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Energy
| 01/10/18

Alberta’s first renewables auction delivers historic low prices, but backup still needed

TCE

Alberta’s renewable electricity auction was a stunning success, achieving some of the lowest prices for such clean electricity yet seen in Canada, and destroyed arguments that this alternative source of energy has to be expensive. But because wind is variable, the price attached to turning it into electricity is not the only cost to the system.

In December, the Alberta Electric System Operator (AESO) revealed the results of its Renewable Electricity Program competition, intended to spur the development of enough clean generation to allow the province to meet its goal of producing 30 percent of its electricity from such sources by 2030. Energy experts’ eyes popped at the average price achieved in 20-year agreements with the three winning companies—just 3.7 cents per kilowatt-hour (kWh). For comparison, Ontario’s feed-in tariff delivered prices of 13.5 cents/kWh for wind and 80.2 cents/kWh for solar.

The power (moment-to-moment delivery of energy) of the four wind projects to be developed by the three firms totals 600 megawatts (MW), some 200 MW more in power procurement than had been planned simply because the cost was so low. Auctions will continue until up to 5,000 MW of renewable electricity are developed by the end of the next decade. To put this into context, the province’s maximum power needs hit a power demand record of 11,473 MW in late December due to extreme cold weather.

The sharp difference in price between Alberta and Ontario comes from how renewable energy is subsidized. With Ontario’s feed-in tariff, the province signals it is willing to pay a particular price for renewable energy for 20 years, and then private companies decide whether such a price is profitable. Alberta asks companies to submit bids, which would deliver the lowest profitable price. Then for a 20-year period, if the market price of electricity is lower than in the agreement, the province agrees to pay the difference to the winning bidders (this subsidy coming from Alberta’s levy on heavy industrial greenhouse gas emitters). But if the market price is higher, these companies pay the province the difference.

However, these rock-bottom prices do not solve the problem that wind, like solar, is beholden to the caprices of Mother Nature and thus is not available whenever the electricity is needed.

So, Albertan wind power will have to be coupled with backup or storage, most likely coming in the form of natural gas in the short term. This still delivers significant reductions in greenhouse gas emissions compared to the province’s coal-fired power plants, but over the medium term, emissions from natural gas also have to be eliminated. Battery storage is one alternative, but current battery tech cannot deliver storage for very long. Another option is pumped-storage hydro or reaching an agreement with British Columbia to use its hydro reservoirs as giant batteries to store excess wind energy and then sell it back when needed, an approach that PICS is currently investigating. A third option involves the use of low-carbon but politically challenging nuclear energy.

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