February 2017 – Alberta Utility Market Updates

This article is an update to EPL’s original publication from April 21, 2016 on Alberta’s carbon levy, 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 utility costs.

A carbon tax/levy/charge of $20/tonne of CO2 came into effect on January 1, 2017 and this is set to increase to $30/tonne in 2018.

Updates and Details

1. Carbon Tax: Budget certainty on natural gas bills

– If you’ve received your January 2017 natural gas bill, your retailer will be showing a line item for the carbon levy. It should be a $1.011/GJ charge in addition to any energy and regulated charges, pro-rated to the period beginning January 1, 2017.

– This rate will increase to $1.517/GJ by 2018.

In preparation for the carbon tax, many properties in the province are investing in energy audits, retro-commissioning, and analytics as they seek opportunities to drive down energy use while maintaining occupant comfort.

2. Carbon Tax: Budget uncertainty on electricity bills

– Our April 2016 article suggested that there was uncertainty around the impact of the carbon tax on electricity rates. Fast-forward 10 months and the picture remains fuzzy. Starting in 2018, coal-fired generation plants will be subject to a $30/tonne carbon tax.

– Recent forward prices (i.e. forecasts from utility retailers) suggest a modest increase in electricity rates through 2020-2021.

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

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

Electricity Market Changes

– The government is also 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). There is only one other market in North America that uses this model: our fast-talking step-cousin to the south, Texas. In the market’s current form, there is little financial incentive for electricity generators to provide a lower-carbon solution.

– 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. However, power generation volumes with specific carbon emission requirements 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 and does not include transmission and distribution, riders, admin fees, etc. – the ‘regulated’ charges on your bill). 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.

Phase-out of coal-fired plants

– Based on a desired/planned/mandated phase-out of coal fired electricity generation in the province by 2030, one could reasonably anticipate that the cost of electricity will increase beyond 2021. The government predicts that an estimated $25B of new investment is required for infrastructure to transition towards a less carbon-intensive electricity grid, while serving an ever-increasing population.

– That said, the details on how to make this transition have not yet been resolved, so the idea of a short-term capped electricity price does provide some additional certainty through this transition. For reference, Alberta’s 2015 grid composition included 9% renewables and 40% natural gas (with the remainder as coal), whereas the 2030 target includes 30% renewables and 70% natural gas.

– An accelerated retirement schedule has been proposed for a handful of coal-fired power plants that were expected to operate beyond 2030. The Alberta government has been working with electricity generators to resolve cancelled power purchase agreements (PPAs) in order to drive towards the lower-carbon objectives outlined in the provincial Climate Leadership Plan. If you’re brave, ask Mayor Nenshi for details on PPAs.

Incentives

– Energy conservation incentive program details are slowly being released via a new provincial agency known as Energy Efficiency Alberta. For the commercial real estate market, the agency has announced a pending rebate program that has few details but covers “lighting, heating, cooling and hot water systems.” Keep your eyes here for further announcements: https://www.alberta.ca/energy-efficiency-alberta.aspx

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 dive deep into the rabbit hole that is energy in Alberta.

Graham Halsall, EPL

Image credit; Law & The Environment

Aydan Aslan
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