Alberta Electricity System Overview 1
Powering Alberta s Future Key Electricity Outcomes Alberta s electricity system needs to change to meet the needs of tomorrow. This plan will create a modern electricity system that: 1. Has reasonable, predictable prices 2. Reduces harmful pollution to improve the health of Albertans and the environment 3. Creates a positive investment climate to keep Alberta competitive 4. Remains reliable so the power is there when people flip the switch https://www.alberta.ca/electricity-reform.aspx 2
Electricity and Sustainable Energy Division Part of Alberta Department of Energy. Focused on enabling transition to a lower carbon electricity system to achieve government s objectives. Complexity of electricity system requires holistic approach. Changes to one part will impact another. Electricity system delivers reliable, safe, and relatively inexpensive electricity. The Climate Leadership Plan is driving significant change in the electricity sector and system. 3
Alberta s Market Transition 4
Governance of Alberta s Electric System Alberta Government Policies, Laws, Regulations Alberta Electric System Operator Manages and operates provincial power grid: Transmission planning System and market operations Financial settlement Alberta Utilities Commission Regulates the utilities sector, natural gas and electricity markets: Distribution Transmission Regulated Rate Option for consumers Market Surveillance Administrator Surveillance and investigation to ensure fair, efficient and competitive electricity and retail natural gas Enforcement of Reliability Standards Balancing Pool Manages financial accounts arising from the transition to competitive generation market in late 1990s. Responsible for obligations and responsibilities related to Power Purchase Arrangements (PPAs) 5
Alberta s Electric System - Generation Competitive / Market based Private Investment Energy Only Market Design Fully Regulated Cost-of-Service Model One rate for Albertans Fully Regulated Supports Retail Competition Different rates by utility Partially Deregulated Competitive Contracts Regulated Rate Option for smaller consumers 6
Electricity Information Alberta currently has 16,423 megawatts of electricity capacity. Alberta s various fuel sources of electricity generation include: cogeneration, hydro, biomass, wind, and coal. 7
Generation facilities are owned by private investors or municipalities. Owners bear the risks in investment and building, operating and maintaining these facilities. When deciding to build, private investors consider various factors: market conditions, geographical features, environmental regulation, etc. Developers must comply with AUC rules, environmental permits, local bylaws, and other relevant laws. Generation Source: AESO 8
Generation Profile: Installed Capacity 1993 2006 2016 (As of June 2016) 2030 (As per 2016 AESO LTO) Hydro 9% Gas (other) 7% Gas (co-gen) 7% Biomass & other 9% Coal 68% Gas (other) 13% Hydro 8% Wind 3% Gas (co-gen) 26% Biomass & other 1% Coal 49% Hydro 5% Wind 9% Gas (other) 16% Biomass & other 3% Coal 38% Biomass & other 2% Wind 24% Coal 0% Gas (Co-gen) 24% Gas (Co-gen) 28% Hydro 4% Gas (other) 46% Generation Investments (1998-2016) Approximately $16 billion Required Generation Investment (forecast 2016-2030) $20+ billion 9
Power Purchase Arrangements (PPAs) Under a PPA, a buyer purchases electricity from a power plant and sells it to Alberta consumers. PPAs were developed to: Transition previously regulated generating units to Alberta s competitive market Disperse offer control to PPA buyers to enhance competition Generation Unit Owner PPA PPA Buyer Revenue Electricity Markets Power Pool, Ancillary Services Forward Market, Contracts 10
Electricity Structure in Other Jurisdictions Market Structure Modified Energy-Only Capacity Market Long-Term Contracts Cost of Service Regulation Alberta (Today) Alberta (In 2021) Ontario IESO * BC Hydro SASK Power ERCOT Australia Germany NORDPOOL PJM ISO NE UK CAISO NYISO ERCOT: Texas NORDPOOL: Finland, Norway, Sweden, Denmark PJM: Pennsylvania, New Jersey, Maryland ISONE: New England (Maine, Massachusetts, New Hampshire, Rhode Island, Vermont) CAISO: California NYISO: New York Ontario (IESO): Ontario (transitioning from long-term contracts to capacity market*) 11
Capacity Market Market-based framework with two separate markets: Capacity payments: generators compete for payments to make generation capacity available to produce electricity when required. Energy payments: generators compete to sell their produced energy. 12
Benefits of Capacity Market Investors like the stability, predictability and familiarity. Preserves key market characteristics such as incentives to drive innovation, cost discipline, investors bearing investment risk, and consumer choice. Drives efficient use of existing transmission system rather than building new transmission before needed. 13
