Only one thing lacking from NDP’s green energy push

Hitting renewable energy goal requires the process to run smoothly

There’s a lot to like about the provincial government’s aggressive new plan to entice renewable energy into Alberta’s power grid. However, there’s one little issue that hasn’t been disclosed yet: the actual price tag.

There’s a lot to like about the provincial government’s new plan to entice renewable energy into Alberta’s power grid.

It should make the power system cleaner, greener and is designed to be cost-competitive.

However, there’s one little issue that hasn’t been disclosed: the actual price tag. And that’s kind of a big issue. After months of study, Environment Minister Shannon Phillips announced Thursday the province will move ahead with its aggressive plan to add 5,000 megawatts of clean energy into Alberta by 2030.

Much of the supply will likely come from wind initially, although solar, hydro or biomass could come into the mix over time.

The first big step starts next year, when the Alberta Electric System Operator (AESO) holds a competitive auction for developers to build up to 400 megawatts of renewable electricity.

Winners will be announced by the end of 2017. Under these 20-year contracts, power must start flowing into the grid by 2019.

Alberta wants 30 per cent of its total power generation to come from renewable energy by 2030.

“It is a made-in-Alberta solution,” Phillips said in Calgary.

It’s essential this process run smoothly, because billions of dollars in renewable energy — along with a lot of generation from natural gas powered facilities — will be needed as the province phases out coal-fired power plants within 14 years.

The structure of the subsidies is also important, because it costs more today to generate power from wind and solar than it does from burning coal or natural gas.

Subsidies that are too low won’t attract enough investment; too high means the province ends up overpaying.

So how will the Notley government reach its target and attract up to $10.5 billion in renewable investment by 2030?

The province is creating an indexed renewable energy credit, also known as a “contract for difference,” which has been used in the United Kingdom and other provinces.

Essentially, subsidies will provide a “top-up” to renewable generators based on prices on the Alberta Power Pool.

If a successful developer, for example, put in a bid price at $60 per megawatt-hour (MW-h) for their wind venture, and Alberta’s power pool price is only $40, a subsidy would make up the difference.

Conversely, if the pool price soars to $80 per MW-h, the same developer would have to credit the government back the difference.

This structure gives some assurances to developers and investors that they can make a fair rate of return.

By choosing a competitive bidding process, however, it should also make developers sharpen their pencils so their projects are selected, say proponents.

“People are going to have to go into a very competitive process and really put their best offer on the table, really crunch the numbers,” said Robert Hornung, president of the Canadian Wind Energy Association.

The winners in the first auction will be determined by price alone.

Analysts say this system should avoid some of the big pitfalls seen in other jurisdictions, most notably Ontario, where consumers have faced a massive hike in their electricity bills.

In Alberta’s deregulated power market, electricity prices are notoriously volatile, now near two-decade lows.

Phillips says all of the subsidy payments will come from the province’s carbon levy that’s collected from heavy emitters of greenhouse gases, such as coalfired power plants.

But a recent report by consultancy EDC Associates points out the subsidies for renewables could hit $4 billion to $8 billion by 2030.

EDC doesn’t believe revenues from the electric sector alone are sufficient to pay for subsidies for 5,000 MW of renewable power.

“Funding from the tax base or other carbon levies are needed outside of the electricity sector,” it warned.

The government insists that’s not the case and doesn’t think the incentives will be as high as the report forecast.

It’s worth noting that last year the province’s own climate advisory report recommended a competitive bidding process, but suggested the “government impose a collar on the level of support to be offered” to limit the province’s exposure.

AESO didn’t adopt that idea, saying the top up offers a level of price certainty to developers while electricity prices are particularly low, but has a “natural adjuster” built into the credit, meaning the subsidy falls as prices rise.

“This is a structure that works well for Alberta today,” said AESO vice-president Mike Law.

Although there is no price collar, he noted AESO is looking at putting in an “affordability threshold” in place, which would identify ahead of time how much it’d be willing to spend in the process.

Electricity consultant David Gray, former executive director of the Utilities Consumer Advocate, agreed a hard cap on the subsidies would likely keep developers away, given the uncertainty they’d face.

“In general terms, having government-backed contracts will bring in a lot of interest from big renewable generating companies,” said Gray, chief executive of Aim Energy Pros.

“So you should get pretty competitive pricing.”

But the great unknown is still how much will this eventually cost.

“We clearly need more information that is not there,” said Sheldon Fulton, an energy market consultant.

“I want a nice clear line that says I don’t want any projects bid if they’re greater than a subsidy or a firm price of $70 … or something of that nature.”

Like a shiny new vehicle on a sales lot, Alberta’s renewable plan has a great paint job, that new car smell and looks like it’ll offer a sleek ride. So far, it appears promising. But without knowing the final price, it’s impossible to say whether it’s the best deal out there.