Varcoe: Alberta’s speedy power market reform faces tricky balancing act between stable supply, cheaper prices


Nathan Neudorf knows there’s a delicate balancing act facing the Alberta government with this week’s announcement to restructure the provincial power market.

How will the province and Alberta Electric System Operator (AESO) complete work on technical design changes by year’s end — and provide the sector with investment certainty — without making abrupt moves that trigger unintended consequences?

And will the changes stabilize and reduce electricity prices, which have jolted Alberta businesses and consumers?

The province’s affordability and utilities minister acknowledges it’ll be tricky to get it right.

“We are trying to find that balance,” Neudorf said in an interview.

“Will they be the same (power) price as they were 10 years ago? I don’t know . . . but I do know it will be stable and I do believe that it will be lower than the peaks that we’ve been hitting the last couple of years.”

The province said Monday it will adopt interim rules to limit the allowed practice of economic withholding by large natural gas generators.

The temporary steps will begin in July and continue until 2027, when a broader retooling of Alberta’s energy-only market is implemented.

Under the larger restructuring, proposed new rules will include day-ahead pricing for the Alberta Power Pool and potentially lifting the current wholesale price cap of $999 per megawatt-hour (MWh) during periods of scarcity.

Prices above this level would be set by the system operator, not generators, and include measures to limit the cap in these periods “once reasonable fixed cost recovery is achieved,” according to the AESO.

The grid operator could even implement negative prices.

“We’ve talked to a lot of market participants, and we say there are two ways for you to make (a) profit. One is you either make a lot on a few hours of running — or you make a little on a lot more hours of running, making it a bit more of a volume business,” Neudorf said.

“Our preference is that we’d see a bit of that stability and volume pricing here.”

However, industry experts point out electricity prices are already dropping. The regulated rate option for power has fallen from a record 31.9 cents per kilowatt-hour (kWh) in Calgary last August to 13 cents in March.

Prices are declining as new supply is expected to arrive this year.

“When the minister says these steps will meaningfully bring down prices, it sort of reminded me of showing up with an umbrella after a rainstorm and saying, ‘I’ll stop you from getting wet,’ ” University of Calgary economist Blake Shaffer said this week.

“You’re capping prices, but after the emergency.”

Albertans have been hammered by sizzling electricity prices over the past two years.

The interim changes on economic and physical withholding of generation should help, Neudorf said.

“I don’t know if it will further drop those prices, but I can tell you that . . . it will not allow it to go very high above that cap,” said the Lethbridge-East MLA.

“It should stabilize that market.”

For investors, it’s not clear what the future will hold.

The broader market overhaul won’t kick in until the end of 2026, although detailed design work on the restructured market is due by the end of the year.

Prolonged uncertainty and tinkering could freeze investment decisions for new power projects.

After the changes were announced Monday, the share prices of two of the largest publicly traded generators in the province dropped. TransAlta Corp. fell 4.7 per cent between Monday and Thursday, while Capital Power dipped 2.7 per cent.

As Scotiabank Global Equity Research analyst Robert Hope said in a report this week, Alberta’s power market change “leaves more questions than answers.”

“At first glance, we view this as a negative in the near term for the Alberta power market as it could limit short-term upward spikes in power pricing that offset periods of low pricing when wind and solar are abundant,” he wrote.

“That said, we have always expected pricing to moderate in 2024.”

A Peters & Co. report pointed out the province’s electricity market watchdog “backtested” the interim economic withholding rules, concluding power prices would have been 23 per cent lower over the past three years if the policy had been in place.

“The long-term impacts are more uncertain, as industry will likely argue that lower power pricing could disincentivize investment in new generation, in turn supporting higher prices.”

Generators are examining the proposed reforms as they prepare for a consultation process later this year.

Capital Power senior vice-president Pauline McLean said the company was encouraged by Neudorf’s remarks that investors in the market need the opportunity to earn a rate of return on, and of, their capital.

As for the interim changes surrounding economic withholding, she noted prices are already going down with new generation coming online.

“The government was clear that they have concerns about affordability and that was the impetus for bringing these regulations into effect. And so, we’re going to figure out how we navigate within a new set of rules,” McLean said in an interview.

“Our view would be there’s perhaps going to be a modest (price) impact, but that’s a trend that we were already starting to see in the market.”

The announcement of short-term measures starting this summer has already lowered prices in the forward market, said electricity consultant Sheldon Fulton.

The question is how the longer-term reforms will affect consumers.

“Remember, energy is only one-third of your bill. The other two-thirds of your electricity bill are a bunch of add-ons, and none of that is addressed,” he said.

“It’s a bit of a fix . . . anything is better than what we have.”

Chris Varcoe is a Calgary Herald columnist.


You can read more of the news on source

Related posts