Energy Expo: Alberta's Renewable Electricity Program 101
- Samantha Hoffman, P.Eng.
- Oct 1, 2017
- 3 min read
These posts are intended for everyone. The purpose is to explain some of the technical and economic concepts behind the power news in Alberta.
The Question
What is the Renewable Electricity Program? How Does it Work? And What Does it Mean for Albertans?
What Is the Renewable Electricity Program?
On November 15th, 2015, the government of Alberta announced its plans to provide 30% renewable generating capacity or 5000 MW by 2030. In order to achieve this goal, the Alberta Electric System Operator launched the Renewable Electricity Program to encourage investment into renewable generation in the province.
The first round of the program (REP1) has garnered a lot of interest and received bids from companies operating around the world.
Twenty nine projects advanced to the RFP stage of the program and together they represented a whopping ten times the megawatt target of 400 MW for the first round.
How Does It Work?
In Alberta, power is bought through a whole-whole energy market. Power prices are calculated on a minute by minute basis and averaged over an hour. Prices are determined based on supply and demand, fluctuate and can be difficult to predict. Check out the example on economic dispatch for more information on this.
Many factors can affect price.
For example, the recent construction of new natural gas plants (including Shepard Energy Centre) have driven power prices down in Alberta in recent years.
Unexpected outages of large generating stations can cause spikes in power prices.
Because of the unpredictability of power prices, investors may be hesitant to invest in new renewable projects which have a high upfront construction cost.
The government has created two programs to encourage investment in renewable generation: the new Capacity Market (discussed in last week's energy expo) and the Renewable Electricity Program.
Both government programs reduce risk
for investors in renewable projects.
For information on the history of power prices in Alberta, I highly recommend reading Gary Holden's article on this topic. He gives an extensive and detailed background.
The Program's Mechanics
The Renewable Electricity Program works by guaranteeing a power price for all projects accepted into the program. By having a known power price, investors are able to perform financial analysis on new projects and have confidence in their assumptions on whether the project will be profitable.
They will not have to rely on forecasts which can be unreliable, eliminating the risk of potential lower future power prices.
Investors bid in a price for their projects
and the projects with the lowest bid price
are selected into the program.
Projects must also meet some additional criteria (for example, projects that require significant additional transmission capacity are excluded).
When the pool price is lower than the projects bid, the program pays the generator the difference, but when the pool price is higher than the bid, the generator pays the government back the difference.
A series of competitions will run between
2017 and 2030.
The costs of the program will come through the provincial carbon levy.
Competition Stages
Each competition will comprise of three stages:
Request for Expressions of Interest (REOI) - 4-6 weeks - To gauge industry interest in the competition.
Requests for Qualifications (RFQ) - 4-6 months - To determine which bids are viable from technical and economic perspectives.
Requests for Proposals (RFP) - 2-3 months - To select the winning bidders.
The process is already underway for REP Round 1. The AESO selected the participants to proceed to the RFP round on September 15th. The successful bidders will be announced in December, 2017. All projects will be constructed by December, 2019.
What Does it Mean for Albertans?
By utilizing the auction and also requiring that generators pay back when power prices are higher than they bid, the program seeks to encourage investment while also minimizing the financial impact to consumers.
Through the program, Albertans will benefit from a more diverse and robust generation mix which in theory will lessen the impact of the loss of single large generator.
Albertans will benefit from improved air quality and the reduction of greenhouse gas emissions.
And, the owners of coal fired plants in Alberta have already committed to decommissioning coal plants for financial reasons (regardless of the dates that the federal Conservatives, provincial Conservatives or provincial NDP mandated the closures).
New generation resources are required to meet the energy needs of Albertans regardless of government mandated closures.
Future Questions
Do you have any other burning questions about electricity or power generation for future Energy Expos?
Comment below or send them to info@skhoffman.com
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Further Reading
For more detailed information on this topic, check out these resources:
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