Sponsored content the coming energy disruption daily oil bulletin gas house gang

##

That’s because Ontario is mostly built out with renewables. B.C. has limited opportunities beyond its traditional base of hydro power. Saskatchewan, while potentially promising because of its reliance on coal-fired power, is a relatively small power market.

“People are looking in from other countries. In the government’s REP [Renewable Energy Procurement] Round in December, two of the winners were European. The provincial support for renewables is significant enough to attract many new aspiring entrants to the Alberta market,” says Tim Poole, managing director of ATB’s Project Finance division.

In fact, Alberta secured the lowest-ever price for wind energy generation in Canada. The government signed 20-year agreements for four wind energy projects with three companies, representing approximately 600 megawatts (MW) of capacity at an average price of $37 per megawatt-hour. That’s well below both original expectations and forecast market prices.

“There was a lot of competition — 29 companies shortlisted for the first REP auction, which drove down the auction price. There were only three winners and Capital Power was the only local company. European companies made up the other two,” Eurich says.

“There were issues in Ontario with early-stage technology and the bidding process,” Eurich explains. “They greened their grid, but they did it early on when renewable power cost more. There were also some concerns with how build contracts were awarded. Construction prices dropped from when the contracts were awarded to when they were carried out. So the initial proponent could then resell that contract and make profit from flipping it.”

“Alberta has been a deregulated market for 20 years and now we’re making changes to that market,” he says. “We’ve got REP 1, 2 and 3, but we also have a pending capacity market and are putting a price on carbon. Renewable technologies continue to become more competitive in terms of cost. All in all, there is a lot going on.”

Integrating intermittent renewable power onto the grid will have numerous impacts on power prices and the reliability of the overall system. In an unregulated market, power pricing is settled by supply and demand. But adding intermittent power, such as wind power (currently the most economic renewable energy in Alberta; all three REP 1 winners were wind projects), is a challenge in an unregulated market.

That’s because when the wind blows in Alberta, it tends to blow for most of the wind power producers at the same time. As electricity supply increases, the hourly price paid for that power comes down. Conversely when the wind doesn’t blow, less supply drives prices up.

Further, given the intermittent nature of wind and solar power, the Alberta power system will require power generation assets that can be at the ready to fill any unexpected shortfall in expected power generation (as most Albertans know, the weather can be very unpredictable). This should create opportunities for energy storage (dam hydro, pump hydro, batteries, etc.) and for gas power plants to smooth out the intermittent power characteristics associated with most renewable energy technologies.

“So the government plans to split up the market into two revenue streams. It’s essentially breaking the price of electricity into two components to incent the build of new capital intensive assets,” Eurich says. “In a capacity market, there is a return on invested capital. So that will incent baseload capacity development that otherwise wouldn’t get built.”

A functioning capacity market, however, isn’t expected until 2022, although there are excellent examples of capacity markets in other jurisdictions such as New England. In the meantime, project developers and financial institutions will struggle with price uncertainties. Merchant pricing may be too much risk for a project to absorb and such projects may require corporate or provincial power purchase agreements.

Collaboration between government, renewable energy proponents and the oil and gas industry will be needed. This dialogue will necessarily take various forms, but conferences such as the upcoming Energy Disruptors conference this May will play a role in shaping Alberta’s energy mix.

“Right now, the conversation is happening at the extremes,” says Graeme Edge, Calgary-based entrepreneur and co-founder of Energy Disruptors. “You have one dialogue that is anti-development and that demonizes the oil and gas industry which, I think, really lacks understanding about the fact that the world is continuing to use more and more energy.