Canada: AESO Opens Rounds 2 And 3 Of Alberta's Renewable Electricity Program

Last Updated: April 10 2018
Article by Canadian Energy Perspectives, Kimberly J. Howard and Seán C. O'Neill

Most Read Contributor in Canada, September 2018

On March 29, 2018, the Alberta Electric System Operator (AESO) launched Round 2 and Round 3 of the Renewable Electricity Program (REP) with a request for Expressions of Interest (REOI). As detailed in a previous update, REP Round 2 has a procurement target of up to 300 MW and successful proponents must have a minimum 25% Indigenous equity ownership. REP Round 3 does not have a prescribed ownership requirement and has a procurement target of up to 400 MW.

REP Round 2 was developed to encourage the greatest participation by Indigenous communities, create the greatest degree of competition among respondents, and provide the lowest cost for Albertans. Other than the differences described in this update, both REP Rounds 2 and 3 will mirror the key features of REP Round 1. The Government of Alberta and the AESO appear optimistic that the successful pricing from Round 1 will also be repeated.

REP Round 2 projects will be evaluated for their ability to connect to the existing transmission or distribution system prior to assessing REP Round 3 projects. Consequently, REP Round 3 projects will be evaluated for their ability to connect to the existing transmission or distribution system after Round 2 projects have been assessed.

This update provides an overview of the timelines for REP Rounds 2 and 3 and provides some preliminary commentary on the AESO's form of RESA Term Sheet for both rounds.

REP Round 2 and REP Round 3 – Key Dates

The AESO has provided the following timeline for both REP Rounds 2 and 3:

RESA Key Provisions Released

As was the case with REP Round 1, successful REP Round 2 and Round 3 proponents will enter into a Renewable Electricity Support Agreement (RESA) with the AESO.

The RESA will be a twenty-year, index-adjusted, fixed price contract, also known as a "contract for differences" (CFD). The fixed (or "strike") price of a RESA will be the price that the AESO accepts from a successful bidder and is expected to be the lowest price at which such bidder can build and operate its renewable energy project while obtaining an acceptable rate of return.

The AESO released a draft Term Sheet for REP Round 2 RESA and a draft Term Sheet for REP Round 3. The AESO is holding an REOI Information Session on April 17, 2018. Following this information session the AESO will accept questions regarding the REOI, REP Round 2 or REP Round 3 until 3:30 p.m. on April 10, 2018. Questions may be submitted to rep@aeso.ca with the subject line "Question for REP Round 2" or "Question for REP Round 3".

Noteworthy Changes to the RESA Key Terms

The general terms of the RESA appear to generally track the form used in REP Round 1. However, some new provisions within the draft REP Round 2 Term Sheet include:

  • Indigenous Participation Requirement: Each bidder who is awarded a RESA (Generator) must ensure that at all times during the term of the RESA and until the third anniversary of commercial operation of the facility, at least 25% of the ownership/equity interests in the Generator are held by one or more Qualifying Indigenous Communities or Qualifying Indigenous Entities. It is not clear from this provision whether the hold period is 3 years following commercial operation or the full 20 year term of the RESA.
  • Failure to comply with the Indigenous Participation Requirement may constitute a Generator Event of Default triggering the AESO's termination right and either: (i) liquidated damages (sum equal to the completion and performance security, $50,000 per MW of Contract Capacity) prior to commercial operation; or (ii) "mark to market" damages following commercial operation.
  • A "Qualifying Indigenous Community" is defined as a First Nation community located in Alberta, a Metis Settlement located in Alberta, the Metis Nation of Alberta or the Aseniwuche Winewak Nation. A "Qualifying Indigenous Entity" is a corporation, partnership, association, company or other entity which is wholly-owned by a Qualifying Indigenous Community.

Noteworthy changes applicable to both REP Rounds 2 and 3 include:

  • Renewable Attributes and Funding from other Governmental Authorities: Generally, Generators may not seek or obtain other funding or incentives in respect of the facility that are provided or offered by the Government of Alberta with respect to renewable electricity generation or the reduction of emissions. The Generators must pay to the AESO 50% of the amount of any payments received pursuant to any incentive programs administered by a Governmental Authority. However, for REP Round 2 and Round 3, these restrictions only apply to the Generator and do not apply to funding or incentives obtained by any Qualifying Indigenous Community, Qualifying Indigenous Entity or other equity participant in the Generator.
  • Tight Milestones for Commencement of Construction and Commercial Operation Date: The timelines for commencing construction and target commercial operation have been relaxed by extending those dates from 23 months to 30 months following execution of the RESA. However, the draft Term Sheets for both REP Round 2 and REP Round 3 have reduced the total construction time before the long stop date from 41 months to 37 months. Furthermore, the AESO has postponed its payment obligations by extending the earliest date upon which the support payments under the RESA can commence from 3 months to 15 months following RESA execution.

The following table compares the keys dates:

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