Slump to keep power prices low
Alberta spot power prices reached their lowest levels since 1997 in the first quarter of 2016 and are expected to remain at multi-year lows for the rest of the year and into 2017 due in part to the current economic slump, according to an investment bank report Friday.
Prices are expected to average $22.74 per megawatt this year, up from about $18.10 in the first quarter, according to analyst Martin King.
The price for the first three months of 2016 is 39 per cent less than his last forecast in December, 15 per cent less than the price in the last three months of 2015 and 38 per cent less than the average price in the first quarter of 2015.
Spot power prices peaked at an average of $80.19 per MW in 2013, then fell to $49.42 in 2014 and $33.34 in 2015, FirstEnergy noted. It forecasts $31.53 in 2017, $36.67 in 2018 and $36.81 in 2019.
“We have sharply lowered our absolute power price expectations going forward, but still expect power prices to rise as both the direct and indirect costs of a new carbon tax starting in 2017 add to power generation costs, and despite the expected persistence of a large generation capacity overhang to at least 2019,” King said.
He said the slump related to low commodity prices has resulted in the province being “grossly oversupplied” with power, more than enough through 2020 despite the scheduled retirement of four coal plants producing about 870 MW by the end of 2019.
The Alberta government is raising its tax on carbon emissions from $15 to $20 per tonne this year and to $30 in 2018. The government’s climate change policy requires all coal-fired power plants to be emissions free by 2030 or shut down.
But on Thursday, Robin Campbell, president of the Coal Association of Canada, said he believes coal-fired power plants will start shutting down in 2018 as owners try to avoid the higher levies. He also said power prices could triple — an assertion flatly rejected by Premier Rachel Notley.
Enmax, TransCanada, AltaGas and Capital Power have all recently terminated power purchase ar- rangements (PPAs) with coal-fired power plants and returned them to the Alberta Balancing Pool, a government-created entity. The pool can operate the PPAs, resell them or return them to the power plant owners.
King said there is a risk that a power plant whose output is no longer supported by a PPA may become unprofitable due to lower electricity prices. If no longer needed in an oversupplied market, it might well be retired sooner than the 2030 timeline.
“With this type of development in such a low pricing environment, we expect that more PPAs could be terminated prior to the end of con- tract terms,” he said. “Such actions might suggest that more power players are expecting prices to remain low for the foreseeable future, and likely lower than what the forward curve appears to be pricing.”
Electricity consultant David Gray said he doesn’t think any plants will close before they have to because the owners are guaranteed a return regardless of who owns the PPA. He conceded the Balancing Pool could close them in theory, but that’s unlikely.
He added volatility in power prices will only be solved if the Alberta industry is at least partly re-regulated to ensure power plant builders have price certainty.
A spokesman for Edmontonbased generator Capital Power Corp. said Thursday it intends to continue operating its coal fleet until 2030 but a spokeswoman for TransAlta Corp. was more circumspect on Friday. The company and other generators are to meet with recently appointed negotiator Terry Boston on compensation for the retirement of 18 coal plants by 2030.
“We are looking forward to our negotiations with Mr. Boston and we’ll have more to say after that,” said TransAlta’s Amber Goulard.
On Tuesday, Maxim Power Corp. announced the temporary shutdown of its 44-year-old H.R. Milner coal-fired plant at Grande Cache in northwestern Alberta because it is losing money at current spot prices.
In his report, King noted gasfired power rose 17 per cent in the first quarter of 2016 versus the same period of 2015, perhaps due to 20-year-low Alberta natural gas prices. Coal generation fell seven per cent and wind power rose about eight per cent.
We have sharply lowered our absolute power price expectations going forward.