By: Nigel Bankes

PDF Version: Finally, a Plan (albeit drip-by-drip) to Phase Out Coal and Keep the Lights On

Documents and press releases commented on:
(1) Press Release, Electricity Price Protection, November 22, 2016;
(2) AESO, Alberta’s Wholesale Electricity Market Transmission Recommendation, dated October 3, 2016, released November 23, 2106, accepted by the Province;
(3) Press Release: Alberta Announces Coal Transition Action, November 24, 2016 and related letter from Terry Boston to the Premier of Alberta (dated September 30, 2016, released November 24, 2016).

The week of November 21, 2016 will go down as a significant week in the evolution of Alberta’s electricity market. Having introduced Bill 27, the Renewable Electricity Act on November 3, 2016 (see post here) the provincial government followed that up this last week with a number of significant initiatives.

First there was the announcement on Tuesday November 22 that the province was going to cap electricity prices in the retail market. Second, on Wednesday November 23, the province announced that it planned to accept the recommendations of the Alberta Electric System Operator (AESO) to introduce a capacity market in Alberta to supplement the existing energy only market and then, third, on Thursday November 24 there was the announcement that the province had reached a settlement with the owners of the six coal generating facilities with useful lives beyond 2030 who will be required to cease burning coal at those facilities by then. And later that same day, the province announced tentative settlements with most of the parties affected by the province’s efforts to question the ability of the buyers under power purchase arrangements (PPAs) to turn responsibility for those arrangements over to the Balancing Pool. “Black” Friday was almost quiet, except for the morning’s announcement that, as of January 1, 2017, the province would “prohibit unsolicited door-to-door selling of energy products to protect people from misleading high-pressure sales tactics.”

This is a very positive package of measures. It offers comfort to consumers that they will be protected at least in the short term from excessive price volatility on the upside. It offers a realistic strategy for obtaining the investment that the province needs to build combined cycle gas generation to replace the coal fleet and thus addresses potentially very serious energy security concerns. It offers comfort to coal generators that they are being treated fairly in relation to stranded assets and gives them both the wherewithal and reason to invest in the construction of new generation. And finally it splits the difference between the province and the PPA buyers in their dispute on the terms of the PPAs. This was an important package to put together. Without it the transition from coal would be more risky (in energy security terms) and likely more expensive (increased cost of capital). While a significant change in market structure such as this is not without its own risks (a perception of continuing change will deter investors) most agreed that an energy only market was not going to deliver on the energy security front. Continue reading →