Varcoe: Alberta power market shakeup could save consumers billions

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New research examining the overhaul of Alberta’s power market concludes provincial reforms will lead to savings for consumers — as much as $1 billon within three years and potentially $8 billion over a decade, due to lower electricity prices.

However, the study says changes to limit the practice of “economic withholding” by large power generators are unnecessary as electricity prices were already falling, and warns that attempts to limit prices will come “at the expense of investor confidence.”

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Electricity consulting firm EDC Associates Ltd. conducted the study after the UCP government announced a series of steps to overhaul the province’s deregulated power market, including short-term measures that kick in this summer and proposals for longer-term reforms.

It found that the immediate moves will lower wholesale electricity prices, which are now expected to average about $74 per megawatt-hour (MWh) this year, down eight per cent from its previous forecast.

A similar decline is seen in 2025, with a seven per drop cent projected in 2026.

For consumers, this could translate into $430 million in power cost savings over one year, reaching almost $1.1 billion over a three-year period — and more than $8 billion over 10 years based on EDC’s modelling, said Alex Markowski, senior energy market analyst with the Calgary-based firm.

Generators will lose the above revenue potential, which will create a less attractive environment for building power projects in Alberta, he said.

“At the end of the day, these changes drive prices down, which is good for consumers,” Markowski said in an interview.

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“But it’s a double-edged sword because anything good for the consumers is bad for the generator, so you have to try to find that right balance between both.”

EDC has also lowered its future renewable energy growth forecast by 20 per cent by 2040.

“Prices were coming down anyway. The problem was fixing itself,” EDC president Duane Reid-Carlson said Tuesday.

“This is bad policy . . . For the government to step in and do all these things and create a halt on investment — we don’t need the investment at the moment, but it is going to kill investment for a very significant amount of time.”

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Last month, Alberta Utilities Minister Nathan Neudorf announced a suite of short-term measures to limit price volatility in the provincial power market.

The province and Alberta Electric System Operator (AESO) followed it up with longer-term proposals to restructure Canada’s only deregulated electricity market.

The interim changes take effect in July and will remain in place until 2027. They will see the province establish rules to limit the practice of economic withholding by large natural gas electricity generators.

Economic withholding is permitted in Alberta, allowing generators to offer electricity at prices “sufficiently above marginal cost that the generator is not dispatched, and the pool price is increased as a result,” according to the Market Surveillance Administrator.

The changes will restrict economic withholding by capping the offer price permitted by large generators, if their net revenues exceed a predefined level.

Under the broader reforms being proposed, the province could create new rules that include day-ahead pricing for the wholesale power market.

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The AESO is consulting on the proposed changes, and technical design is expected to be wrapped up later this year.

After a period of lower power prices in Alberta last decade — wholesale electricity prices averaged below $20 per MWh in 2016 — they have averaged more than $100 per MWh during the past three years.

However, prices are projected to drop this year as additional gas-fired and renewable generation comes online. With the provincial changes, the EDC report has lowered its 15-year forecast of power prices by $9 per MWh, or eight per cent.

In an interview, Neudorf said Tuesday that he’s pleased to see prices are expected to fall for consumers in Alberta.

“We wanted stability and, honestly, we hoped for a bit of an easing in those prices,” Neudorf said.

“Affordability is very, very important. But we want to make sure that there’s stability for industry, so that they can see a long-term return on those investments.”

Neudorf maintained the province is trying to strike a balance with its changes, but said it’s the federal government’s push for electricity grids to reach net-zero status by 2035, instead of 2050, that will rattle investment.

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On the longer-term reforms, EDC calls the changes unnecessary, saying the primary driving factors are federal carbon policy and “hyper-accelerated renewable growth.”

Alberta has captured the bulk of all new renewable energy investment in Canada over the past two years.

“While we do forecast renewable growth slowing post-2025, we do not forecast it coming to a complete standstill,” the report states.

The EDC report says renewable growth will be throttled back because of expectations of higher transmission charges, lower revenue expectations and the unknown effect of the province’s new 35-kilometre buffer zones being established to protect “pristine viewscapes.”

Aside from growth in wind and solar, the province is expecting to see a surge of gas power this year from projects that have been advancing.

“Although there is no question that these policy decisions will definitely chill investor confidence in the market, Alberta is currently so full up with supply that the effects likely won’t be seen immediately,” the report points out.

“That said, it is a calculated gamble. It took many years to attract investors to Alberta . . . there is no guarantee that they will return if they decide to withdraw.”

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Separately, energy analytics firm Enverus Intelligence Research has identified 43 planned renewable energy projects in Alberta that could be “at risk” of being suspended because of new regulations surrounding new wind and solar developments.

In February, the province announced it would create buffer zones around protected areas where wind turbines will not be permitted. It will also limit new renewable development on prime agricultural land, unless the developer can show that farming and livestock can coexist with renewables built on the site.

Ryan Luther, a director on Enverus’ energy transition research team, said the limitations around pristine viewscapes aren’t as large as was initially thought, but he called restrictions around agricultural land “pretty punitive.”

“I would still expect some renewables to get built, but certainly a slowdown.”

Chris Varcoe is a Calgary Herald columnist.

cvarcoe@postmedia.com

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