Alberta changing electricity market system starting in 2021

The Alberta government is announcing changes to its electricity market that it says will ensure a stable source of power as it takes coal-fired power plants off-line by 2030.

The decision to move from the existing deregulated energy-only system introduced 20 years ago to what's known as a capacity market was recommended by the Alberta Electric System Operator (AESO). The government wants to start making the transition in 2021 with the first auction taking place in 2024, 

In the meantime, consumer prices will be capped at 6.8 cent per kilowatt-hour over that four-year period to protect them from volatility during the transition. However, once the new system is in place, consumers are not expected to see higher prices.  

• Alberta consumer power rates to be capped for four years
• Coal power plant shutdown could hit Alberta taxpayers

As Alberta closes down coal-fired plants over the next 14 years, the AESO is concerned that the province won't have a stable source of electricity, a problem affecting jurisdictions around the world as they take measures to reduce greenhouse gas emissions. 

After consulting with power companies and investors, the AESO learned they are reluctant to invest in an energy-only system.

"System reliability will be compromised," the report states. "The current EOM (energy-only market) structure will not ensure the investment in new generation that Alberta will need in the future. 

"Therefore the AESO has concluded that Alberta must adopt a different electricity structure to meet its objectives for the electricity system." 

AESO determined the capacity market model was the best. Investors like it, and it is familiar to the electricity providers. 

Dawn Farrell, president and CEO of TransAlta said this will make it easier for her company to invest. 

"The fact that we now have this capacity market really enables us to convert some of our coal plants to gas, keep our workers working, keep our communities strong and be able to provide capacity to the system as we go through the decades so it's good news from that perspective," she said. 

More predictability 

Under the existing energy-only system, power companies pay for the cost of infrastructure through the sale of electricity to consumers so they take on all the risk.

This system relies on the principle of supply and demand. Higher prices indicate the system is under-capacity, and serve as a trigger for companies to consider building new plants.

Under the capacity system used throughout the U.S. and the United Kingdom, companies will get two streams of revenue — money from the sale of electricity, and money received from a competitive auction that would cover the costs of building new infrastructure.  

Stakeholders interviewed by the AESO preferred this model because it provides them with more predictability. 

Wildrose electricity and renewables critic Don MacIntyre said it comes as no surprise companies like the capacity model, but it isn't what's best for Alberta taxpayers. 

"It shifts the entire burden of risk off of their investors' shoulders and onto my shoulders and yours," he said. "Well of course they're in favour of it. Furthermore, their profit is going to be guaranteed."

Alberta needs more than $20 billion of new infrastructure over the next 14 years. The government wants 30 per cent of that generation to come from renewable energy sources.

The remaining generation could come from natural gas, hydro and geothermal generation, which are considered more stable because they can generate energy on demand.

AESO said the recommendation to change to a capacity market has nothing to do with the change in government. 

Work on transitioning to the new system will start next month.