AESO Updates Stakeholders on Alberta's Renewable Electricity Program

On March 3, 2016, the Alberta Electric System Operator (AESO) released a questionnaire seeking input into the design of Alberta's Renewable Electricity Program (REP). The AESO received 138 responses to that questionnaire, and last week it updated the market on what it heard from developers, investors, industry associations and other market participants (Stakeholders). More importantly, it also shared a few details about the first renewable power procurement that is anticipated to occur later this year or early next year.

Summary of Stakeholder Feedback

There were not a lot of surprises in the feedback from Stakeholders. There is interest in wind, solar, biomass, geothermal, hydro and energy storage projects in Alberta. However, developers currently lack the information and certainty required to make long-term investment decisions on their projects, including with respect to:

1. The approach and schedule that Alberta will use to phase-out the Alberta coal generation facilities by 2030;
2. The procurement process and overall renewable development targets that will be implemented in Alberta to encourage renewable electricity development;
3. The definition of "renewable" and any performance standards that will be used in the REP;
4. The regulatory processes that will apply to the fuel types with which Alberta has less regulatory experience — a reference likely to hydro, geothermal and utility-scale solar;
5. Transmission, including existing capacity in Alberta, areas of transmission constraint and clarity on who will pay for transmission system upgrades;
6. Additional government financial support from the provincial or federal level;
7. Any curtailment policy that will apply to generators moving forward in Alberta; and
8. The encouragement of distributed generation.

The information requested by Stakeholders aligned with the feedback the AESO received from Stakeholders on their considerations for and barriers to investing in renewable projects in Alberta. However, not surprisingly Stakeholders also identified current Alberta power pool prices (now setting record lows), market price signals, carbon pricing, ability to finance at acceptable rates, and market stability as additional considerations for, and possible barriers to, their investment in Alberta. Interestingly, no mention was made by the AESO of any political risk associated with a future change in the Alberta government.

Most developers indicated that energizing their projects by 2018 would be challenging. Further, some Stakeholders reiterated the need to protect the existing energy-only market to ensure that it can withstand the addition of new renewable projects under the REP. Other Stakeholders raised a concern that the adoption of a "lowest cost" approach in the REP would not result in a diverse mix of fuel types, and recommended that "higher cost" fuel types should be supported for socio-economic reasons.

The Stakeholder recommendations to the AESO were consistent with their information needs and investment considerations:

1. The need for financial support from Alberta, including more than just the REC support that is expected to be provided, e.g. contracts for differences, long-term PPAs, feed-in-tariffs and government loans;
2. A carve-out for specific fuel types that cannot currently compete in a procurement on a lowest-cost basis;
3. More clarity on the coal phase-out schedule and the schedule for renewable power procurement;
4. More clarity on the use of public lands by power project developers; and
5. More transparency regarding transmission modelling/capacity in Alberta.

Details on the First Procurement

More important for Stakeholders was the AESO's announcement last week of 4 details that are anticipated to help define and form the scope of the first REP procurement:

1. The definition of "renewable" is anticipated to align with the definition used by Natural Resources Canada. Though the AESO reference is not specific, it is likely to be the definition found here.

2. The procurement is anticipated to be fuel-neutral. Thus, at least for the first REP procurement, there will not be a carve-out for solar or other forms of renewable power that may not be able to compete strictly on cost;

3. Facilities are expected to be in-service in 2019. The year 2019 was likely selected based on the feedback from developers about their difficulty in meeting a 2018 in-service date; and

4. It is anticipated that the existing transmission system will be leveraged. This likely means that developers who are proposing to use existing transmission capacity will have an advantage or may be the only ones qualified to participate in the first REP procurement. 

Considering that the Government of Alberta will have to approve the AESO's final recommendation on the REP procurement, it is interesting to note that the AESO used the word "anticipated" or "expected" five times in the paragraph announcing these details. That said, this is the first indication from the AESO about what will be included in its final recommendation to the Government of Alberta for the first REP procurement.

The next step in the AESO consultation process will be one-on-one follow-up meetings over the coming weeks with those Stakeholders who submitted responses which have the potential to impact the AESO's recommendation to the Government of Alberta on the design of the REP.

BLG is fully engaged in the proposed changes to Alberta's electricity market and the questions raised by last week's AESO announcement. We are meeting with government officials, and working with power developers and other market participants who are taking positive steps now to anticipate and position themselves to take advantage of Alberta's REP, including the procurement process. BLG understands the electricity industry and Alberta's electricity policy framework. We have in-depth experience in the siting, development, financing, construction and operation of renewables and alternative energy projects including wind, solar, hydro, geothermal, biomass and biofuels. We bring a range of experience — project and transactional expertise, senior provincial and federal government experience and an understanding of varying regulatory regimes — to our electricity clients in operating their businesses.

If Alberta's REP is something of interest to you then members of our national electricity team would be pleased to meet with you and to answer any questions you may have about Alberta's electricity market and the AESO's recent announcement.