Need for new green power plants sparks revamp of electricity sector
Shift to capacity market won’t result in price increases, insider predicts
Alberta’s NDP government will overhaul the province’s electricity market in an attempt to encourage new companies to build new, greener power plants and offset the planned phase out of coal-fired generation.
The government announced plans to move from a market that relies entirely on the free-market price of electricity, which is a structure established by former Progressive Conservative premier Ralph Klein in the late 1990s, to a “capacity market.”
A capacity market pays companies both for the capacity they could offer the market, even when their facilities are not operating, plus the price they receive for the electricity they generate when operational.
Energy Minister Marg McCuaig-Boyd said the changes were necessary to attract investment as the province shifts away from coalfired power by 2030.
“This is the right move to power Alberta’s future,” she said, confirming months of rumour and speculation.
Alberta Electric System Operator president and CEO David Erickson said he didn’t expect the changes to the market would cause prices consumers pay for power to rise “any more than they would have otherwise increased under the energy only market.”
To offset the decline in coal-fired power, which comprises 51 per cent of Alberta’s total electricity, the province needs companies to build new generating stations that can consistently produce a total of 8,000 megawatts by 2030. The province is also looking for companies to invest in new renewable power projects in the province over the same time period.
Currently, low power prices have made it difficult for the province to attract new investors to Alberta’s over-supplied market.
Capital Power Corp. president and CEO Brian Vaasjo and Trans-- Alta Corp. president and CEO Dawn Farrell shared the stage with the government during the announcement and expressed their support of the new market structure.
“We will remain the largest generation investor here in Alberta,” Farrell said.
The new market structure is more complicated than the existing system but, Vaasjo said, “we’re pleased the government is taking the time to do it right.”
Alberta’s market is unique in Canada because the province doesn’t own a Crown corporation — like Hydro One in Ontario or SaskPower in Saskatchewan, for example — to produce power for consumers.
The market is instead comprised of publicly traded companies that build power plants based on the futures market for electricity in the province, and get paid in the spot market for the power they produce.
The changes to that system, called the “energy-only market,” will be implemented in 2021.
Texas is the only other energy-only market in North America. Data from the U.S. Energy Information Administration showed residential electricity prices in Texas were 10.94 cents per kWh in August, the last month for which data was available, compared with an average of 12.90 cents per kWh across the U.S.
Gerard McInnis, EY’s Canadian power and utilities leader, said power-generating companies in the province would view a capacity market positively because it ends months of uncertainty in the private sector over what changes the government would make.
In an emailed statement, ATCO Ltd. chief strategy officer Siegfried Kiefer said: “We will work with the government to ensure the proposed market design respects the long-term investment and participation of Alberta’s existing electricity providers while also creating a level playing field to help avoid any unintended consequences.”
Alberta’s government has made multiple changes to the electricity sector over the past year, including launching a lawsuit against Enmax Corp. and Capital Power over power purchase contracts, as the government attempts to shift away from coal.