Canada: The AESO's Renewable Electricity Incentive Program Marches Forward

As noted in an earlier post, on March 3, 2016, the government announced that the Alberta Electric Systems Operator (AESO) has been chosen under the province's Climate Leadership Plan to develop and implement a renewable electricity incentive program (Renewable Electricity Program or REP) to add additional renewable generation capacity into Alberta's electricity system.

The expected timeline of this process is as follows:

On May 5, 2016, the AESO released an update of the stakeholder engagement process and the development of its recommendations to be provided to the provincial government in the next month (Update to Stakeholders).

In its Update to Stakeholders, the AESO summarized the stakeholder feedback received in Phase 1 of the stakeholder engagement process, and commented on its next steps.

Next Steps

The next step of the AESO's process will involve targeted, one-on-one follow-up meetings over the next few weeks with those parties whose responses may potentially impact the AESO's recommendation respecting the REP design, and which may inform key features of the first procurement under that program.

The AESO also provided a few details that are expected (although not yet governmentally approved) to delineate the scope of the first REP procurement, namely:

• The definition of "renewable" is anticipated to align with the definition used by Natural Resources Canada.
• The procurement is anticipated to be fuel-neutral.
• Facilities may be expected to be in-service in 2019.
• It is anticipated that the existing transmission system will be leveraged.

The AESO plans to release information respecting contractual provisions for the first procurement in the fall of this year, and noted its commitment to ongoing engagement with industry on subsequent REP procurements and updates on the REP.

Phase I Stakeholder Feedback

Stakeholders self-identified into one of three main categories: (i) developers/investors; (ii) associations and environmental public policy groups; and (iii) others (which included a Transmission Facility Owner, and ancillary service providers and manufacturers, among others). Most of the feedback summarized by the AESO was garnered from developers/investors.

Further Information Needed

Respondents indicated that more information was needed in a number of areas prior to making a decision to invest in Alberta. This included clearer regulatory processes for specific fuel types, and more information on the coal retirement schedule, as well as defined procurement and overall renewable development targets.

The definition of "renewable" was also requested, which the AESO has noted in this update will parallel the definition used by Natural Resources Canada. Other key informational gaps included information on existing transmission capacity and areas of constraint, which is of particular importance to wind development in southern Alberta, given existing system constraints and plans to continue transmission reinforcement in the region.

Investment Considerations

Respondents also provided information on their opinions as to key considerations and barriers to investing in renewable energy projects, and noted, among others, the current power pool prices in combination with the capital-intensive nature of renewable energy projects. Other issues included work already underway on the coal phase-out schedule, changes to the carbon pricing regime and market prices, as well as regulatory and interconnection timelines, and clarity about the level of support being provided. Another key issue identified was the ability to obtain financing at attractive rates.

Barriers to Energization by 2018

There are a number of projects currently advancing through the AESO's connection queue which have the potential to achieve energization by the end of 2018. However, the AESO noted that most developers found that 2018 is a challenging timeline based on a number of factors, including: (i) conducting environmental studies and obtaining environmental permitting; (ii) obtaining interconnection and other regulatory approvals; (iii) obtaining financing or the potential for financing delays; (iv) conducting procurement and construction for larger projects; and (v) the visibility of the coal phase-out schedule.

Recommendations to Address Investment Considerations

• The provision of financial support which could take a variety of forms (i.e., capped/uncapped REC, contract for differences, power purchase agreement, feed-in-tariff agreement, government financing etc.).
• The introduction through the REP of carve-outs (i.e. for specific fuel types, to advancement other socio-economic objectives).
• Greater clarity with respect to the long term plan / schedule for the procurement of renewable electricity generation, in addition to any short and long term targets.
• Greater clarity with respect to the coal phase-out schedule.
• Exploring whether there may be options to build renewable energy projects on public land.
• Making transmission modelling/transmission capacity information with respect to the grid available.

Stakeholder Comments on Timelines

Finally, the expected timelines for different resources were provided by stakeholders as 4-6 years for wind, 1.5-3 years for solar, 2-3 years for biomass, 3-7 years for geothermal, and 10-14 years for large hydro projects.

Conclusions

It is clear from the AESO's summary of stakeholder feedback that renewable energy developers are still missing information which will affect investment decisions in the province. Many similar themes appear to have arisen throughout the consultation process, chief among them being the lack of certainty and visibility surrounding the province's climate change plans such as incentive programs and the coal phase-out.

As the AESO's mandate letter for developing the REP states that the AESO must prepare a plan for review and consideration by the provincial government no later than May 2016, observers can expect a significant increase in the information available on the proposed form of the REP in the near future. Stay tuned.

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