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Environmentally Preferred Power refers to small, independently developed and operated power generation facilities that operate with a relatively low impact on the environment.

The goal of the program is to encourage development of power projects that either use waste streams as a fuel source or generate power with no new emissions. These projects are preferred over generating power using coal and new natural gas generation, because they produce no new net emissions. They are also preferred over large hydroelectric projects because of their limited impact on the land and local residents.

SaskPower will buy the power generated by the power producers themselves who, in turn, will make the necessary capital investments to develop their projects. The total financial commitment by SaskPower will depend on how many projects are ultimately selected, the technologies involved, the amount of power generated by selected projects and the bid prices for the power.

SaskPower will pay the bid prices of successful projects and will negotiate a unique contract, called a Power Purchase Agreement, with each successful bidder. Final cost figures will not be available until later in the process, although for competitive business reasons these contracts will remain confidential.

The Environmentally Preferred Power program is an integral part of SaskPower's Green Power Portfolio strategy, which is designed to look at new ways to meet increasing energy demands – through conservation and alternative energy sources – that do not increase greenhouse gas emissions. To encourage and evaluate new technologies, SaskPower is ready to pay more for credible and innovative projects that showcase emerging, environmentally progressive, generation technologies.

Although natural gas projects are currently more environmentally progressive than coal, they still emit pollutants to the environment.

The goal of the program is to use waste streams for fuel and to generate power with no new emissions. This means that natural gas projects that use waste gas, such as flare gas, would be eligible. Projects that consume additional gas from the marketplace, such as a conventional cogeneration project, are not eligible.

As an integral component of the power purchase transaction, SaskPower will retain ownership of any emissions reductions arising from the displacement of thermal generation by electricity delivered from the Environmentally Preferred Power program. The proponent will retain ownership of any site-specific emission reductions.

To be eligible, projects must be located within SaskPower's service territory and the entire output must be sold to SaskPower. Projects located within the cities of Saskatoon and Swift Current are also eligible, although proponents will have to make their own arrangements with the city to connect to the electric system.

SaskPower is hopeful that it will reach its goal 45 MW. The actual number of projects that will be selected will depend on the size of projects submitted by the proponents and their associated prices.

SaskPower issued a general invitation to submit an expression of interest in Environmentally Preferred Power Projects in September 2003. At that time, the invitation was mailed to a list of potentially interested parties and was extensively advertised in the Saskatchewan media. The responses to that invitation were screened to ensure that the proposed projects met the eligibility criteria for the program. A total of 52 projects from 32 proponents met those requirements. A formal Request for Proposals (RFP) was then issued to those proponents and SaskPower selected three EPP projects from the proposals that were submitted.

SaskPower is following a similar process for the second phase solicitation.

Negotiations are currently underway with the goal of reaching Power Purchase Agreements (PPA) with the proponents of the first three project proposals selected. If PPAs are signed, the projects could be producing power in 2006.

There are several important reasons why we can't accept all of the projects offered each year.

First, we simply don't need the additional generation. The EPP program was developed to be part of a comprehensive plan to meet the challenge SaskPower set for itself of meeting all of its new energy needs over the next 10 years through environmentally preferred power generation. The total of 45 megawatts (MW) of power to be contracted for over the next 3 years will go a long way to meeting our additional load growth needs. These projects will add to our generation mix but won't replace components in our core generation fleet.

Second, this is a learning experience. To put it simply, this technology is new and more expensive than our existing coal, gas and hydro powered facilities. SaskPower is willing to pay a premium for this power in order to study the technologies currently available and coming in the near future. We feel the current program with 45MW of environmentally preferred power is a good balance between a slight additional cost to our customers and the knowledge we will gain about generation options for the future.

The cost of electricity generated by EPP projects is expected to be higher than the cost of electricity generated by coal or other traditional forms of generation that SaskPower already relies upon. SaskPower is ready to pay more for credible and innovative projects through the EPP program, because this program is helping to showcase emerging, environmentally progressive, generation technologies.

SaskPower will pay the bid prices of successful projects and will negotiate a unique contract, called a Power Purchase Agreement, with each successful bidder. Final cost figures will not be available until later in the process, although for competitive business reasons these contracts will remain confidential.

While SaskPower will pay a premium for EPP projects, due to competitive reasons during the bidding process, that premium cannot and will not be publicly disclosed.

In setting the premium, the biggest challenge SaskPower faced is that right now, there is no simple formula to determine the value of the emissions that would be avoided by using power from EPP projects.

SaskPower is constantly working to strike a balance between two competing interests. On the one hand, the desire of our customers for a safe, reliable and affordable source of electricity; at the same time, we have a corporate commitment to act as responsible environmental stewards.

But with customers and governments increasing more interested in cleaner generation, SaskPower believes any steps we can take to encourage and integrate cleaner generation options into our generation mix are important, and worth the investment.

During the first solicitation, SaskPower received clear feedback from proponents that the 5 MW criteria was too small for several reasons. For some biomass and heat recovery projects, the 5 MW limitation was too small to effectively match the needs of the host facility. For wind power projects, there were tax advantages that were more readily available with larger project configurations. As well, several proponents advised that unit energy prices would probably be lower with larger projects due to the effects of economies to scale.

The final size limit of 25 MW was ultimately selected because it was a suitable size for those developers that expressed an interest in larger facilities and it still left room for smaller projects with the 32 MW target.

SaskPower selected a total of 13 MW of EPP projects during its first solicitation. 32 MW is being solicited in the second round to facilitate the new project size limitation of 25 MW and to fully subscribe the 45 MW of new generation targeted under the EPP Program.

Also, some wind power proponents favored a single solicitation this year due to their concerns with possibly not meeting the current eligibility requirements for the Federal Wind Power Production Incentive (WPPI) for the previously planned 2005 solicitation.

SaskPower received a total of 12 proposals during the first solicitation representing over 34 MW of electrical generation. This was well in excess of the 15 MW that was solicited. With this response to the first solicitation, and considering the changes that were made to the EPP program that were made to expand the eligibility requirements, SaskPower is confident that there will be sufficient suitable proposals submitted in the second solicitation.