Proponents call UCP switch on electricity a win for renewables
CALGARY The UCP government’s decision to scrap plans to overhaul the province’s electricity system could boost renewable energy investment in Alberta, proponents say.
But critics warn that as power consumption increases and the phase-out of coal continues, sticking with the status quo for the province’s power market could result in price spikes and even rolling blackouts down the road.
On Wednesday, Alberta Energy Minister Sonya Savage announced the province will stick with its current energy-only electricity market system, after a 90-day consultation period that found industry “overwhelmingly” supports the model over the capacity market proposed by the previous NDP government.
Savage said the energy-only system — in which companies that generate power are paid based on fluctuating wholesale prices — has been in place in Alberta for more than 20 years and is well understood by investors.
“Albertans and investors need stability and they need certainty in their electricity market system,” Savage said. “Not an experiment, and that’s exactly what the NDP capacity market system is in its early years.”
The Alberta Electric System Operator, the arm’s-length body that oversees Alberta’s electricity system, recommended in 2016 that the province transition to a capacity market as a way to ensure a secure, stable supply of electricity in years to come. A capacity market — through which power companies receive contracts in advance and guarantee a certain amount of reliable electricity supply in the future — also was meant to encourage competition, drive innovation, and improve power price stability. After the NDP government gave the go-ahead to the switch, AESO spent two years designing the model for the new market and had filed an application with the Alberta Utilities Commission to approve the new rules. A decision was expected by the end of the month.
However, Alberta’s electricity generators never embraced the proposed changes, as evidenced by the reaction to Savage’s announcement this week. In a statement, Enmax commended the UCP for its decision while Transalta thanked the government for reducing “significant uncertainty.”
“This market design has served our province well and we believe continuing in this direction is the right decision for Albertans,” said Gianna Manes, president and CEO of Enmax.
“The structure provides stability and ensures a competitive framework to be able to assess investment opportunities in Alberta. Transalta is now in a position to make key investment decisions as it transitions to gas and continues to provide affordable and clean power for Alberta consumers for decades to come,” Transalta said in a news release.
The renewables sector also praised the government’s decision to stick with the energy-only system. Evan Wilson, regional director with the Canadian Wind Energy Association, said a capacity market would have reduced investment in renewable power by rewarding traditional power plants instead.
“Renewable generators generate electricity when the wind is blowing or the sun is shining. What the capacity market does is require facilities to commit to being operational at the time the system requires it,” Wilson said. “We did an analysis that suggested a switch to the capacity market could result in three per cent to up to 30 per cent lower revenues for wind, depending on which wind farm you’re talking about.”
“The capacity market, designed as it was being proposed, definitely would have hindered (renewables development),” said Binnu Jeyakumar, electricity program director for environmental think-tank the Pembina Institute. “It does not recognize the type of services they provide and the way that renewables operate. It defaults to the operation of a natural gas plant, essentially.”
Savage said Wednesday a capacity market would mean higher electricity bills for residential consumers who would need to pay for the extra capacity whether it gets used or not.
But David Gray, an Edmonton-based electricity economist and former head of the Alberta Utilities Consumer Advocate, said sticking with the energy-only system benefits the incumbents in the electricity market and discourages the kind of innovation and competition that could lower prices in the long run.
“With no long-term deals in our electricity market, you need to have companies that can build power plants off their balance sheet, which really limits the amount of competition that there is in the Alberta electricity market, and I think ultimately that hurts consumers,” Gray said.
He added that relying on shortterm price signals to make longterm capital decisions about future power needs is problematic, and pointed to the rolling blackouts witnessed in Alberta in 2012 and 2013 as an example of what can happen when demand exceeds supply.
“That was a big driver for the AESO, I think, in the first place to promote a capacity market as beneficial,” Gray said. “I think at some point soon, we’re going to see price spikes like we saw in 2012 and that gets to the point where it starts to hurt people, especially commercial consumers.”
Evan Bahry, executive director of industry group the Independent Power Producers Society of Alberta (IPPSA) said he isn’t overly concerned about price volatility for consumers under the energy-market system. He said the price of natural gas — which produces the bulk of Alberta’s electricity — has remained steady for years and consumers have about 30 power retailers offering a vast array of contracts, so users can shop around for the best deal.
“There’s a very robust competitive retail contracting industry ... (so) it takes a lot to be exposed to price volatility,” he said.
“For the large industrial consumers, they also have the choice of adding their own supply. That’s what open-market does — it gives choice. So they can produce their own power, everything from onsite solar to large-scale cogeneration.”
The Alberta Electric System Operator issued only a brief statement Thursday, saying it is well-positioned to support the government in successfully implementing its policy decision on the province’s electricity market.
With no long-term deals in our electricity market, you need to have companies that can build power plants off their balance sheet.