Varcoe: A tricky balancing act to retool Alberta’s power market

Article content material

Nathan Neudorf is aware of there’s a fragile balancing act dealing with the Alberta authorities with this week’s announcement to restructure the provincial energy market.

How will the province and Alberta Electrical System Operator (AESO) full work on technical design modifications by yr’s finish — and supply the sector with funding certainty — with out making abrupt strikes that set off unintended penalties?

Article content material

Article content material

And can the modifications stabilize and cut back electrical energy costs, which have jolted Alberta companies and customers?

The province’s affordability and utilities minister acknowledges it’ll be difficult to get it proper.

“We’re looking for that steadiness,” Neudorf mentioned in an interview.

“Will they be the identical (energy) worth as they have been 10 years in the past? I don’t know … however I do know will probably be steady and I do consider that will probably be decrease than the peaks that we’ve been hitting the final couple of years.”

The province mentioned Monday it can undertake interim guidelines to restrict the allowed follow of financial withholding by massive pure fuel turbines.

The momentary steps will start in July and proceed till 2027, when a broader retooling of Alberta’s energy-only market is applied.

Beneath the bigger restructuring, proposed new guidelines will embody day-ahead pricing for the Alberta Energy Pool and probably lifting the present wholesale worth cap of $999 per megawatt-hour (MWh) in periods of shortage.

Costs above this stage could be set by the system operator, not turbines, and embody measures to restrict the cap in these durations “as soon as cheap mounted price restoration is achieved,” based on the AESO.

Article content material

Article content material

The grid operator may even implement detrimental costs.

“We’ve talked to quite a lot of market members, and we are saying there are two methods so that you can make (a) revenue. One is you both make lots on a couple of hours of operating — otherwise you make a bit of on much more hours of operating, making it a bit extra of a quantity enterprise,” Neudorf mentioned.

“Our desire is that we’d see a little bit of that stability and quantity pricing right here.”

The federal government mentioned it believes the interim measures on financial withholding will assist decrease utility payments.

Nonetheless, business specialists level out electrical energy costs are already dropping. The regulated fee possibility for energy has fallen from a document 31.9 cents per kilowatt-hour (kWh) in Calgary final August to 13 cents in March.

Costs are declining as new provide is predicted to reach this yr.

“When the minister says these steps will meaningfully carry down costs, it type of jogged my memory of displaying up with an umbrella after a rainstorm and saying, ‘I’ll cease you from getting moist,’ ” College of Calgary economist Blake Shaffer mentioned this week.

“You’re capping costs, however after the emergency.”

Article content material

Albertans have been hammered by scorching electrical energy costs over the previous two years.

The interim modifications on financial and bodily withholding of technology ought to assist, Neudorf mentioned.

“I don’t know if it can additional drop these costs, however I can let you know that … it is not going to enable it to go very excessive above that cap,” mentioned the Lethbridge-East MLA.

“It ought to stabilize that market.”

For buyers, it’s not clear what the long run will maintain.

The broader market overhaul gained’t kick in till the top of 2026, though detailed design work on the restructured market is due by the top of the yr.

Extended uncertainty and tinkering may freeze funding selections for brand new energy initiatives.

After the modifications have been introduced Monday, the share costs of two of the biggest publicly traded turbines within the province dropped. TransAlta Corp. fell 4.7 per cent between Monday and Thursday, whereas Capital Energy dipped 2.7 per cent.

As Scotiabank World Fairness Analysis analyst Robert Hope mentioned in a report this week, Alberta’s energy market change “leaves extra questions than solutions.”

“At first look, we view this as a detrimental within the close to time period for the Alberta energy market because it may restrict short-term upward spikes in energy pricing that offset durations of low pricing when wind and photo voltaic are ample,” he wrote.

Article content material

“That mentioned, we have now all the time anticipated pricing to average in 2024.”

A Peters & Co. report identified the province’s electrical energy market watchdog “backtested” the interim financial withholding guidelines, concluding energy costs would have been 23 per cent decrease during the last three years if the coverage had been in place.

“The long-term impacts are extra unsure, as business will seemingly argue that decrease energy pricing may disincentivize funding in new technology, in flip supporting greater costs.”

Mills are inspecting the proposed reforms as they put together for a session course of later this yr.

Capital Energy senior vice-president Pauline McLean mentioned the corporate was inspired by Neudorf’s remarks that buyers out there want the chance to earn a fee of return on, and of, their capital.

As for the interim modifications surrounding financial withholding, she famous costs are already taking place with new technology coming on-line.

“The federal government was clear that they’ve considerations about affordability and that was the impetus for bringing these laws into impact. And so, we’re going to determine how we navigate inside a brand new algorithm,” McLean mentioned in an interview.

Article content material

“Our view could be there’s maybe going to be a modest (worth) impression, however that’s a development that we have been already beginning to see out there.”

The announcement of short-term measures beginning this summer time has already lowered costs within the ahead market, mentioned electrical energy advisor Sheldon Fulton.

The query is how the longer-term reforms will impression customers.

“Keep in mind, power is just one-third of your invoice. The opposite two-thirds of your electrical energy invoice are a bunch of add-ons, and none of that’s addressed,” he mentioned.

“It’s a little bit of a repair … something is healthier than what we have now.”

Chris Varcoe is a Calgary Herald columnist.

cvarcoe@postmedia.com

Article content material