2022 was a record-breaking year that saw the highest price, the highest recorded Alberta Internal Load (AIL), and the greatest number of wind and solar additions yet . The year also had the highest frequency of hours of congestion observed in the system, especially in the South planning area.
The annual average price was $168.MWh, which surpassed all expectations. The drivers of this high price, discussed individually below, are demand-related, supply-related, transmission congestion, and opportunistic offer behaviour, which is an external but important factor aside from supply and demand.
Alberta demand is influenced, in part, by oilsands production and population growth.
Alberta’s oilsands industry is a key driver of load growth. The Alberta Energy Regulator reported a growth of 12.1% in conventional oil and 1.8% in non-conventional oil from 2021 to 2022.
Another driver of load growth is Alberta’s population. The provincial government reported that population grew by 3% from 2021, and net migration into the province surpassed the 2006 and 2013 migration peaks. Alberta’s population reached an all-time high of over 4.6 million in late 2022.
These two factors contributed to increased demand, ultimately resulting in a new peak load record of 12,193 MW on December 21, 2022.
Supply changes – Rise in renewable energy
Nearly 1,900 MW of new supply was added to the grid. Over 70% of this was wind power and over 20% was solar power, the highest levels the Alberta Electric System Operator (AESO) has ever seen within a single year.
Typically, supply additions place downward pressure on pool price. However, this was not the case in 2022. The reason lies in the timing, production profile and capacity factor of the assets. Over 50% of the capacity additions occurred in the last quarter of the year. Further, with testing and commissioning timelines, these assets will mostly become fully operational in 2023. Additionally, generation resources like wind likely were not available during times of high prices and consequently the installed capacity reflects a smaller percentage of firm capacity from these resources.
Increase in transmission constraints
Any installed generation should have its MWs planned to reach the grid, as stated in the Transmission Regulation. However, Power Advisory has observed that in 2022, generation was constrained at a higher frequency of hours than previous years. This was true especially in the South planning area which experienced 1,500 hours of constraints and is where most wind generation is located. The constraints tended to be in more remote areas where the lines are under 240kV, but constraints can also happen when lines are affected by outages.
The AESO has capped line capacity at 466 MW in tandem with the Most Severe Single Contingency (MSSC) limit which means that when generation goes above the line limit, curtailments take place.
Offer behaviour – High priced offers raise pool price
Even with the higher frequency of constraints, 2022 saw a higher amount of supply cushion. Supply cushion is the amount of MW that are available to be dispatched in the energy market. The average supply cushion in 2022 is estimated to be 2,700 MW, which is 500 MW more than the 2021 supply cushion.
The chart below shows that despite a higher supply cushion (i.e., when more MW are available to be dispatched), prices remained high.
This indicates opportunistic pricing by market participants. In Alberta, MW are allowed to be priced in anywhere from $0 to $999.99. When a substantial amount of offers are priced high, as in 2022, there is an upward shift in prices.
The Market Surveillance Administrator in their Q3 report indicated that markups were increasing over and above short run marginal costs as the year progressed. By August and September, markups were over 50%.
The markup strategy becomes ineffective when supply that is independent of companies with a larger market share is added to the market.
In summary, 2022 was a year which beat some records and set a new tone for market dynamics in pricing strategy and increased renewable generation.