Market based electricity generation at risk in Alberta

Notley government's climate change plans jeopardize the province's deregulated power model

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electricity generationCALGARY, Alta. March 20, 2016/ Troy Media/ – Unlike in many North American jurisdictions, electricity in Alberta is generated within a competitive, deregulated market – but that could be about to change.

Since 2001, new generation has been built with private capital, not public dollars, so the owners of electricity generation plants are financially at risk, not taxpayers. In recent years, Albertans have enjoyed quite low generation costs.

Now, some Albertans worry that elements of Premier Rachel Notley’s Climate Leadership Plan risk jeopardizing the principles unpinning Alberta’s deregulated electricity generation market.
The transition of Alberta’s electricity generation from a fully regulated to a market-based system began in 1996. Under the previous regulated regime, government decided when and where to build new plants and customers paid a “cost plus” price.

Deregulation was pursued to encourage efficiencies in the sector via a healthy infusion of competition.

Under deregulation, the Alberta Utilities Commission (AUC) “approves generation at the facility level, i.e. a generator must comply with regulations such as safety, environmental, design standards and public consultation.” The AUC doesn’t decide “what type of generation is built, how much generation is built, who builds generation, nor ultimately the rate of return earned by owners.”

The Alberta Electricity System Operator (AESO) plans and operates most of Alberta’s electric system, including a competitive wholesale electricity market, but like the AUC it does not dictate if, when or where new generation will be built.

In December, the Alberta government took several strides forward in its climate strategy, introducing a consumer-based carbon tax, ambitious methane emissions reduction targets and substantial changes in the mix of electrical power generation. These policies appear to have been well received on the world stage and should go some way toward improving Alberta’s social licence to operate.

But there are two commitments in the government plan that trouble proponents of deregulated electricity generation. The first is the prescription of renewable energy targets for electricity in Alberta, with the government’s stated goal that: “By 2030, renewable sources like wind and solar will account for up to 30 per cent of electricity generation.”

The second is an artificial acceleration of the shutdown of coal-fired plants, which currently provide much of the electricity for the province. The government has stated that by the same 2030 target, “coal-fired plants will be phased out and replaced by renewable energy and natural gas-fired electricity, or by using technology to produce zero pollution.”

As always, the devil is in the details.

Albertans are asking serious questions about how these undertakings will be implemented. For example, will AESO need to demonstrate that 30 per cent of produced electricity is actually generated from renewables, or is their task to ensure that renewable sources account for 30 per cent of generation capacity? Because wind generally only runs 35 per cent of the time, often during periods of relatively low power demand and price, these two interpretations of the government’s target yield quite different answers, with significant implications for power price and reliability.

And how will AESO accomplish this while maintaining a deregulated generation system where economics are presumably the key signal for new investment by private investors?

Similarly, will the schedule for coal plant retirements be set as a gradual easing or will 2030 be the edge of a cliff? Right now, 18 coal plants operate in the province. The newest in the fleet, Keephills No. 3, was commissioned as recently as 2011 and would still be economic and compliant with current regulations as late as 2051. Albertans depends on these plants for about 65 per cent of all of the province’s electrical generation. The government estimates that 12 of Alberta’s 18 coal-fired plants are due to be retired without provincial intervention by 2030, leaving six plants to be retired early.

Terry Boston, a recently-retired power executive in the United States, has just been named by Notley as the coal phase-out facilitator to deal with these early plant retirements, and the direct economic and power reliability implications.

Perhaps equally important, depending on how this is accomplished, a government-driven shutdown and replacement program could easily be the death knell for future private investment in what is intended to be a deregulated market.

It may be time to re-evaluate our approach to a competitive electricity generation market in Alberta. But, if so, let’s do so intentionally.

Donna Kennedy-Glans, Q.C., is a former member of the Alberta legislature. @dkennedyglans

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