Alberta’s Electricity Market Is Evolving
The Alberta electricity system and market is evolving and with these changes coming in you may be asking yourself, “What is the next evolution?”
To address volatility in the market, a price cap on the RRO (Regulated Rate Option) of 6.8 cents/kWh will been installed beginning June 2017 through until June of 2021. What this means is consumers who choose the Default Rate for their electricity will continue to pay the government regulated rate, which fluctuates and follows the wholesale market but averages around 20% higher than Park Power’s Floating Rate. Should the actual price for the RRO reach 6.8 cents/kWh, it will be capped at that rate automatically on their bills. When this happens, the government will pay the RRO provider the difference between the actual price and the ceiling. Where the money for this compensation is coming from is yet to be determined.
Before this government intervention, price protection has always been available to consumers through fixed rate offerings from competitive retailers like Park Power. Like our Green Alberta Energy Rate of 6.0 cents/kWh guaranteed until the end of 2020 and still 13% below the government cap price.
In an effort to protect consumers the government has banned door-to-door sales of household energy products beginning Jan. 1, 2017. These include: furnaces, natural gas and electricity contracts, water heaters, windows, air conditioners, and energy audits.
This change has come from Service Alberta as they are the ministry in charge of consumer protection and the Fair Trading Act. While only a few energy retailers on Alberta’s market still use door-to-door sales methods for residential consumers many retailers employ sales staff or contractors for commercial consumers and will be directly affected by this change. This is going to change the retail electricity and natural gas marketplace for sure but challenges for marketers usually ends with innovation and value for consumers.
As coal-fired electricity generation is phased out of Alberta by 2030, infrastructure investments will need to be made to replace half of our current generation capacity. To encourage greater investor confidence, Alberta’s Energy Only electricity market is being redesigned to include a Capacity Market. This means that a secondary market for electricity generators will be created wherein they can earn income for the ability to supply power (capacity) to the grid. The goal with the market re-design is to make available a secondary, more stable stream of income for generators compared to Alberta’s current energy only market. The addition of a stable stream of capacity market income to the less predictable energy market income should make a more attractive environment for investment into electricity generation assets.
Capacity markets are used throughout the world, including in the United States and United Kingdom. They currently serve over 137 million electricity consumers in more than 30 U.S. states. For Albertan consumers this transition could actually bring prices down once the framework is in place for 2021.
The market redesign to include a capacity market will be led by the Alberta Electrical Systems Operator (AESO), the non-profit body responsible for managing the grid 24 hours a day, managing and operating the electricity markets, and planning for the system’s future infrastructure requirements.
The updated Alberta Electricity market will create a more investment friendly environment and protect consumers from price volatility and pushy sales people. Let us hope that consumer education remains a priority as well so that the market for electricity and natural gas remains healthy and competitive for consumers instead of favouring the Regulated Rate Providers.
In this evolving electricity market, Park Power will continue to aim to be A Better Choice for Albertans by offering lower rates, better service, and sharing our profits with awesome local charities.