ALBERTA NABS CHEAP RENEWABLE POWER PRICE, FACES $10M SUBSIDY
Today’s column is about having fun with numbers.
And there were plenty of figures floating around Wednesday at Premier Rachel Notley’s announcement about Alberta’s renewable power contracts.
Three companies were selected to build new wind developments: two bidders from overseas and one — Capital Power — from Alberta.
Total investment for these wind farms is projected at around $1 billion. About 600 megawatts (MW) of renewable electricity will be added to the provincial grid.
Amid the avalanche of numbers, however, two figures really mattered: one the government was shouting from the rooftop at McDougall Centre; another it tried to avoid uttering the entire day.
The first figure is 3.7 cents per kilowatt-hour, the weighted average price of the winning bids in Alberta’s first-ever auction for renewable power contracts.
The second number is $10 million a year, the estimated annual cost of subsidies for these contracts.
As part of the province’s strategy to green the grid, the NDP wants renewable power to make up 30 per cent of all generation capacity by 2030.
At the same time, the Notley government is phasing out coalfired electricity as it strives to reduce Alberta’s greenhouse gas emissions.
The government ran a competitive auction to get bids for 400 MW of electricity, but decided to take more once it saw the great price it could nab. And it was a bargain. Notley pointed out some people thought Alberta’s price would exceed eight cents per kilowatt-hour.
After all, Ontario’s own renewable auction in 2016 saw an average price of 8.5 cents per kilowatt-hour, and her own government budgeted for something similar.
When the premier announced the average price was 3.7 cents, some of the crowd packed inside McDougall Centre gasped at the price.
(Some gasped, others clapped, such was the excitement.)
Not only is 3.7 cents lower than anyone predicted, but it’s pretty darn competitive with natural gas-fired generation.
“That’s remarkable … 3.7 cents for energy is pretty smoking hot,” said electricity consultant David Gray, former executive director of the Alberta Utilities Consumer Advocate.
“That’s the beauty of when you have a government-backed contract. People like sound and firm investments and will really cut the profit margins to get them.”
Duane Reid-Carlson, head of electricity consultancy EDC Associates, called the number a surprise.
“That is low. We’ve backward calculated some numbers, and you’ve got to have solid economics, a low cost of capital and some cheap, cheap turbine sources — about half of the price of what’s been installed in Alberta to date,” he said.
For those who want to see renewable energy expand significantly in the province, this was a moment of vindication, a seismic shift on how people should view the competitiveness of wind and solar as costs continue to come down and efficiency goes up.
“People mostly perceive renewables to be expensive,” said Binnu Jeyakumar of the Pembina Institute.
“Renewables actually can be a legitimate … economic source of electricity moving forward for us, and not just something that is in the fringes.”
But like any game involving statistics, you can have fun cherry-picking numbers to focus on — or ignore — such as how much the government will pay out in subsidies for these contracts.
Alberta is essentially offering a guaranteed price to developers through an indexed renewable energy credit.
If wholesale electricity prices fall below 3.7 cents per kilowatthour — as they are today — the province must make up the difference. If electricity prices rise above that mark, the operator will pay the province.
“There will be periods of time when the Alberta government will get money,” Capital Power CEO Brian Vaasjo said after the event. “We see at some time, you won’t need any subsidy … because the economics are there for wind farms to be developed on a strictly commercial basis.”
Not only does the contract structure entice developers to bid competitively, it allows them to obtain a lower cost of capital.
So how much will the government subsidies, coming out of carbon levy revenues, be for these 20-year contracts?
I asked four times about the size of any subsidies, but both Notley and Environment Minister Shannon Phillips skirted the question.
However, Michael Law of the Alberta Electric System Operator, which runs the provincial power grid, expects the province will provide “support payments” of about $10 million a year.
Some critics will be outraged any subsidy is being offered, but it’s a heck of a lot lower than initial AESO estimates, which were predicated upon Ontario’s 2016 experience.
At those levels, support payments would have hit $2.4 billion over 20 years; instead, they’ll come in at less than $230 million, AESO estimates.
The official Opposition points out other costs must be factored into the mix, such as the $1.4 billion in payments being made to existing coal facility owners, or the need to back up intermittent renewable power with readily available supply — such as from gas-fired plants — that can start up when the wind isn’t blowing.
For those who believe Alberta’s clean energy has real benefits — tackling climate change, health gains from not burning coal — this is a small price to pay as the renewable revolution picks up speed.
“This is an exceptional price and the fear of loading up Albertans with high-priced renewables … I think that goes away at these price levels,” said Blake Shaffer, a fellow-in-residence at the C.D. Howe Institute and former energy trader.
It would be short-sighted to focus on just one number in the middle of a bright, sunny day for Alberta’s renewable electricity sector.
But there are plenty of figures to selectively pick from as more wind power blows through the province, and more is on its way.