Alberta’s decision to freeze renewables was wrong – and complicated

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The unthinkable has happened: A conservative government in Alberta has turned away investors from Texas.

Of course, we’re not talking about oil or natural gas – or even tech or aerospace – but the province’s announcement that it would pause approvals for renewable energy projects for seven months, subject to a review of policies and procedures.

Despite Premier Danielle Smith’s assertion that her government had telegraphed the pause, it came like a bolt out of the blue to politicos and those in the fast-growing industry alike. Alberta had, until Aug. 3, been in the midst of a wind and solar boom. The province added more than three-quarters of Canada’s new renewable generation capacity in 2022. Much more was set to come.

In business-y terms, there’s damage to investor confidence. In people terms, there’s the damage to many Albertans’ image of themselves – that it’s possible to be pragmatic about energy, concerned over the climate, and a major producer of oil and natural gas.

The government is siding with its rural supporters, some of whom are understandably worried about the pace and scale of development of renewables on agricultural lands. But more broadly, this fits the thesis that Ms. Smith will do anything to keep the fossil-fuel industry in the driver’s seat, especially since Alberta relies on plants powered by natural gas for most of its electricity generation.

To publicly pause applications, especially with the message it sends, was a wrong decision. But the reasons behind it are more complicated than concerns about the loss of agricultural space or a naked embrace of the fossil-fuel industry. It’s about a government grappling, perhaps belatedly, with major problems in its ultracomplex electricity system – which is unlike any other.

The clean energy shift is happening, whether Alberta’s government likes it or not

Renewables provide low-cost energy. But the government is looking at the complexity of transmission of that energy. Moving power from a number of geographical locations around the province (wherever the solar and wind installations happen to be, mostly in rural southern Alberta) is driving up the total costs and straining the system.

Reliability and variability are also factors. During a cold prairie winter, in particular, when the sun doesn’t shine or the wind doesn’t blow, the province still needs natural gas. It’s costly and complicated to switch natural-gas plants on and off, to cover the times when renewable power is not as available but demand is high.

The Alberta government has apparently been caught off guard by how attractive investment in renewables in this free-market, windy, sunny province would be – especially with Alberta’s free wholesale market and high prices for power. Wind and solar were on pace to become 30 per cent of the grid’s capacity much quicker than Alberta expected just a few years ago.

“Now you’ve got all of these landowner concerns, transmission design concerns and market design concerns that they are trying to deal with, after the horse has already left the barn,” said University of Alberta economist Andrew Leach.

It’s a mind-bogglingly complex electricity system. But the political risk to the UCP government is crystal clear: Statistics Canada reported that electricity prices in Alberta increased by 128 per cent in July, on a year-over-year basis. That’s a further spike in what has been a trend of increasingly higher bills for Alberta consumers. The Alberta NDP has been hammering away at the issue, and asking for a full examination of the why.

Certainly, a significant reason for this cost escalation has to do with the system itself – the country’s only competitive wholesale electricity market. There’s no public ownership of assets. This encourages competition and growth of new production, but also allows producers to take advantage of peak periods of demand and pricing.

“It’s not allowed in many other power markets, but here in Alberta it’s allowed under the premise that high prices will eventually be disciplined by new entry of power plants,” said Blake Shaffer, an economics professor at the University of Calgary.

His research has found a recent increase in market concentration, meaning “firms can more easily exercise market power and profitably raise their offer prices.” He cites this as the main reason for the increase in electricity costs.

There are legitimate concerns about the structure of Alberta’s system, but they could have been addressed without taking the dramatic step of halting renewable applications. Alberta has had decades of questions about oil wells and oil sands mines, and the intensity of development and commitment to clean up. But Alberta governments have never seriously spoken about pausing that process.

This pause on renewables has also sidelined legitimate concerns about Ottawa’s draft 2035 electricity regulations, which were also released this month.

To be clear, Ottawa’s electricity policy – new rules to restrict the use of fossil fuels in electricity generation – isn’t designed for the whole country, but for only four or five provinces: Natural gas-heavy Alberta, and Saskatchewan, New Brunswick and Nova Scotia – which still have significant coal-fired electricity generation.

Ontario has a mix of electricity sources, with less than 10 per cent from fossil fuels. But the federal government wants to halt any temptation toward natural-gas generation in the country’s largest province as the population there grows by hundreds of thousands every 12 months.

On the other hand, the electricity systems of Newfoundland and Labrador, Quebec, Manitoba and British Columbia run almost entirely on hydro. This is a huge advantage in the age of electrification.

But instead of talking about problems in the federal draft regulations, we’re talking about how Alberta has frozen a burgeoning renewables industry in its tracks.

If you’re of the school that Alberta needs to fight to be heard, this pause could be a crazy-like-a-fox move. Ms. Smith and her closest advisers are deeply skeptical of renewables and don’t mind cutting the industry down. And perhaps it will bring attention to Alberta’s very particular concerns about the reliability and affordability of its electricity grid.

But this would have meant the Premier owned the decision. Instead, the government has leaned on a mess of different stories – including framing the pause as one requested by the province’s electricity regulating bodies.

More than two weeks after the announcement, there’s no sign that the pause itself was directed by anyone but the top ranks of the UCP. That doesn’t bode well, as the surprise decision feels more like chaos than either politics or pragmatism.