Alberta's shift away from coal-fired power is about to get real. And expensive.
Premier Rachel Notley signalled last week that the government will cough up compensation for electricity generators as they shut down coal plants that currently provide about 38 per cent of the province's juice. This is one measure that apparently comes from advice by a former U.S. power-industry executive the Premier brought in to deal with the thorny issue of billions of dollars in generating assets that will be rendered useless by 2030.
That's the deadline for coal emissions spelled out in Alberta's plan to fight climate change. The idea is to fill that gap between now and then with power generated by natural gas and renewables such as wind and solar.
The New Democratic Party government is poring over recommendations from Terry Boston, former chief executive officer of PJM Interconnection, based in Valley Forge, Pa. They are the culmination of months of talks between Mr. Boston and Alberta's generators, such as TransAlta Corp. and Capital Power Corp., which worry about all that capital that stands to be stranded.
Mr. Boston was also charged with helping to develop ways to protect Alberta consumers from skyrocketing power bills and any problems with system reliability as the shift from coal proceeds.
Another recommendation is said to involve changes to the electricity market structure, which has been in place since privatization at the start of the past decade. Details, such as how much money could be on the table and how it gets funded in an era of austerity, are expected before the end of the year.
The last year has shown that the government is at risk of sudden jolts from the power industry. There are undoubtedly more to come as the heavy lifting on carbon reduction gets under way in earnest.
Witness its legal fight over the "Enron clause," which it says has given holders of contracts to buy and sell power an easy and unfair way to hand them back to a public agency if their profitability suffers and new costs are on the horizon (Read: costs such as the NDP climate plan).
The holders of the so-called power purchase arrangements have blasted the government, saying it fails to understand its own fine print that gives them the out.
The case is due to go to court next month, in what could be the closest thing to a headline-grabbing trial one can get when it comes to arcane electricity market policy.
TransAlta Corp. CEO Dawn Farrell said last week that she is encouraged by what appears to be a move toward "financial certainty and stability."
She said the company is already working on plans for converting coal plants to cleaner-burning gas.
Still to be answered, though: How much money is it going to take, and where will it come from?
Don't forget, oil and gas revenues have dwindled to the point where Alberta is already wrestling with a $10.9-billion deficit. There is no expectation of returning to a balanced budget until 2024 – just six years before the coal plants puff out their last.
On Tuesday, the Independent Power Producers Society of Alberta presented a report on potential impacts of the climate plan. The study, by EDC Associates Ltd., said changes will be pricey in several ways, even before compensating coal generators.
It estimates credits for providing incentives to developers of renewable power at $4-billion to $8-billion through 2030. Meanwhile, there is no way to gauge what that the move to more renewables might mean to prices. Indeed, the wholesale market may be more susceptible to wider price swings, it said.
Funding for making the transition is a big question mark. EDC points out that tax dollars and carbon levies from other sectors outside the power industry will be needed. To be sure, as coal plants are taken off line, the carbon levies they currently pay under Alberta regulations – which go into a technology development fund – dry up.
For Ms. Notley, she faces a problem with electricity that has become all too familiar in many of her policies: trying to make massive change at a time when affordability is always in question.
Editor's note: A previous version of this story said estimates for credits for providing incentives to developers of renewable power would be $4-billion to $8-billion annually. In fact, it is 4-billion to $8-billion through 2030.