AuthorKris Kasawski

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What is happening to Alberta’s Electricity Market?

Starting January 1, 2017 Alberta’s electricity landscape will begin to undergo some major changes and you may be wondering about these changes and how they will affect you as a consumer.  The impact may not be as daunting or a negative as you might think.

There are 3 key principles that will be guiding this electricity transition; Consumer Protection, a Market Redesign, and the Phase Out of Coal Emissions.

Consumer protection will come in the form of a ban on door to door sales of energy products and a price cap on the default Regulated Rate Option (RRO) that will come into effect June 2017.  The ban on door to door sales applies to businesses selling furnaces, natural gas and electricity contracts, water heaters, windows, air conditioners, and energy audits.   The price cap will be in place for 4 years as a method to protect RRO consumers from the volatility of the energy only wholesale electricity market.  Consumers who choose a non RRO Competitive Retailer for their electricity already have the opportunity for price protection in the form of Fixed Rates.

The market redesign towards a Capacity Market will happen under the direction of the Alberta Electric System Operator (AESO) and will encompass 2 wholesale electricity markets. A market in which generators compete to sell energy and a market in which generators compete for payments to provide capacity on demand.  A Capacity Market will provide stability in prices and create a more investment friendly environment than the current energy only market.  New investment will be required as coal-fired electricity generation is phased out and new generation is required to replace its capacity on our grid. Price stability in the wholesale electricity market will have stabilizing effects on the prices for retail consumers.

The phase out of coal fired electricity will have direct impact on the companies that own current coal fired generating assets as well as the communities in which they operate.  Currently Coal Phase Out Agreements have been reached with Capital Power, TransAlta, and ATCO wherein the Alberta Government commits to $97million annually until 2030 and these companies commit to zero emissions from coal-fired power by Dec. 31, 2030, continue to invest in Alberta’s electricity sector and maintain a significant presence (head office and minimum number of employees), provide funds to support communities, respect commitments to employees.  The funding for these transition payments will be coming from the Progressive Conservative installed Emissions Reduction Alberta (previously branded Climate Change and Emissions Management Corporation) meaning the transition payments will not be coming from consumers electricity bills.

Now perhaps some perspective.  Yes these market changes combined with the Carbon Levy will increase Albertan consumers’ electricity costs.  Remember though that electricity in Alberta in 2016 traded at the lowest prices in 15 years and overall Canadians pay some of the lowest prices in the developed world for electricity.  Plus there is also the new agency, Energy Efficiency Alberta that will provide programs and services to help Albertans protect their pocketbook and lower their carbon footprint.

If you are a Floating Rate consumer you have been saving money all year and if you are a Fixed Rate consumer now is a great time to lock in a new rate.

There are some positives to be seen as a consumer in the Alberta Electricity Market right now.

Update on the Alberta Coal Phase Out

As January 1, 2017 approaches and Alberta prepares to enact some major changes to the electricity market here is an update on the Coal Phase Out.

The Alberta Government is attempting a made-in-Alberta transition to a stable, reliable and cleaner electricity system, the government plans to phase out all coal pollution by 2030. This will be achieved through the following actions:

  • having 30% of Alberta’s electricity come from renewable sources by 2030
  • allowing coal units to convert to natural gas where it is economically viable
  • creating a market for private investment in technologies such as natural gas, cogeneration or other technologies

A hiccup that came along with the move towards a coal free electricity grid was when 4 companies applied to terminate their Power Purchase Arrangements. Which was followed by a lawsuit launched by the government to counter those terminations.  A settlement has been reached Capital Power and tentative agreements have been reached with TransCanada and AltaGas.

coal-fired-generationThere is also the effect on the owners of the coal-fired electricity generation assets that will be affected by the mandated phase out.  The government has elected to provide transition payments to the companies which were originally slated to operate their coal-fired units beyond 2030.

These payments, calculated using a methodology provided by energy expert Terry Boston, represent the approximate economic disruption to their capital investments. They also provide investor confidence and encourage them to participate in Alberta’s transition from coal to lower emitting sources of electricity, such as natural gas and renewables.

The transition payments will be coming from Emissions Reduction Alberta (formerly the Climate Change and Emissions Management Corporation – CCEMC) and will be paid from revenues generated by Alberta’s price on industrial carbon emissions.  This is a funding source that was in place prior to the NDP taking power and will have no effect on consumer electricity bills.

In regards to the communities and local economies that will be impacted by the retirements of coal-fired power plants, the government has created the Advisory Panel on Coal Communities.  This panel, with experts in employment and labour law, human capital and economics will engage with the affected communities to try and enact a positive economic and social transition in this large market shift.

As coal-fired electricity generation currently makes up half of the grid capacity in Alberta and the government has a goal of 30% renewable capacity by 2030, natural gas generation, both new and coal to gas conversions , will still make up the other 70% of grid capacity.  As of the fall of 2016 there is already a memorandum of understanding between the Alberta Government and TransAlta regarding the transition from coal to gas.

With drastic market changes like this there is bound to be impact on consumers.  The coal phase out and the carbon tax will most likely have upward pressures on retail rates for consumers.  How drastic those upward price pressures will be is yet to be seen and will depend on the other coming changes to Alberta’s electricity market.

Consumers can protect themselves from any price increases by choosing a Fixed Rate Plan from Park Power that will guarantee them a low (pre-carbon tax) rate for 2 or 4 years.

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?”

With 4 major announcements coming from the Alberta Government Nov. 22nd, Nov. 23rd, Nov 24th, and Nov 25th Alberta’s Electricity Market will undertake a redesign with 3 key guiding principles.

  1. Address volatility in the market
  2. Protect consumers
  3. Instill investor confidence

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.

door-to-door-energy-sales-banned-2

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.

Evolution of Alberta's Electricity Market

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.