The Alberta Electrical Grid: What to Expect in the Next Few Years

Abstract

The Alberta government has stated that it wants to make significant changes to the supply of electricity to the current electrical grid for the province. These changes include the phasing out of coal generation by 2030, the supply of 30 per cent of electricity from renewables by 2030 and the introduction of a socalled capacity market in addition to the current electrical energy market. The achievement of these objectives will require a number of fundamental changes to the existing electrical grid. This paper provides an overall description of these changes. The paper first examines the current grid structure in which coal and gas provide the base load supply in the amount of 90 per cent of electricity demand, and renewables are a relatively small source of supply for the remaining 10 per cent. It then reviews the current simple energy market in Alberta that uses a single price auction to determine the wholesale price of electricity. The paper then notes that the achievement of these changes will require a large amount of investment in the next 15 years to create new generating capacity that currently does not exist. The Alberta Electric System Operator (AESO) has forecast that by 2032, Alberta will need an additional 7,000 megawatts of gas generation, 5,000 megawatts of wind, 700 megawatts of solar and 350 megawatts of hydro. To put this in context, the Ontario grid currently has 4,213 megawatts of wind (11 per cent of total generating capacity) and 380 megawatts of solar (one per cent of generating capacity). The Alberta government has made two fundamental changes in the electricity market to make this happen. First, it has introduced a Renewable Energy Program (REP) to incent investment in renewables. They asked industry to bid on a 20 year contract for supply of electricity that offered a guaranteed fixed price that was independent of the existing wholesale market. The first round of bidding (REP 1) announced in December 2017 resulted in 600 megawatts of new wind capacity at prices below expectations. No solar proposals were accepted in REP 1, a result that may cause the Alberta government to make new proposals (details still to come) that may permit solar participation. Two new rounds for 2018 (REP 2 for 300 megawatts and REP 3 for 400 megawatts) have requested bids on a similar basis. The one new feature is that REP 2 is limited to investors with an Indigenous equity position of at least 25 per cent. Second, the Alberta government has proposed to introduce a capacity market that would compensate electricity suppliers for merely creating capacity to supply. The capacity market was requested by industry and was announced by the Government of Alberta in November 2016. It is intended to give additional compensation over and above the energy market compensation in order to make it economic for investment in future renewables if the REP guaranteed price structure is terminated, and in future base load and backup gas generation. The paper then describes one possible solution using new storage battery technology as a means of providing backup generation for renewables. Finally, the paper contrasts the proposed Alberta electrical grid with the current Ontario electrical grid. It notes that the current high electricity prices in Ontario have become a high profile political issue there, since consumers are paying all electricity costs. In contrast, the Alberta government has also stated that retail electricity prices will be capped at 6.8 cents per kilowatt hour until 2021. If retail rates exceed that amount, the Alberta government will use carbon tax revenues to pay the difference.