UPDATE 2-Saskatchewan plans C$1.4 bln carbon capture project

(Adds details and comment.)

By Scott Haggett

CALGARY, Alberta Feb 27 (Reuters) - Saskatchewan will launch a C$1.4 billion refit of a coal-fired power plant to add carbon-capture equipment, the government of the Canadian province said on Wednesday after the federal government committed C$240 million to the project in its latest budget.

Ken Cheveldayoff, Saskatchewan's minister of Crown corporations, said construction is expected to be complete in 2015. "Planning on this will begin immediately and we'll look at construction in 2011," he said.

The project at the Boundary Dam power plant, operated by provincial government-owned utility SaskPower, is expected to cut 1 megatonne of carbon dioxide emissions annually, 7 percent of SaskPower's yearly emissions of the gas.

The Boundary Dam project is the largest carbon capture project in Canada. Canadian governments are looking to carbon capture and sequestration -- burying the gas in underground reservoirs -- as a way to meet emissions targets and have a minimal impact on economic growth.

Saskatchewan last year walked away from building a massive new coal-fired power plant that would have included technology to capture carbon-dioxide emissions after balking at the C$3.8 billion cost.

That failed effort resulted in the decision to go ahead with the Boundary Dam project, said Pat Youzwa, SaskPower's chief executive.

"When we came to the conclusion that we wouldn't proceed with the greenfield plant ... we regrouped and looked at alternate strategies," Youzwa said. "It was evident we needed to look at a smaller-scale plant to bring the capital cost down."

The cost of retooling the plant with post-combustion capture technology is expected to be C$1 billion, with the remainder of the cost earmarked for pipelines and infrastructure to deliver the carbon dioxide to nearby oil fields, where it will be pumped into the ground to boost production.

Clare Demerse, a climate change policy analyst at the Pembina Institute, said carbon capture technology is a viable method of cutting emissions, but the Saskatchewan government could have chosen to invest in greater production of renewable power instead.

"To us, rebuilding a coal plant with carbon capture and storage...is better than just rebuilding it," Demerse said. "But they should go with renewables and energy efficiency first."

The project will cut output at the Boundary Dam plant to 100 megawatts when complete from the current 130 megawatts.

($1=$0.98 Canadian) (Reporting by Scott Haggett; Editing by Peter Galloway)