NDP pulling plug on power model
System overhaul aims to attract investment in renewable energy
The Alberta government is flipping the province’s electricity system on its head, readying the market for more renewables as it moves away from coal-fired power.
In 2013, the Alberta Electrical System Operator (AESO) noticed a distinct shift in power markets around the world — investors were becoming more reluctant to bring their money into energy-only markets like the one here in Alberta.
As the trend continued, AESO thought it prudent to study the reasons why, and how it would play out in Alberta. It analyzed data and hired consultants to canvas the sector and financial institutions. The risks of an energy-only market like the one in Alberta, the study concluded, were too great for investors to stomach anymore.
Put bluntly in an AESO report released Wednesday, “the Alberta wholesale electricity market is not attractive to investors.”
Without those investors, the gap created by the coal phase-out, coupled with a growing need for power, won’t be plugged and “system reliability will be compromised.”
Put simply — without an overhaul of Alberta’s electricity system, there’s no guarantee you’ll be able to turn your lights on.
The problem with the current system, an energy-only market, is that it relies on market volatility to attract investment.
Under energy-only, companies that generate power are paid for it based on a fluctuating wholesale price. The volatility of the market — when the price of power spikes — is exactly what brings investors their cash.
But power right now is historically cheap and low profits are hardly an attractive proposition to draw in the $25 billion in investment the province needs to make the switch to renewables or keep up with the needs of a growing province.
As a result, the AESO report recommends switching to a new market format, called a capacity system.
Unlike an energy-only market, in which power generators produce electricity regardless and hope for a good price, a capacity market includes contracts with power companies guaranteeing they will provide enough electricity for the grid.
Under the plan, the companies will bid through AESO, and costs will come from your power bill.
The first contracts under the capacity market are planned for 2021, with the new system fully rolled out by 2024. There will be a bridging mechanism for the three interim years, although AESO is still figuring out what it will be.
Officials from AESO and power companies say you won’t pay more under a capacity system, although the historically low electricity prices you’re experiencing right now won’t continue. Then again, they were never expected to.
Although the change is being made under an NDP administration with an enthusiasm for renewable energy, AESO was looking seriously at changes for years.
After conversations with power companies and investors, it found as long as the change is instituted correctly, financial players will be happy to come to the table.
The next step for AESO is two years of consultation to iron out the rules of a new system to make Alberta a glittering prize for investors.
Wildrose electricity critic Don MacIntyre said Alberta’s current energy-only market works just fine, and will continue to do so into the future.
Instituting a capacity market will download costs and power industry risks squarely onto the backs of electricity consumers, MacIntyre said.
“The freedom we’ve had in this energy-only market for having price fluctuations going down, which saves people lots and lots of money, is going to be eliminated,” he said.
Progressive Conservative electricity critic Rick Fraser was also wary of the plan.
But, while he thinks low investor confidence and market volatility are in large part the fault of NDP policies, his party is “cautiously optimistic” that the overhaul could create certainty for Albertans.