As expected, the Alberta Government moved this week to phase out
coal-fired power generation and replace it with lower-carbon
natural gas and zero-carbon renewable generation.
There will be no pollution from coal-fired power generation in
Alberta by 2030. Alberta will replace the current 6300 MWs of
coal-generating capacity with renewables (2/3) and natural gas
(1/3). Beginning in 2018, all coal generators will pay $30 per
tonne of CO2 on emissions above what Alberta's cleanest gas
plant would emit to generate the same electricity. Renewable
generation will account for up to 30% of Alberta's total
operating generating capacity by 2030. The Province agreed that it
would not unnecessarily strand capital and would consider
compensating the coal generators. All of these mandated changes are
supposed to occur within the confines of Alberta's merchant
To encourage the mandated renewable power development, the
Alberta Climate Change Advisory Panel ("Panel")
recommended that the Province implement a clean power call
procurement process. This power call would see the Province
purchase renewable energy credits ("RECs") on long term
contracts using money from Alberta's new carbon pricing regime.
It is suggested that the process would be technology-neutral (i.e.
solar, wind, etc. would be treated the same), such that RECs would
be purchased from those needing the least government support. The
Panel rejected the use of a feed-in tariff or Alberta signing
long-term power purchase agreements with renewable developers.
Thus, renewable power project developers who are successful in the
power call will still be exposed to the uncertainty of Alberta pool
prices for much of their revenues, with only a portion coming from
the sale of RECs to the Province.
Some thoughts on who won and lost:
The coal producers were clear losers,
but the market for natural gas producers has expanded. Those who
have seen the economics of their "gas to LNG" strategy
weaken lately should examine a "gas to power"
Coal generators appear to be losers,
but a 2030 phase-out is much longer than Ontario took to phase out
its coal. Also, the promise to not unnecessarily strand assets and
consider compensation is an indication that the Province will work
with the coal generators to help soften the blow.
Experienced renewable project
developers with strong balance sheets and a low cost of capital are
big winners. They will be successful in a power call focused on
price. It is unclear if small developers will be able to finance
their renewable projects with only the REC component of their
revenues having the certainty that lenders will require. That said,
there will be a market for any projects that the small developers
have in the pipeline as national and international developers
arrive in the Province.
Wind is a winner if the
"technology-neutral" Panel recommendation is implemented.
While per MW solar development costs are falling rapidly, wind
projects are likely to be the winners in a power call designed to
ferret out renewable projects that need the least government
Rural, First Nations and Métis
communities are also likely to be winners as the Panel recommended
that a premium be given in the power call to proponents who partner
with these communities. Municipalities are also likely to be active
in community-scale generation, and will look to bring new power
projects to their communities.
No matter what your take is on the winners and losers, one thing
is very clear. Big changes are coming to Alberta's electricity
market. For more information on the changes and electricity market
questions raised by this week's announcement, read our Electricity Markets Bulletin here.
Canada is a constitutional monarchy, a parliamentary democracy and a federation comprised of ten provinces and three territories. Canada's judiciary is independent of the legislative and executive branches of Government.
The Government of Alberta recently announced a number of policy changes that will impact the Alberta Electricity Market, composed of its generators, transmitters, distributors, retailers, electricity consumers and wholesale electricity market.
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