Canada: The Electricity System Is Shifting To Renewable Energy

Last Updated: April 12 2016
Article by Agnes Bielecki

On February 29, 2016, Clean Energy Canada, an initiative of the Centre for Dialogue at Simon Fraser University in Vancouver, British Columbia, released A Year for the Record Books ("Report") in which it stated that in 2015 a new record was set globally, with more investments in new renewable power than in new power from fossil fuels. US$367 billion was invested in total in renewable power globally. Further, 2015 was the first year when clean energy investment was higher in developing countries than in developed ones. In 2015, Africa and the Middle East invested $13.4 billion in renewables, which is up 54 percent over 2014. China, the United States, and Japan appear to lead the general trend. It appears that renewable energy technology costs continue to decline. The Report states that hydro continues to be the world's leading renewable power resource (59%), followed by wind (22%) and solar (13%).

Canada is the seventh-largest electricity consumer in the world. Wind and solar remain significant renewable sources in Canada. Although Canada maintained its eighth-place ranking for clean energy investment, the general increased trend is not set in Canada, where clean energy investment dropped 46 percent compared to 2014. This may change however, as the federal government elected last fall has announced that, as part of a global agreement signed in Paris in December 2015 ("Paris Agreement") there would be a priority placed upon getting more electricity from renewable energy sources on the grid.

In late 2015 two Canadian provinces, Alberta and Saskatchewan announced that they would increase their production of renewable power. In particular, in Alberta the new government in its Climate Leadership Plan ("Plan"), released on November 22, 2015, committed to focusing on renewables, specifically wind power. It aims to increase renewable sources to 30 per cent of the province's electricity production by 2030. Under the Plan, coal-fired electricity generation will be phased-out. The Plan sets out a phased-in increase in renewable energy where two-thirds of the coal-generating capacity (4200 MW) will be replaced by renewable energy and one-third (2100 MW) by natural gas.

In Climate Leadership – Report to Minister, the Alberta Climate Change Advisory Panel ("Panel") made recommendations as to the manner the electricity policy changes would be implemented. Importantly, to ensure renewables grow, as coal is phased-out, Alberta's electricity market would retain its competitive structure. The Panel recommended the following:

  • The adoption by Alberta of a clean power call mechanism to enable increased renewable generation, consisting of an open, competitive request for proposals based on an annual procurement process;
  • The government would commit to an annual schedule of financing availability (e.g. for 350MW of new capacity to be available by 2018) and request proposals for the level of support required;
  • The government would award contracts to projects requiring the lowest level of incremental support;
  • In the adjudication of bids for projects, the government should set evaluation criteria with premiums for projects that collaborate with rural, First Nations and Metis communities;
  • The government would purchase renewable energy credits ("REC") on long-term contracts;
  • A pre-qualification procedure in a procurement process to ensure bidders are in a position to deliver their projects and are able to provide security to the government if they fail to deliver the project on time;
  • The government should impose a collar on the level of support; a price collar of $35/MWh or below would limit the government's exposure to high cost of support; and
  • The government should not provide a feed-in-tariff or long-term contracts for small producers. Rather, the government would support renewables through REC.

The Government of Alberta has taken the first step by designating the Alberta Electric System Operator ("AESO") to develop and implement the Renewable Electricity Program ("Program"). The goal of the Program is to bring on new renewable electricity generation capacity to the grid by 2030 while keeping the costs of doing so as low as possible through a competitive process, such as an auction. Alberta Energy indicated that this process would be carefully managed and operated in conjunction with the retirement of current coal generating units. Further, Alberta Energy confirmed that it has not chosen to fundamentally alter the current wholesale electricity market structure.

In short, the principles governing the Program include:

  • Ensuring the electricity system continues to be reliable.
  • Accomplishing the transition with policies that fit with Alberta's unique energy market.
  • Using a market mechanism, such as auctioning, to keep the costs of renewables as low as possible.

On March 3, 2016, the AESO requested input from developers and investor stakeholders on the proposed Program. An online questionnaire includes questions regarding the type, size and preferred region for renewable electricity generation projects that developers may be interested in pursuing; a view on investing in electricity generation in Alberta, including anticipated barriers and risks associated with investing in renewable electricity generation; as well as individual plans to invest in renewable electricity generation.

The AESO will provide its draft recommendations on the Program in May 2016. The AESO intends to develop the Program throughout 2016 and launch in the fourth quarter of 2016. The first project will be in service by 2019. The ultimate goal is to develop and implement the Program to bring on new renewable generation capacity over the period to 2030.

The introduction of the Program suggests that Alberta is moving towards a more diversified electricity grid. It also meets the requirements of clean energy commitments in the Paris Agreement. It provides new opportunities for renewable investments in Alberta. However, the regulatory process, power grid integration, accessibility, and reliability remain uncertain.

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