In what shall forever be known as Electricity Week, the Alberta government managed to flip the switch on five massive changes to the province's electricity system.
Between November 19 and 23, government ministers announced plans to:
- Shift Alberta from an "energy-only" electricity market to a capacity market;
- Cap electricity prices at 6.8 cents a kilowatt hour for families and small businesses;
- Stop door-to-door sales of utility contracts and other energy products;
- Compensate coal power plant owners for early closure of six power plants;
- Settle three of the four power purchase agreement (PPA) lawsuits.
When the government announced its climate leadership plan a year ago, the elephant in the room was Alberta's broken electricity market. The province had the most volatile electricity market in the world. Financiers were reluctant to lend money to Alberta projects. Transalta, one of the largest players in Alberta's electricity oligopoly, had agreed to a multimillion-dollar settlement with the province for insider trading and manipulating power prices in Alberta's topsy-turvy electricity market five years earlier.
Alberta's electricity market was broken. Now the Alberta government has fixed it.
Electricity is not a commodity like apples or airline tickets.
The biggest change is the switch from an energy-only market to a capacity market. Capacity markets are not some strange new beast. Hundreds of millions of electricity customers around the developed world pay their bills every month into a system that uses a capacity market.
So what is it? Think of it as a forward market. A power plant will receive compensation for its ability to produce electricity in the future based on a competitive bid at auction. A capacity market recognizes the value of keeping the lights on when demand is at its highest. Electricity generators will now be paid through these competitively auctioned contracts as well as through revenue from the spot market.
So why do it? Two big reasons.
Electricity is not a commodity like apples or airline tickets. The cost to the economy when the grid goes down is enormous. That's not the case if you can't get a seat on a plane or you can't get your favourite type of apple in February. Reliability is the No. 1 issue for a grid operator. Applying a market signal to firm electricity production in the future has tremendous value and makes sense.
The second reason is for the purposes of bankability. The banks simply did not trust our market to deliver any kind of return because of its structure. Since Alberta is phasing out coal for carbon pollution and health reasons, we need to be sure we can replace it with renewable energy and natural gas projects.
Take any conservative setting of hair on fire about this issue with the requisite box of salt.
Much like upcoming renewable energy auctions, the capacity market will have electricity generated by private interests participating in a competitive auction. Just like Lenin always envisioned? Hardly. Take any conservative setting of hair on fire about this issue with the requisite box of salt.
Any comparison between Alberta and Ontario is also incorrect. Wind and solar are much cheaper than just five years ago, and prices, as mentioned, will be set by competitive bids from private companies -- not bureaucrats.
The government cap on prices is just that, a cap and not a floor. It will protect consumers from price spikes over the next four years. And while Jason Kenney seems eager to defend door-to-door salespeople selling energy products, more than 1,000 complaints have been lodged since 2010 about unethical, high-pressure sales tactics.
The compensation to coal plant owners for the early closure of plants set to operate past 2030 seals the deal on coal's phase-out. There is no going back between the federal coal phase-out announcement and money exchanging hands between the government and Capital Power, TransAlta and ATCO.
Settling three of the four PPAs is just the cherry on top. The government has (mostly) settled a thorny issue that could have potentially held up some of the proposed electricity market reform.
Alberta has flipped the switch on a new electricity system. We're better off for it.
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