannabis companies have visited to discuss the potential for grow-ops  and renewable power companies and other “doorknockers” have shown interest, Warwick said, but he added that most “weren’t far enough along” to invest in a project.

There have been some other investments in the town in recent years including one by Calgary-based Cervus Equipment Corp., which recently built a new farm equipment rental facility to supply the area’s agriculture sector.

Ideally, residents would like to see more diversity of industries in a town that relies almost entirely on agriculture and power.

In addition to solar power generation, the AWS study identified Hanna as having a high potential for wind power, but — like most other sectors in the province — the main driver for electricity demand is the growth of the industrial sector and, more specifically, its oil and gas industry, which has been suffering.

A business for sale in Hanna, Alta., where real estate prices in many cases have fallen below the assessed values.

Mike drew/Postmedia News

“We need industrial growth,” said Rob Dutton, chief executive of Heartland Generation, which he said launched earlier this year because of the availability of assets to purchase in Alberta, the stabilizing energy and climate policy and the opportunity to invest.

He declined to say how much the company was investing in the coal-to-gas conversions at the Sheerness and Battle River power plants, but said the payback period is very short given the province’s $30-per-tonne carbon tax.

Although Premier Jason Kenney’s United Conservative Party, which swept the NDP from power this spring, revamped the carbon tax system and tweaked some of the stringency requirements, it kept the price for large emitters such as coal-fired power plants at $30 per tonne.

“On compliance costs alone, these projects will pay for themselves in a year to two years,” Dutton said, noting that his company will pay significantly less in carbon tax once it switches to burning natural gas. Heartland has signed a contract for natural gas supplies beginning in 2022.

The downside of Sheerness converting to gas from coal is that the current staff contingent of 100 people will be reduced to between 60 and 70, something Dutton said the company is looking to manage through attrition.

The adjacent coal mine, which also employs 100 people, has a contract in place to supply the power plant until 2026, when a few years of reclamation work is expected to begin. Westmoreland Coal did not respond to a request for comment, but many of Hanna’s residents believe jobs at the mine will be lost once the land is remediated.

The Sheerness power plant is phasing in a conversion from coal to natural gas, a bit of good news for Hanna, Alta., residents who haven’t had much to celebrate in the last few years.

Mike Drew/Postmedia News

As a result, Hanna, which had feared losing more than 200 jobs a few years ago, is still faced with the loss of approximately 130 jobs, or five per cent of its working population and a much larger proportion of the town’s volunteer fire department, in the longer term.

Warwick is one who is sticking around, although he said it’s a challenge to hold his hardware store’s revenues steady from year to year in a town that is slowly shrinking.

He is hopeful the town’s population decline can be slowed through the 13 Ways plan, but acknowledges it’s faced some controversy.

Some Hanna residents aren’t keen on marketing their hometown as a bargain shop or low-cost destination. Some fret that real-estate prices will bring in low-income residents rather than entrepreneurs looking to take advantage of low costs.

Warwick said he’s prepared to face the controversy and understands why people are angry. He’s been angry, too, but at least now he sees a bit of hope.

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