‘It’s a double-edged sword because anything good for the consumers is bad for the generator, so you have to try to find that right balance between both’
Darren Makowichuk/Postmedia
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New research examining the overhaul of Alberta’s power market concludes provincial reforms will lead to savings for consumers — as much as $1 billion within three years and potentially $8 billion over a decade, due to lower electricity prices.
However, the study says changes to limit the practice of “economic withholding” by large power generators are unnecessary as electricity prices were already falling, and warns that attempts to limit prices will come “at the expense of investor confidence.”
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Electricity consulting firm EDC Associates Ltd. conducted the study after the UCP government announced a series of steps to overhaul the province’s deregulated power market, including short-term measures that kick in this summer and proposals for longer-term reforms.
It found that the immediate moves will lower wholesale electricity prices, which are now expected to average about $74 per megawatt-hour (MWh) this year, down eight per cent from its previous forecast.
A similar decline is seen in 2025, with a seven per drop cent projected in 2026.
For consumers, this could translate into $430 million in power cost savings over one year, reaching almost $1.1 billion over a three-year period — and more than $8 billion over 10 years based on EDC’s modelling, said Alex Markowski, senior energy market analyst with the Calgary-based firm.
Generators will lose the above revenue potential, which will create a less attractive environment for building power projects in Alberta, he said.
“At the end of the day, these changes drive prices down, which is good for consumers,” Markowski said in an interview.
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“But it’s a double-edged sword because anything good for the consumers is bad for the generator, so you have to try to find that right balance between both.”
EDC has also lowered its future renewable energy growth forecast by 20 per cent by 2040.
“Prices were coming down anyway. The problem was fixing itself,” EDC president Duane Reid-Carlson said Tuesday.
“This is bad policy . . .
“`
For the government to step in and do all these things and create a halt on investment — we don’t need the investment at the moment, but it is going to kill investment for a very significant amount of time.”
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Last month, Alberta Utilities Minister Nathan Neudorf announced a suite of short-term measures to limit price volatility in the provincial power market.
The province and Alberta Electric System Operator (AESO) followed it up with longer-term proposals to restructure Canada’s only deregulated electricity market.
The interim changes take effect in July and will remain in place until 2027. They will see the province establish rules to limit the practice of economic withholding by large natural gas electricity generators.
Economic withholding is permitted in Alberta, allowing generators to offer electricity at prices “sufficiently above marginal cost that the generator is not dispatched, and the pool price is increased as a result,” according to the Market Surveillance Administrator.
The changes will restrict economic withholding by capping the offer price permitted by large generators, if their net revenues exceed a predefined level.
Under the broader reforms being proposed, the province could create new rules that include day-ahead pricing for the wholesale power market.
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The AESO is consulting on the proposed changes, and technical design is expected to be wrapped up later this year.
After a period of lower power prices in Alberta last decade — wholesale electricity prices averaged below $20 per MWh in 2016 — they have averaged more than $100 per MWh during the past three years.
However, prices are projected to drop this year as additional gas-fired and renewable generation comes online. With the provincial changes, the EDC report has lowered its 15-year forecast of power prices by $9 per MWh, or eight per cent.
In an interview, Neudorf said Tuesday that he’s pleased to see prices are expected to fall for consumers in Alberta.
“We wanted stability and, honestly, we hoped for a bit of an easing in those prices,” Neudorf said.
“Affordability is very, very important.
We want to ensure stability for the industry so they can see a long-term return on investments.
Neudorf emphasized the need for balance in the province’s changes, highlighting the federal government’s goal of achieving net-zero status for electricity grids by 2035 instead of 2050, which could impact investments.
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EDC views the reforms as unnecessary, attributing them to federal carbon policy and rapid growth in renewables.
Alberta has seen significant new investment in renewable energy in recent years, with forecasts showing continued growth post-2025.
The EDC report anticipates a slowdown in renewable growth due to factors such as higher transmission charges and new buffer zones to protect scenic views.
While wind and solar projects are growing, the province also expects an increase in gas power projects this year.
Although these policy changes may impact investor confidence, the report suggests that the effects may not be immediate given the current supply levels in Alberta.
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Enverus Intelligence Research has identified potential risks for 43 planned renewable energy projects in Alberta due to new regulations on wind and solar developments.
New regulations include buffer zones around protected areas and restrictions on renewable development on prime agricultural land.
Despite these challenges, some renewable projects are still expected to proceed, although at a slower pace.
Chris Varcoe is a Calgary Herald columnist.
cvarcoe@postmedia.com
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