Benefits of Capacity Market (2) Leads to less price volatility on wholesale market, which means less price volatility for consumers. Leads to stable, sufficient, reliable supply of electricity through capacity payment design. 15
North American Capacity Markets Capacity Market PJM Interconnection LLC (Pennsylvania New Jersey Maryland Interconnection Limited Liability Company) US States Served All or parts of Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia, and the District of Columbia Population Served Approx. million 61,000,000 ISO New England (Independent System Operator New England) New York ISO Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont 14,700,000 (New York Independent System Operator) New York 19,700,000 Midcontinent ISO (Midcontinent Independent System Operator) All or parts of Montana, North Dakota, South Dakota, Minnesota, Wisconsin, Michigan, Ohio, Indiana, Illinois, Iowa, and Nebraska 42,000,000 Source: AESO 15
Coal Transition The Government of Alberta has committed to zero pollution from coal-fired electricity generation by 2030. There are currently 18 coal-fired generating units in Alberta. Six of the 18 had planned to operate beyond 2030 the longest being Keephills 3, which had expected to run until 2061. 16
Phasing Out Coal-Fired Emissions 17
Coal Phase-out Agreements Agreements have been reached with Capital Power, TransAlta and ATCO on their units that are scheduled to run past 2030. Government commits to: Provide annual transition payments of $97 million to companies, from Alberta s industrial carbon fund, from 2017 to 2030. Companies commit to: Zero emissions from coal-fired power by December 31, 2030. Continue to invest in Alberta s electricity sector and maintain a significant presence (head office and minimum number of employees). Provide funds to support communities. Respect commitments to employees. 18
Impact of Coal Phase-Out This will result in: ~287 megatonnes of avoided GHG emissions; ~373 million kilograms of avoided nitrogen oxides; and ~517 million kilograms of sulfur oxides avoided from coal generation post-2030. Assessments by healthcare practitioners show that phasing out coal can result in: fewer emergency visits, more productive employees, and decreased costs to the healthcare system. Alberta is in the midst of a major transition of our electricity system; 20 to 30 billion dollars of new investment is required by 2030. 19
Coal-to-gas Conversions The Government of Alberta is working with coal facility owners and the federal government on a regulatory framework to convert coal-fired generation units to run on natural gas where it is economically and environmentally viable. As of June 2017, TransAlta and ATCO, the two largest coal-fired power producers in the province, have announced accelerated timelines for converting their units from coal to natural gas. ATCO plans to transition their viable units by 2020, while TransAlta plans to convert viable units by 2023. 20
Renewable Electricity Program Alberta will add 5,000 megawatts of renewable energy by 2030 through the Renewable Electricity Program (REP), run by the Alberta Electric System Operator (AESO). It is projected to bring $10.5 billion in new investment to the provincial economy by 2030, creating at least 7,200 new jobs. The first competition for REP began in March 2017, with investors bidding to provide up to 400 megawatts of renewable electricity over a 20-year contract term. Projects are expected to be operational by 2019. The design and timeline of future auctions is still under consideration. 21
Alberta s Electric System - Transmission Competitive / Market based Private Investment Energy Only Market Design Fully Regulated Cost-of-Service Model One rate for Albertans Fully Regulated Supports Retail Competition Different rates by utility Partially Deregulated Competitive Contracts Regulated Rate Option for smaller consumers 22
Transmission Transmission is high-voltage infrastructure which moves electric energy to distribution centres and large industrial customers. $13.2-billion expansion and reinforcement is needed over the next decade. AESO s 2015 Long-term Transmission Plan projects $800 million to $2.5 billion of transmission upgrades may be required over the next five years. Transmission upgrades are needed to: Serve our growing population Support economic development 500 kv HVDC Future 500 kv AC (on hold) Attract and integrate new electricity generation of all fuel types Future 500 kv AC Future 240 kv AC kv - Kilovolt HVDC - High-voltage, direct current AC - Alternating Current 23
Context: Transmission Transmission facility owners by per cent of total line ATCO AltaLink 60% ATCO 36% ENMAX 1% EPCOR 1% Other 2% Red Deer AltaLink EPCOR (Edmonton) ENMAX (Calgary) Total transmission line length: 25,295 kilometres Lethbridge 24
