Power prices in province to edge closer to average
The pledges from politicians for consumers saving on their electricity bills under industry deregulation stopped long ago — wholesale prices in Alberta hit a five-year high in 2013 — but a new report predicts prices will move closer to the Canadian average in the next five years.
Power prices aren’t coming down, they’re just not likely to rise as much as elsewhere.
“Alberta rates will likely become more competitive to other provinces,” concluded the report by Toronto-based industry consultants London Economics International. “The growth rate for residential rates in Alberta is likely to be slower than that of other provinces.”
By 2018, residential power rates in Alberta would decline to 17 per cent higher than the average across Canada compared with 23 per cent in 2013, it said. Industrial rates are forecast to decline from 20 per cent above the national average to 18 per cent.
It’s not exactly fulfilling the promises of then premier Ralph Klein’s Conservative government in championing power deregulation almost two decades ago. It is, however, a realistic outlook given the long upward trend for power prices. It’s the case for integrated provincial utilities as well as private-sector companies.
It’s the same story for demand. The National Energy Board has forecast electricity demand will grow by one per cent annually in Canada through 2035.
The Alberta Electric System Operator has said “peak demand” in the province could reach 18,194 megawatts by 2032 — almost double the 10,599 MW in 2012. With forecast coal plant retirements, it’s estimated Alberta will need almost 13,000 MW of new power generation by 2032.
Alberta had 8,500 MW of power generation 1995 and deregulation has coincided with the oilsands boom that’s made the province an economic powerhouse.
The Conference Board of Canada has estimated that by 2030 close to $350 billion in investment — from generation to transmission and distribution lines — will be needed across the country. One way or another, it’s ratepayers and taxpayers who will get those bills.
“Electricity investments in Canada — in aggregate and individually — will unavoidably entail significant costs to ratepayers and taxpayers in the coming decades,” the Canadian Electricity Association said in its report, Vision 2050, released in April. “Electricity rates are likely to increase in every province.”
Many Albertans still recall the Klein government’s embrace of market economics.
“I am very confident we can lower the cost to the consumer,” Energy Minister Steve West said of deregulation at the Calgary Chamber of Commerce in September 1997.
Nobody is making such pledges today.
In its eight principles for prudent electricity investments, the CEA uses the word “may” five times in discussing topics from power prices and system reliability to environmental impacts. The London Economics’ forecast is similarly cautious using “likely” and other qualifiers.
The challenge for Alberta begins with resources.
Low-cost, low-GHG hydroelectric accounts for 63 per cent of power in Canada but only five per cent in Alberta, where coal generates 85 per cent of electricity. Hydro skews power rates and makes provincial comparisons difficult.
A study by the Pembina Institute-Clean Energy Canada this spring supporting renewable energy predicts the percentage of coal-fired electricity in Alberta could fall below five per cent in 20 years.
It said prices will rise by more than six per cent over current forecasts in the first 10 years before de- clining below business-asusual forecasts by 2033.
Alberta prices look better when compared on a level playing field nationally.
The report by London Economics noted that if provinces producing more than 50 per cent of their power supply from hydro — Quebec, B.C. and Manitoba — are excluded, electricity prices in Alberta were within one per cent of the Canadian average.
That’s unlikely to mollify consumers or political opponents.
“Electricity public policy is politically charged — other than taxation it’s probably the largest area in which public policy impacts directly on consumer spending and disposal income,” noted the CEA report.
“The net result is a broad coalition predisposed to withhold social license and resist significant price increases.”
The report by London Economics was prepared for the Independent Power Producer Society of Alberta and the Manning Centre for Building Democracy. It was presented in June at a conference in Calgary that attracted like-minded supporters of market solutions to societal issues.
While wholesale electricity prices averaged a fiveyear high at $80.19 per MWh in Alberta in 2013, they averaged about $52 per MWh in the first six months of 2014.
Since 2010, residential rates have risen about six per cent annually in Alberta while industrial rates have risen by about 11.6 per cent.
London Economics, which has conducted numerous studies on Alberta’s power market, said there is an obvious reason for the changing price dynamic. It is a return of TransAlta’s Sundance 1 and 2 power units, the Montana-Alberta electrical grid tie-in and startup later this year of Enmax’s 800-megawatt Shepard generating plant near Calgary.
Since lower generating costs will be offset by new plants and power lines, the savings will be tough to find on a monthly electricity bill.