September 2023 Alberta Electricity Newsletter: Market Pathways and Reliability Roadmap

September 30, 2023
Leonard Olien

For many years, Alberta electricity stakeholders discussed how happy they were to not be in Ontario, where changing political policies played havoc with the best-laid plans of developers and consumers alike.  In Alberta, we had the solid foundation of an open market governed by FEOC regulations, and market participants could focus on building and operating power plants or managing their energy use and price exposure.

Today, the Alberta electricity market is neck deep in policy uncertainty, initiated by multiple announcements this past summer.

We start with some good news from the Alberta Utilities Commission (AUC) inquiry on renewable generation:

  1. The AUC will continue to process existing and new renewable energy facility applications.  This is good news because it alleviates the risk of a significant work backlog when the pause is lifted.
  2. The AUC announced that reliability will be dealt with in a separate module from the land issues.  This is good news because it allows the AUC to lean heavily on the Market Pathways work being done by the AESO and, hopefully, reduces the need for stakeholders to submit evidence twice.

On the downside, the AUC issued a directive for new applications to include additional information related to land issues.  The directive asks for information on land quality, soil implications, municipal planning, reclamation security, and the impact on ‘pristine viewscapes’.  The viewscapes issue is troubling because there is no clear definition of what should be considered.  To their credit, the AUC lists National and Provincial parks and recreation areas, but we are left to wonder if opponents will use ‘viewscape’ as an excuse to require much more significant setbacks from ponds or fishing locations.

Overall, many in the renewables industry are optimistic about the inquiry, as they feel many solutions already exist.  In particular, many developers include some end-of-life security considerations in their landowner documents.  When considering agricultural land quality, it's important to keep in mind that the excessive wind and sunshine in Alberta are not generally consistent with superb crop-growing potential.  Of course, there is additional uncertainty as to what the Provincial Government does with the AUC report in terms of legislative or regulatory changes, but we won’t know about that until next spring.

On top of the pause and inquiry, we are waiting for the AESO to follow up on the Market Pathways Primer that was released in August.  Stakeholder comments were submitted in early September and have been posted on the AESO website.  Power Advisory continues to review the submissions, but at this point we can see that, despite a wide range of views on what should be done, there are common threads pointing to the need for short-term, simple solutions to immediate issues, such as frequency response. However, there are also longer-term issues that will require considerable time for debate and the design of alternatives.  The AESO is hosting an update on Market Pathways on October 12.

But wait, there’s more!  

As we discuss in detail below, the draft Clean Energy Regulations (CER) were tabled by the Federal Government over the summer. In response to the tight restrictions on natural gas generation post 2035, the Provincial Government has declared that it is prepared to use the so-called sovereignty act to defend the province against “unconstitutional and irresponsible” regulations.  The announcement of the possible use of the sovereignty act comes on the same day that the AESO held a press conference to discuss their assessment of CER.

The AESO’s media backgrounder provides justification for why Alberta is “unfairly disadvantaged” by the CER, pointing mainly to the fact that Alberta has significant gas generation and relatively little hydro as a starting point.  As a result, the AESO concludes that the CER would result in insufficient supply, and reliability issues would emerge by 2035 with little actual GHG benefit compared to a scenario with a net-zero grid in 2050.  The AESO will provide an updated Long-Term Outlook later this year, which will include modelling details. This means that, as of today, we do not have insight into the assumptions used to reach these conclusions.
While we have many questions about the AESO analysis and the conclusions, there are some aspects of the AESO statements that are consistent with Power Advisory’s Alberta forecast.  Given the current set of commercially available technologies in the toolbox, our April forecast included some unabated natural gas generation beyond 2035.  New technologies will either not be ready by 2035, be exceedingly expensive, or both.  The outstanding question is how much natural gas capacity and generation are required to maintain reliability post 2035.  The CER is quite restrictive: fossil fuelled generating units larger than 25 MW are limited to 5% of hours per year, or an intensity of 30 t/kWh with limits in place as of 2035 or 20 years after COD if the facility was online before 2025. It is interesting to note that some of the parameters, such as the 5% limit and 20-year lifespan could be tweaked to support reliability with limited GHG impacts. Power Advisory is studying these issues and results will be included in our October forecast update.

By this time next year, the AUC pause and inquiry will be completed, the CER will be finalized and the AESO will be well down the path of market reforms.  But for now, stakeholders will have to live with policy uncertainty in the Alberta electricity market with no remedy but time.