December 2017 – Alberta Utility Market Updates: Certainty? Certainly not!

This article is an update to EPL’s publication from February 2017 on Alberta’s utility market updates and carbon levy details, found here.

Since last year, the Alberta government has implemented the carbon tax, the provincial Climate Leadership Plan, and changes to the power market. Calgary’s Energy Profiles Limited (EPL) prepared this update to clarify real and potential impacts to your building’s utility costs.

The carbon tax/levy/charge of $20/tonne of CO2 came into effect on January 1, 2017. To ring in the New Year, this rate is set to increase to $30/tonne as of January 1, 2018.

Updates and Details

1. Carbon Tax: Budget certainty on natural gas bills

– Regardless of your commercial or residential property types, natural gas bills show a current line item of $1.011/GJ in addition to any energy and regulated charges, starting January 1, 2017.
– This rate will increase to $1.517/GJ by 2018. To put this into perspective, an efficient, gas-heated 250,000 sqft building may pay an additional 3 cents per sqft in 2018 on the natural gas carbon levy. If this rate increase is not currently accounted for in your budgets, now is a good time to reconsider.

To manage the incremental costs from the carbon tax, many properties in the province are investing in energy audits, retro-commissioning, and advanced site analytics as they seek opportunities to drive down energy use while maintaining occupant comfort.

2. Carbon Tax: Budget uncertainty on electricity bills

– Our 2016 and spring 2017 articles suggested uncertainty around the impact of the carbon tax on electricity rates. The future is a tad clearer at this point.
– Starting in 2018, coal-fired generation plants will be subject to a $30/tonne carbon tax.
– Until early December 2017, forward prices (i.e. forecasts from electricity retailers) suggested a modest increase in electricity rates through 2020-2021. On the morning of December 6th, electricity generator TransAlta announced an accelerated shift away from coal and towards natural gas conversion at two of their stations. Along with this announcement, TransAlta announced the temporary shutdown of three coal-fired units.
– As anticipated in any supply-demand relationship, forward-looking electricity prices through 2020-21 took a leap of 5% after TransAlta’s announcement.

There is still uncertainty about what lies beyond 2021 for electricity prices in our province.

3. Other snippets… and changes that can impact your utility costs

Incentives – Energy conservation incentive details were presented to Albertans beginning in May 2017. Recall that a new provincial agency known as Energy Efficiency Alberta is tasked with program development, implementation and growth.
– For the commercial real estate market, the agency is accepting applications for the Business, Non-Profit and Institutional Energy Savings Program. While the uptake has been positive, the earmarked $10M in incentives has yet not been consumed. For reference, this program includes rebates for lighting, HVAC, water heating and VFD installations.
– In some cases, the incentive program has helped owners / managers accelerate capital projects. For instance, the rebate for a new 4 ft. LED tube is $7/lamp, provided that the lamp is on Energy Efficiency Alberta’s approved product list. Rather than a 4-6 year window sans incentive, the incentivized payback is sub-2 years at several buildings that we’ve examined.
– The online application process is straightforward and pre-approval can be arranged for sites that are not sure about product eligibility. For more details, contact Energy Efficiency Alberta or your building electrical / mechanical specialists, as they’re likely aware of the process.

Electricity Market Changes

– We noted this topic in our last update, and it’s still relevant today:
– The government is planning to shift away from the current energy-only type of market structure, where a real-time supply and demand relationship drives electricity prices (and helps to contribute to Alberta’s sometimes volatile price swings).
– The proposed market structure is called a capacity market, and it is slated to be in effect by 2021, though the transition is underway this year. Similar to an energy-only market, private electricity generators are relied upon to sell electricity, though with specific carbon emission requirements. Contracts are auctioned off so that all parties have price certainty for produced (available) electricity and on-demand (future) generation. During the transition period from the energy-only market to a capacity market, the government has suggested that a residential rate cap of 6.8 cents per kilowatt-hour will be mandated for those on a regulated rate option for the next four years (this rate is for electricity only; regulated/admin charges are separate). Consumers will still be able to shop around for competitive, contracted electricity rates – which are currently much less than the proposed rate cap.
– Commercial consumers are not anticipated to be covered by any such price cap during the transition period.

Termination of PPAs and Legal Ramblings

– On January 1, 2016, emissions requirements for electricity generators became stricter as part of the provincial Climate Change Policy. Due to these changes, certain Power Purchase Arrangements (PPAs) were no longer deemed ‘profitable’, and in May 2016, coal-based power generators opted to exercise a legal clause to return their PPAs to the Balancing Pool of Alberta (think of them as an administrator of PPAs).
– After some debate about whether original PPA agreements legally allowed generators to return PPAs if electricity generation requirements changed (as in this case), the Balancing Pool was required to accept the volumes of unused/yet-to-be generated electricity. ENMAX went to court with the Balancing Pool on claims that the Pool dragged their heels on terminating the contract (In November 2017, ENMAX won the case and the PPA cancellation date was deemed effective January 1, 2016).

We’ve presented a high-level overview of some rather detailed topics that are shaping this province’s future. Please feel free to connect with us if you have any questions and we’re happy to further discuss the unique world of energy in Alberta.

Graham Halsall, EPL

BOMA Calgary Member

Image credit; Law & The Environment

Aydan Aslan