CanREA Concerned About Punitive Market and Transmission Changes in Alberta
December 17, 2024
Alberta government introduces policy changes without honouring previous commitments.
The Canadian Renewable Energy Association (CanREA) is concerned that the latest round of changes to Alberta’s electricity sector, announced on December 10th, are punitive and unfairly target the renewable energy sector. They also do little to encourage investments in energy storage.
Signaling that he intends to bring forward the related legislation in the new year, the Minister of Affordability and Utilities Nathan Neudorf today sent a Direction Letter to inform the Alberta Electric System Operator (AESO) of the government’s latest decisions on changes to both the Transmission Regulation and the Restructured Energy Market (REM). Both sets of changes were expected, but both bring significant concerns to industry.
Imposing unexpected regulatory and administratively determined costs on existing projects, along with failing to provide the promised market access, makes these projects increasingly unviable. This erodes their returns and ultimately hampers their ability to repay debt.
“Alberta needs to proceed with caution: it is counterproductive to jeopardize existing wind and solar projects, especially when the province requires more electricity. These projects were built in good faith but could fail if they cannot repay their debt, causing credit downgrades across the sector. This will raise borrowing costs for companies and ultimately increase the cost of electricity for customers,” said Vittoria Bellissimo, CanREA’s President and CEO.
CanREA is concerned that, with this letter, the Government of Alberta is fundamentally changing the rules that govern how the electricity system is run, shortly after companies invested billions in new projects in Alberta. CanREA understands that some changes are needed going forward, but stresses that the announced changes add undue costs to existing assets.
CanREA would like to clarify two key points related to the announcement:
- Alberta’s electricity system should seek to develop and maintain a diverse supply mix, rather than relying on only one source of electricity. This diversity will enhance reliability, reduce vulnerability to supply disruptions and, critically, balance costs. Wind and solar are the most affordable new electricity generation sources in the world today, and Albertans want affordable electricity. Energy storage has helped keep the lights on in Alberta and is doing so in jurisdictions all over the world: Alberta urgently needs to increase its energy storage capacity.
- Most of Alberta’s “Big Build” transmission projects were built to get thermal generation to market, not to support renewable energy integration. In fact, most of this build happened before Alberta had any large solar facilities on its grid, and much less wind generation than what we have today.
While there are several items in the AESO Direction Letter that are helpful to the evolution of the power sector in Alberta, other items are unnecessarily punitive to renewable energy and may result in significant problems for projects that have been built and are currently operating in the province.
The most notable change is that the new market rules will be enacted by legislation, instead of being independently evaluated through a regulatory process. This is a significant departure from what was promised when the new market was proposed.
Alberta is undertaking sweeping changes to its electricity market design, while aiming for a hasty completion with a finalized design by the end of 2025, without an independent review. In contrast, Ontario is taking nine years for a similar exercise.
The Government is proposing to correct “technical deficiencies” after they have implemented this new market. It would be more prudent to do this in advance, through rigorous independent testing.
There is $15.8 billion per year flowing through Alberta’s electricity system: We cannot afford to get the market design wrong.
Positive elements of the Transmission Regulation:
CanREA is pleased to see that existing generators, who cannot factor in new transmission costs to their financial structures, will not bear additional transmission costs.
CanREA supports moving to a system-average losses approach, which will help provide more revenue certainty.
Concerning elements of the Transmission Regulation:
CanREA is concerned that there are no plans to compensate existing generators for curtailments. Alberta promised investors a zero-congestion transmission system, and companies built projects around this assurance. But in Q3 2024, we experienced congestion 45% of the time. Alberta has not honoured its transmission commitments; it should compensate all existing generators who are unable to get their power to market because of transmission congestion.
CanREA is concerned that the Government of Alberta is delaying much-needed transmission projects as Alberta moves to a new “Optimally Planned Transmission” Standard. There are two system upgrades that were identified years ago as necessary to bring low-cost renewable energy in southern Alberta to market. They are legally required under the existing legislated planning standard which requires zero-congestion. There is a global competition for electricity infrastructure, and delays will impede the delivery of clean electricity to market. Alberta also has big plans to welcome AI Data Centres. We will need all of the electricity we can get, but these needed projects will be tied up in red tape during the transition.
CanREA does not support major changes to Ancillary Services cost allocation when existing projects are not in a position to take on additional costs. CanREA is concerned that capacity costs will be allocated to renewables by deeming them “ancillary.”
There will be no certainty for new generation projects in Alberta in the near future. New generators will pay a non-refundable, uncapped, upfront Transmission Reinforcement Payment (TRP). More clarity on this TRP will not be available until the AESO undertakes its ISO tariff application, likely in 2027 or beyond.
By making these changes, the government is sending a signal to investors that there is a lack of certainty and predictability around the regulations in Alberta. This is a deterrent to future projects, at a time when other jurisdictions are working hard to make sure investors can feel confident about their investments for decades to come.
One of the three pillars of Alberta’s AI Data Centres Strategy is power capacity. Jeopardizing existing projects that invested in good faith threatens both this Strategy and the ability of Alberta’s power system to provide affordable, reliable and clean electricity to customers.
