By Nick Martin
In the Calgary Herald and the Province
December 15, 2017
Premier Rachel Notley announced the winning bids of the first auction under Alberta’s Renewable Energy Program on Wednesday, but the successful bidders were not the only winners evident at the afternoon press conference. With the winning bids at a weighted average price of 3.7 cents per kilowatt-hour for emission-free energy, the auction is a win for the climate, consumers, taxpayers and competition.
It is a win for the climate because the world needs to transition toward clean energy as fast as possible. The winning bidders are set to develop 600 megawatts of wind generation, which will increase Alberta’s wind capacity by roughly 40 per cent and bring the province 12 per cent of the way toward its 2030 goal of 5,000 megawatts of new renewable energy.
It is a win for consumers because 3.7 cents is the lowest recorded price for renewable energy in Canada. The price is not far from traditional sources of electricity in Alberta, which are at record low levels as well due to the low cost of natural gas, but are always fluctuating. Just three years ago, Alberta’s average electricity price was 4.9 cents per kilowatt-hour.
If Alberta – and the rest of the world – is to address climate change successfully, it will have to do it in an affordable manner. These results make it easier to believe this is possible.
It is a win for taxpayers because the low price means the burden on government finances will be minimized. The government will only have to pay the projects the difference between their bid and the price they get for the energy they sell. With the winning prices, this difference – and thus what the government will pay – is likely to be small. In fact, the way the winning contracts are to be structured, taxpayers could see money flowing back to the treasury if electricity prices go above 3.7 cents.
Finally, it is a win for competition because the auction pitted dozens of companies against each other to develop the cheapest clean energy possible – and it worked. There is no substitute for vigorous competition to bring prices down.
The auction results show that renewable energy is the real deal in Alberta and that the doom and gloom often cast over decarbonizing the grid might be misplaced.
But while everyone should be excited about these results, it does not mean Alberta’s electricity emissions problems have been magically solved. Alberta will not be able to keep building cheap wind power to supply all its electricity needs. As more wind energy is deployed, the less valuable it will become as the province produces more wind power at certain times than it can physically consume.
Alberta will need a diverse portfolio of resources. Solar energy tends to produce during times when wind energy is reduced. Hydroelectricity is flexible and can be called upon as needed. Likewise, storage technologies can help stock pile excess emission-free energy to be used when it makes sense. Expanding the grid to neighbouring provinces can help achieve this diversity at even lower cost.
Future rounds of Alberta’s auctions should be structured to account for the need for this diversity and let all technologies compete to provide it. They should continue to focus on cost, but should also give weight to the value of energy as well. While solar is generally more expensive than wind on a unit-for-unit basis, solar also tends to produce electricity when its value is higher due to higher demand, meaning it might require less government assistance to be viable. Alberta should also conduct rounds with longer operational date requirements to let technologies with longer lead times to compete as well — hydroelectricity, for example.
Regardless of changes that are needed, the first auction cannot be viewed as anything but a success. It is hard to imagine that a substantial amount of wind energy will not be developed in Alberta, as it has some of the best wind energy potential in the country, and Alberta would be crazy not to capitalize on this.
Nick Martin is a policy analyst at the Canada West Foundation