Big changes are underway in Alberta’s historic energy-only market. Almost simultaneously in late November the government announced plans to migrate to a capacity market, to phase out coal fired power generation, to contract for new renewable capacity, to resolve outstanding disputes over PPAs, and to institute new measures to protect consumers. In the process, a clearer picture of the government’s approach to reforming the market has begun to take shape. The principles apparent in the various announcements are strong indicators of the priorities on which the Province of Alberta will likely rely during its upcoming restructuring of the electricity sector. While debate will undoubtedly continue about the directions and methods chosen, the support expressed by major affected power generators for the Province’s latest round of changes suggests that the current set of priorities and methods may have some staying power. Particularly noteworthy, and likely helpful in building industry confidence, were indications that the extensive changes planned in the coming years will allow the province’s competitive wholesale market to continue to function effectively, and to develop further, without impacting system reliability or creating stranded debt.
Announcements being made at a news conference during ‘Electricity Week’, November 2016. Left to right: Minister Margaret McCuaig-Boyd, TransAlta CEO Dawn Farrell, Capital Power CEO Brian Vaasjo, and David Erickson, President of AESO.
During the seven days starting on November 22, 2016, a period which is being informally called “electricity week,” the province made a series of related announcements including agreements with major generators TransAlta, ATCO and Capital Power and tentative agreements with others. (See story “Government of Alberta resolves coal compensation and PPA matter with Alberta generators,” above.) Implicit in those announcements were fairly significant decisions on the direction of long term energy policy for the province. It appears the provincial government intends to oversee extensive restructuring while balancing several challenging objectives: preserving the critical functions of the competitive power market, reinforcing public/investor confidence, and developing new market-based systems sufficient to bring on new clean and renewable capacity, all without impacting reliability or creating stranded assets.
In summary, the government’s electricity sector initiative is composed of five major parts:
1. An overarching Climate Leadership Plan, to reduce carbon emissions in co-ordination with national climate policy and programs. A key element includes a carbon tax, based on a performance standard.
2. A Renewable Energy Program, which has a goal the addition of sufficient renewable capacity, through a series of RFPs, to power 30% of provincial consumption by 2030.
3. Agreements with major generators to end pollution from coal plants by 2030. (Off Coal Agreements.)
4. Commitment to electricity market development over the next 3 years, including design and development of a new capacity market to supplement the current energy-only market.
5. A rate protection program for smaller consumers to assure them that the changes will not cause rates to rise above a maximum annual percentage.
A statement from the Alberta government summarized its intentions saying that the changes “lay out a strong and clear path for the sector that both achieves the province’s environmental goals, while restoring investor confidence in Alberta, providing predictable and steady returns for new generation, maintaining system reliability, treating all generation fairly, reducing market price volatility, ensuring a strong and reliable electricity system in which capacity will be there when needed, protecting jobs, and supporting gas and renewables growth in the province. Alberta’s power companies have now moved from having uncertain futures to secure futures.”
Dawn Farrell, the President & CEO of TransAlta, highlighted the appeal of this approach saying, “Through our work with the federal and provincial governments, we’ve been able to develop a plan that has potential to restore value to our existing assets in the Alberta market. Our work together has shown that environmental and investment objectives can be met without undue burden on customers. The implementation of a capacity market, new rules for coal-to-gas gas conversions, and fair treatment of existing renewable assets will enable us to supply competitive capacity and energy to the Alberta market for decades to come.”
Alberta currently has more coal fired power generation than any other province in Canada. Shannon Phillips, the Minister Responsible for the Climate Change Office said, “These agreements are a cost-effective way to reduce greenhouse gas emissions, with the total payments representing less than $10/tonne of emissions eliminated.” The Pembina Institute, an environmental organization, described the initiatives as “a solid plan that will enable Alberta to deliver on the promise of reliable, low cost, low carbon, low pollution energy.”
Evan Bahry, IPPSA’s Executive Director, noted that, “we are committed to working with the government and the agencies to implement these design changes in a collaborative manner. We are interested to understand the design principles that are being considered and to understand how those who have invested in good faith will participate and earn a return of and on capital.”
See also the following related articles:
Government of Alberta resolves coal compensation and PPA matter with Alberta generators
- Alberta announces major changes to its electricity market
- TransAlta to build pumped storage at Brazeau hydro plant