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Bill seeks to scrap planned overhaul of Alberta's electricity market system

Alberta’s electricity generators would continue to be paid only for the electricity they produce, rather than both production and capacity, under a UCP government bill tabled Thursday that seeks to scrap a planned overhaul of the system.

Former NDP government planned to shift to a capacity market by 2021

The Alberta government introduced a bill Thursday that would scrap an overhaul of the province's electricity system planned by the NDP. (CBC)

Alberta's electricity generators would continue to be paid only for the electricity they produce, rather than both production and capacity, under a UCP government bill tabled Thursday that seeks to scrap a planned overhaul of the system.

If passed, Bill 18, the Electricity Statutes (Capacity Market Termination) Amendment Act, would cancel the former NDP government's plan to shift the province's electricity market system to a capacity market from an energy-only market by 2021.

In a capacity market, electricity generators are paid for the electricity they produce as well as their capacity to produce, which guards against power shortages. Private power generators are paid through a mix of competitively auctioned contracts. 

An energy-only system pays companies only for the electricity they generate, based on the wholesale price. Companies can decide where their facilities are located and the type of energy they wish to produce. Alberta has operated an energy-only market since 1996.

"Moving to a capacity market was an experiment," Energy Minister Sonya Savage said at a news conference Thursday afternoon.

"It was going to be paying for electricity to be available, not necessarily to be used. That was the concern that would run up affordability."

Many governments have successfully switched to capacity markets, but critics say if the transition is not well executed it can result in both too much supply and higher prices.

But those who advocate for a capacity market point out that because Alberta's energy-only system is dependent on market forces, prices can fluctuate wildly. There are also concerns about the stability of supply.

David Gray, the former executive director of Alberta's utility watchdog, said he is "ambivalent" about the government's legislation, noting an energy-only system has both advantages and drawbacks.

"We tend to get slightly cheaper power, having the energy-only market, because you are sort of not paying any insurance," said Gray, president of ENERmin Solutions, which helps businesses transition to cleaner energy.

"But the flipside of that is sometimes the prices go insane," he said. "So it is a very different sort of market and it has the potential to be very volatile, and may or may not give you the reliability that you are actually looking for.

"You don't have to look that far back in history to see periods where we had some rotating blackouts."

During the news conference, Savage didn't answer questions about whether the government will keep or repeal the consumer price cap of 6.8 cents per kilowatt-hour implemented by the former NDP government in 2017.

Earlier in the day, government officials told reporters that consumers should not expect a spike in their electricity bills. Savage could not explain how the government could assure Albertans that would be the case, given the shift back to a more market-driven system and the uncertainty over the price cap.

"We heard overwhelmingly that the way to keep electricity prices low is with an energy-only market, that that was by far the preferred market for affordability, for reliability, and to attract investment," Savage said.

She said the province has attracted "more than $2 billion investment in electricity," including a major solar-energy project near Calgary, since the UCP government announced in July that Alberta would remain an energy-only market.

Worries of supply instability prompted planned shift

In November 2016, the former NDP government announced the province would shift to a capacity market.

The NDP made the decision based on advice from the Alberta Electric System Operator (AESO), the not-for-profit entity that operates the province's power grid. Under the planned capacity system, the AESO would plan, approve, and administer the contracts with private power generators, ensuring the government buys enough capacity to meet expected demand.

The AESO became concerned Alberta wouldn't have a stable source of electricity as the province closes coal-fired plants over the next several years and shifts to more renewable sources of energy. Stakeholder consultations yielded concerns that investors would be reluctant to invest in an energy-only system, the AESO said in an October 2016 report.

"The market will be unable to support increasing volumes of intermittent renewables and provide a healthy reserve margin to manage through a wide range of system conditions," the report warned. "System reliability will be compromised.

"The current (energy-only market) structure will not ensure the investment in new generation that Alberta will need in the future."

In its platform for this spring's provincial election, the UCP promised to launch a 90-day review of Alberta's electricity market system to see if it should remain an energy-only market. That review began in late June after the UCP formed government.

But in July, a little more than a month into the review, the government announced it would return to an energy-only market.

Asked Thursday why it cut short the review, Savage and government officials said stakeholders had expressed overwhelming support for an energy-only market.

NDP energy critic Irfan Sabir said the decision to revert back to an energy-only market was ideologically driven and the UCP had "made up their mind" before consultations.

"This is something the previous (NDP) government did and it doesn't matter what the results are for the consumer, they will get rid of it," Sabir said.

He said he thinks Alberta will lose investment in renewable energy.

Bill 18 would remove the references to a capacity market from three existing pieces of legislation that govern the province's electricity market. The AESO's other functions would not be affected.

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