May 2022 Alberta Electricity Newsletter: A Primer on Transmission Policy in Alberta

June 6, 2022
Will Chow

Alberta is currently undergoing a review of its transmission policy and the supporting mechanisms in the market design and ISO tariff. This work is ongoing and discussions related to the broad issue are happening in different places, hosted by various policy makers, regulators and agencies – there are many moving pieces.

Integrated utilities plan both transmission and generation. This allows them to optimize across both infrastructure types. It’s easier to size, site and time transmission builds when you have clear self-established vision as to the future generation build.

Of course, the integrated utility planning model is not without its challenges and drawbacks; central planners still face forecasting risk and uncertainty about the future, their plans involve picking technologies and they can sometimes pick wrong, and the incentive to try something new is incomparable compared to a competitive playing field. Add to this that integrated utilities are often subject to strict regulatory schemes and the result an be less nimble planning, sometimes unable to move as fast to react to technological or policy shifts.

Open markets are different. They essentially separate the two planning modes into two frameworks. Open markets typically plan transmission through the central model just like the integrated utilities – this function is most often done by ISOs and RTOs. Generation “planning” is coordinated in markets, the designs of which vary considerably across jurisdictions but at the highest conceptual level the idea is to integrate least-cost generation that meets a minimum reliability [1] and policy [2] standard. Open markets have typically stayed away from prescribing technology types and have competing actors take on the risk of picking generation types to develop. Price signals serve to indicate when and what to build to meet the reliability needs of the system operator and various policy targets of government and its egulators. In theory, the outsourcing of this risk should materialize in long-term savings to ratepayers.

However, deregulation and the bifurcation of centralized transmission planning and open-market generation development means the potential form is coordination or inefficient allocation of grid resources. There is much more guesswork for transmission planners when they don’t have explicit control over what new generation assets are being connected to the grid. Add to that the nature of generation is quickly changing; variable renewable generation from wind and solar makes use of transmission assets differently from the dispatchable generation.

Alberta’s market design and transmission framework is based on an implicit arrangement between generators and the system planning apparatus [3] on behalf of Alberta ratepayers. AESO transmission planners are required to plan for an unconstrained (congestion-free) system. In return, it is expected that the least-cost generation will be built to meet minimum reliability and policy standards and that the risk associated with generation development will be borne by investors and not ratepayers.

Even with a few decades experience with deregulation, it is difficult to assess whether or not the Alberta transmission framework was a “good deal.” In a period of overbuilt transmission like some regions of Alberta are in now, it is tempting to see it as a failure of the transmission policy and market design. However, a fair comparison would need to include cost-benefit over a period of decades. Furthermore, grid infrastructure is a critical enabler of the rest of the broader economy. The confidence of broader industry to reliably connect to the grid and use electricity on demand is invaluable but hard to measure.

In Alberta, transmission planners at the AESO struggle with the challenge from uncertainty of where and when to build transmission to ensure congestion free delivery while avoiding overbuilding transmission too far ahead of new generation development. With the energy transformation fostering increasing variable renewable generation, shifting load patterns from the adoption of EVs, and integrating DERs, this challenge will only become more difficult.

The Alberta electricity sector must soon address whether or not planning for unconstrained transmission is sustainable for the wholesale electricity market. In a future world with renewable generation capacity that dwarfs that of today, transmission will be utilized much differently. This is especially the case in Alberta because renewable energy sources from renewable generation sources are highly correlated meaning that they will stress the transmission system all at once or none at all – extremely low power flows on transmission lines can be nearly as problematic for system operators as very high power flows.

A new market design and transmission framework needs to consider more coordinated and integrated optimization of both transmission and generation.The sector must grapple with questions like: What level of congestion may represent combined least-cost across generation and transmission? How does the market design and transmission framework ensure investor certainty if congestion is a potential new feature? Other markets price congestion via various mechanisms; in Alberta, does this signal belong in the market (pool price and ancillary service price signals) or in transmission costs through regulation and the ISO Tariff?

Alberta has bought itself some time before this issue becomes critical. There are regions of Alberta with excess transmission capability and incenting connection into these areas and substations are a natural first step[4]. The Alberta Department of Energy has begun this discussion with industry and the ISO Tariffis a living document currently undergoing a modernization. Energy storage technology and demand response, if sited correctly, have the capability to help optimize transmission loading. These resources need the proper price signals to incent timely development in the areas where they can provide the most value. Alberta Bill 22 and new proposed ISO Rules related to energy storage begin to address these issues.

Power Advisory forecasts nearly 10,000 MW of combined wind and solar in the next decade, 2,600 MW of this is imminent, having passed the AESO’s inclusion criteria in the Project List. There is time yet but a window of opportunity to optimize future transmission buildout to ensure Alberta remains an energy powerhouse may quickly come to a close.

[1] This includes all elements of grid reliability and resiliency including supply adequacy and other essential grid services that met a minimum acceptable level, often established by industry bodies such as NERC.

[2] Governments and regulators in Canada implement policies that sometimes impact the competitive wholesale electricity market. Recent examples in Alberta include the Renewable Electricity Programand Offset Credits in the TIER program. Federal targets for a net-zero electric grid by 2035 will certainly impact market designs.

[3]Represented by system planners (the AESO), regulators (AUC), government policy makers and, at times, various interveners in front of the AUC.

[4] The AESO is improving its Transmission Capability Map. Power Advisory lauds the attempt and effort of the AESO to provide high-quality data and information. However, we advise our clients to use caution when using the Transmission Capability Map; in its current state, it brings a complex statistical figure into a single number.