Interties: Imports / Exports Alberta has historically been a net importer of electricity 2013 = 2,678.5 gigawatt hours 2014 = 1,839.3 gigawatt hours 2015 = 782.6 gigawatt hours Interties support the reliability, supply diversification, generation development and economic growth in Alberta. The Government of Alberta and the Government of British Columbia have had preliminary conversations regarding the potential for increased interties to support the Climate Leadership Plan. Altalink BC-AB: 950 MW Night Export Day Import MT-AB: 300 MW Enbridge Altalink SK-AB: 153 MW 25
Alberta s Electric System - Distribution Competitive / Market based Private Investment Energy Only Market Design Fully Regulated Supports Retail Fully Regulated Competition Cost-of-Service Model Different One rate for Albertans rates by utility Partially Deregulated Competitive Contracts Regulated Rate Option for smaller consumers 26
Distribution: Overview Source: Solarcor Energy Inc. 27
Distribution: Costs $160.00 Average Residential Electricity Bill, June 2016 $140.00 $120.00 $100.00 $80.00 $60.00 $40.00 $20.00 $- EPCOR FORTIS ATCO ENMAX $(20.00) Sites 389,297 558,345 225,558 480,660 GST Local Access Fees Riders * Distribution Transmission Administration Energy Balancing Pool Rider *Riders are a temporary charge on utility bills that are approved by the Alberta Utilities Commission (AUC), typically for transmission and distribution costs. Kilometres of line 5,288 106,300 69,200 7,523 Sites per kilometre 73.6 5.3 3.25 63.9 28
Rural Electrification Associations Rural Electrification Associations (REAs) provide power to consumers in rural communities within set boundaries. Certain REAs manage their own lines to distribute electricity to members, while others work with electricity marketers to provide electricity within their jurisdiction. As of December 2016, there are 32 REAs operating in the province. 29
Alberta s Electric System - Retail Fully Regulated Competitive / Market based Private Investment Energy Only Market Design Fully Regulated Cost-of-Service Model One rate for Albertans Supports Retail Competition Different rates by utility Partially Deregulated Competitive Contracts Regulated Rate Option for smaller consumers 30
Alberta s Retail Electricity Market Alberta s retail market opened to competition in 2001. The retail market is divided into two segments: Large consumers (consuming more than 250 MWh per year) Small consumers (less than 250 MWh per year) A customer pays a rate for energy to a Regulated Rate Option (RRO) provider unless they enter into a competitive contract. 31
Retail: Regulated Rate Option (RRO) Providers Direct Energy RRO provider for ATCO Electric service area EPCOR RRO provider for Fortis Alberta service area Edmonton RRO provided by EPCOR Calgary RRO provided by ENMAX Power Red Deer RRO provided by ENMAX Power Lethbridge RRO provided by Lethbridge Electric Utility Intertie between Alberta and British Columbia Intertie between Alberta and Saskatchewan Intertie between Alberta and Montana The City of Medicine Hat establishes a retail rate via their Electric Utility Bylaw 4254 32
Consumer Protection The Government of Alberta places high value on protecting consumers and helping vulnerable Albertans. https://ucahelps.alberta.ca/ Represents the interests of Alberta electricity and natural gas consumers in regulatory hearings Ensures consumers have the information, representation, and protection they need to make informed choices in Alberta s electricity market http://www.servicealberta.ca/ Ensures a fair marketplace for buyers and sellers Investigates consumer complaints, enforces consumer protection legislation Informs consumers and businesses of their rights and responsibilities 33
Regulated Rate Option Price Ceiling Since 2001, Albertans have had the option to receive their electricity from a retailer through the Regulated Rate Option (RRO). Through the RRO, electricity is purchased from a retailer at a rate that is regulated by the Alberta Utilities Commission (AUC) The Regulated Rate Option (RRO) price ceiling, which came into effect June 2017, will ensure that Albertans pay no more than 6.8 cents per kilowatt hour for electricity. From June 2017 to June 2021, consumers on the RRO plan (the majority of Albertans) will pay the market rate or the government's ceiling rate, whichever is lower. 34
Price Ceiling (2) Regulated Rate Option providers cannot bill customers more than 6.8 cents per kilowatt hour for the electricity component of their bill. If the rate exceeds the ceiling, the government will pay the RRO provider the difference between the actual price and the ceiling. 35
Historical RRO Prices Average RRO Jan. 2002 to Present, price in cents per kilowatt hour (c/kwh) 15.00 13.00 11.00 9.00 7.00 5.00 3.00 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Monthly RRO Average Historical Average 2002 - present 2016 Price Ceiling 2017-2020 RRO Historical High Jan - 12 36