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
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" strategy.
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
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 support.
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.
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