Alberta’s government is undertaking the largest overhaul of its electrical system in nearly two decades and introducing partial regulation to Canada’s only unregulated power market.
Energy Minister Margaret McCuaig-Boyd’s announcement on Wednesday that Albertans will begin buying power through a “capacity market” after 2021 is the latest change to the electricity system, which the New Democrats have upended since they became the government in mid-2015.
Premier Rachel Notley’s NDP has pledged to phase out the coal-fired plants that power much of Alberta, build Canada’s largest market for renewable power and now is introducing more government controls. The electrical system was turned over to private competition in the early 2000s.
“Today, we begin our work to create an electricity system that is more reliable, delivers stable, affordable prices to Albertans and is attractive to investors,” Ms. McCuaig-Boyd said.
The move will stop price swings that have nearly doubled power rates overnight in past years. But for most Albertans, it will also mean an end to current rates, which are near their lowest in decades. Most analysts agree current prices are too low because of oversupply, and are suppressing investment.
Ms. McCuaig-Boyd said prices would increase no faster than they would under the existing system. “Regular Albertans won’t likely notice much day-to-day change,” she said.
Under the proposed system, a provincial authority known as the Alberta Electric System Operator will plan for future energy demand and auction off licences to produce power. Those licences will come with a guarantee that electrical producers will be paid to generate power even if they cannot sell it. Electricity will still be sold on a spot market supervised by the AESO to companies that arrange distribution. Most U.S. states use a version of this system, called a capacity market.
Alberta’s current electrical system, known as an energy-only market, allows power generators to sell electricity into a provincewide pool. Rates for producers are not guaranteed. While the system is popular in Europe, Texas is the only other North American jurisdiction with a similarly deregulated market.
“Alberta’s energy-only electricity market is broken. It will not bring in the kind of investments that will be needed to power Alberta’s future,” Ms. Notley said on Tuesday, announcing that her government would cap power prices until 2021.
Dawn Farrell, the Calgary-based chief executive officer of power producer TransAlta Corp., hailed the overhaul as a “courageous decision” by the government. “This opens up our opportunities to invest both in our existing assets and new assets as we move forward,” she said.
In an October report commissioned by Ms. McCuaig-Boyd, AESO recommended the government adopt a capacity-market system, warning it would be difficult to get the type of capital investment the province needs in an open market where producers have no certainty what prices electricity will fetch on any given day.
The downside to the new system, according to the authority, is that consumers could pay higher prices if the government forecast of future power needs misses the mark.
While Alberta is bucking a global trend toward further deregulating power markets and turning them over to private competition, the move should help funnel investment towards the province’s green-power goals, said Gerard McInnis, a power and utilities analyst for the consulting firm EY.
“There has to be some kind of government-backed contracts to incent construction to get that generation capacity where it is needed,” he said.
The NDP government expects the province will need $25-billion in new investment for electricity plants by 2030 to make the shift to more natural gas and renewable sources.
Capital Power CEO Brian Vaasjo said a capacity market would encourage not only his company to resume investing in Alberta, but probably get interest from larger North American and European producers.
The energy critic for the opposition Progressive Conservative Party said that while he is “cautiously optimistic” the proposed system will work, he blamed the government’s green-power agenda for the current state of the market.
“Price volatility and low investor confidence is, in my opinion, a result of a suite of policies that they’ve put forward,” Rick Fraser said.Report Typo/Error