Alberta Electricity Market – An Avalanche of Costly Changes

Alberta government is implementing major changes to the deregulated energy-based electricity market. While benefits of those changes are yet to be determined in the future, independent electricity consultants have estimated some costs of those changes.   Based on Federal regulations Sundance 1&2, HR Milner and Battle River 3 coal-fired units will need to shut down in 2019. Combined they represent 859MW of coal-fired capacity that will come off of Alberta supply stack. Since the electricity prices are currently determined by supply-demand balance, this expected shortage in the supply should address the current generation over-supply and result in healthy power price increase. Current power prices in Alberta hit all time low numbers, which is not healthy for energy-efficiency, or renewables, or any other generators in Alberta market.   As Alberta plans to completely phase-out coal emissions by 2030, power purchase agreement owners will be compensated $1.36Billion for closing down their plants by 2030. These funds are budgeted to come from carbon emissions payments made by industrial emitters. EDC Associates estimated that additional $1 billion to $1.6 billion would be required to settle the ongoing PPA disputes.   Under political pressure the provincial government decided to cap Regulated Rate Option (RRO) price at 6.8 cents per KWh for the next four years starting from June 2017. While this announcement protects residential and small commercial consumers who uses less than 250MWh/year from power fluctuations, specifically in 2019; this news hurts renewable micro-generation economics and energy retailers. If electricity prices increase over the RRO cap, AB government put itself in the position to compensate for the difference. EDC Associates estimated the cap would cost $1Billion to the government.   Renewable energy support is estimated to cost Alberta additional $4 billion to $8 billion until 2030. That support is expected to bring generation from renewables to 30% by 2030.   As renewables with intermittent generation will constitute a larger portion of the electricity market, it would be reasonable to assign higher value for generation that can offer a firm capacity. Or in other words to shift to a capacity market in Alberta could make sence. It is estimated that the shift to capacity market will cost Alberta regulator another $200 million – $400 million.