The Alberta Government has made a series of announcements that partially address the gaps in its electricity policy created by its Climate Leadership Plan released last year. The Climate Leadership Plan called for the phasing out of coal-generated electricity by 2030 and increasing the overall share of renewable electricity generation to 30%. Read our earlier bulletin on the Plan, Recent Climate Change Leadership Developments in Alberta.
Alberta currently operates one of the only “energy only” markets for electricity in North America. This deregulated system was designed to allow market signals to dictate private investment in generation capacity. However, in the current low-cost electricity environment, it is widely expected that investors would not be sufficiently motivated to make the necessary investment in generation capacity to either fill the gap left by the early retirement of coal generation or meet the Government’s goal of having 30% of the province’s capacity met by renewable sources by 2030.
The Climate Leadership Plan therefore created two fundamental issues. First, how will the province attract the necessary investment of the billions of dollars required to replace the coal-generated electricity (both renewable and conventional). And second, how will those coal generators be compensated for the early retirement of their facilities.
Earlier this month, the Government took the first step in providing some measure of price-certainty to renewable project proponents. The Renewable Electricity Program (“REP”) was announced on November 3, 2016 to encourage the development of 5,000 MW of new renewable electricity generation capacity by 2030 through a series of auctions administered by the Alberta Electric System Operator (“AESO”). Successful bidders will be entitled to enter a Renewable Energy Support Agreement with the AESO that will see it effectively receive a fixed price for generation for a 20 year term. Read our earlier bulletin on the REP, Alberta Releases Details of First Renewable Electricity Program Competition.
On November 23, 2016, the Government released its broader plan to encourage investment from all classes of generators in announcing that it was doing away with the “energy-only” market and moving to a capacity market for the wholesale electricity market by 2021.
A capacity market sees generators compensated in two ways: first, through the sale of power generated at the spot-price dictated by the market (as it is now); and second, through payments awarded through auction for the capacity available to produce power – regardless of whether that power is required or sold to the grid. The capacity payment is intended to provide certainty, by way of a stable revenue stream, to generators to incent investment in the Alberta market and meet the demand that will be left unmet by the early retirement of the coal facilities.
Lastly, the Government announced on November 24, 2016 that it had reached agreements with each of the owners of the coal-fired power plants for compensation for their early retirement. Under the agreement, the generators will receive compensation based on the value of each asset and each asset’s remaining expected generating life beyond 2030. The Alberta Government will make payments totalling approximately $1.35 billion between now and 2030 to these owners.
This busy week for electricity policy in Alberta will provide industry and potential investors with considerably more insight into the direction the Government is taking to achieve its ambitious plans to phase-out coal generation and partially replace that capacity with renewables. It is now up to the AESO to develop, implement and execute these broad policy goals.