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Alberta’s independent electricity grid operator is facing backlash as it quietly unveils a plan to offer contracts for old coal-to-gas plants that would otherwise be retired — a move some say will kill the province’s open market and remove incentives for decarbonization.
The contracts — which would amount to a subsidy for older, less efficient natural gas power plants — would be unique in Alberta’s free market system that buys power from whichever generator can offer the lowest prices.
The new contracts would provide secure funding to owners of the plants to keep them operational. It’s not clear at this time whether that money would come from the government, or from a levy imposed on industry.
The plan is touted as a means of securing strategic reserves of electricity to avoid shortages or outages. Alberta’s grid has seen multiple grid alerts — warning of possible blackouts — over the past year. Opponents say the move will kill investor confidence and innovation.
“Economics of some of these [natural gas plants] are expected to become strained over the coming years as new supply has entered the market,” the Alberta Electric System Operator (known as AESO) said in a presentation to stakeholders on Thursday, adding it expects “owners are contemplating near-term retirement.”
The announcement yesterday came as a shock to Jorden Dye, director of the Business Renewables Centre-Canada, not least because previous analysis by the grid operator showed these plants could be online for another 15 years without support.
Dye stresses there’s a lack of clarity around the announcement and he’s eager to hear more specifics, but says it also signals deeper issues.
“Yesterday’s announcement signals a lack of confidence from [the Alberta Electric System Operator] in its own market-reform process before the market reform has been completed,” he said in an interview. “And I think that that was one of the most alarming aspects of it, for me.”
Many stakeholders who tuned into the announcement were adamant in their opposition to the plan.
“I can tell you, as we’re fundraising in the market right now, that this is absolutely the wrong thing to do at this point in time,” Claude Mindorff, the director of development for Pathfinder Clean Energy in Canada, said during the session’s question and answer period.
“You’ve just sent us back by months, from our financiers looking at this and saying, ‘Wait a minute, your margin has just eroded by 14 years because the [Alberta Electric System Operator] wants to continue using something that it’s comfortable with.’ ” In essence: investors will be scared off by interference in the free market.
Mindorff said if the grid operator is worried about strategic reserves, it should allow the open market to provide innovative solutions.
Horst Klinkenborg, a senior regulatory advisor with Suncor — which is also one of Alberta’s largest electricity generators — said these discussions are the “beginning of the end” of the market.
“The concern that I have is that simply by saying ‘We’re willing to sign contracts, if necessary, to maintain reliability, even on a fairly kind of loose concern’ — why would I take the risk of investing into this market on uncertain pool price in a market design that hasn’t been defined?” he said. The pool price refers to the price of electricity paid to generators.
The Alberta Electric System Operator declined a request for an interview and did not respond to written questions by publication time. Spokespeople for Alberta Premier Danielle Smith and Nathan Neudorf, the minister of affordability and utilities, did not respond to questions about the government’s involvement in the plan by publication time.
The contracts under discussion would only potentially impact three big generators: TransAlta, Heartland Generation and Capital Power. TransAlta purchased Heartland in 2023, but that deal still has to be approved by regulators in Canada and the U.S.
The plants that would be subsidized used to be powered by coal, which was phased out ahead of a government deadline. The plants have switched to natural gas but are older and not as efficient as their newer counterparts, critics say.
Plants like TransAlta’s Keephills facility in Wabamum, Alta., are among those that switched from coal-fired electricity to natural gas in recent years.
Alberta’s lobbyist registry shows both TransAlta and Heartland specifically lobbied the government to extend the life of coal-to-gas plants, which are more expensive to operate than newer plants.
“Will continue to engage with government departments and electricity agencies on policy reforms that would reduce electricity system costs in the province,” reads the filing from TransAlta. “This includes discussions on mechanisms to extend the life of existing natural gas fired assets to ensure system reliability in the province.”
Capital Power also lobbied the government regarding market reforms, but its filings did not mention extending the life of coal-to-gas plants.
TransAlta’s media relations team said a request for comment was being reviewed, but did not respond by publication time. Capital Power and Heartland Generation did not respond to requests for an interview.
Dye said the older plants aren’t the best option for reserves, with less capacity to quickly scale up and down as electricity is needed.
The proposal to introduce contracts into the system comes at a time when the province and the grid operator are trying to implement wide-ranging reforms of Alberta’s free electricity market. Soaring prices as well as increased complexity have put strains on the system — operationally and politically.
“There’s a lot of problems that you’re creating with this design and the amount of time it’s taking,” Ed Depalezieux, the president of Depal Consulting, said. “And it’s our whole economy that’s hanging in the balance here in Alberta. I think you need to take a step back, at least the government does, and think this through.”
The contract discussion also follows a moratorium on renewable energy developments and a push for more natural gas generation by the provincial government.
Internal correspondence obtained by The Narwhal has shown staff at the grid operator struggling with government mandates they disagree with.
Mike Law, the grid operator’s CEO, who recently left the organization, said the moratorium on renewables would send the industry “into a tailspin,” while other staff worked hard to try and dissuade the government from implementing contracts to support its preferred technologies.
Stakeholders at the online information session on Sept. 5 warned these contracts and other moves could seriously hamper investments in new generation in the province, which could lead to the shortages the grid operator is worried about.
That’s particularly true with rising demand and in the context of a government actively trying to attract new businesses, including energy-intensive data centres.
“We’re having trouble thinking about developing that generation because of the uncertainty caused by this market design,” Depalezieux said.
Beyond simply getting enough supply, the move could also impact moves to decarbonization, by keeping old, less efficient plants online while simultaneously making it more difficult to build renewables due to new regulations governing wind and solar.
“This is all negating the work that needs to be done, which is to develop a long-term solution for a net-zero energy market, whether it’s 2035 or 2050,” Mindorff said.
Dye said the announcement will further erode renewable investments in an industry already grappling with the impacts of the Alberta government’s regulatory changes and the seven-month moratorium implemented on new renewable energy in the summer of 2023.
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