The Canadian province of Alberta, known for its notoriously dirty oil sands, has just made a symbolically significant about-face on energy policy, with potentially major implications for North American wind power. First up is a tender for 5 GW of wind power. At the same time, Alberta will pay its coal plants $1 billion to shut down.
Last year’s surprising election upset put a decisive end to 80 years of conservative rule in the oil sands capital of the world, with a radical change in political leadership. The innovative climate-friendly New Democratic Party won the election.
This month, Shannon Phillips, Alberta’s bold new Environment Minister for the new left wing government in Alberta unveiled policies that make some startling changes in the Canadian province best-known for its climate-destroying tar sands.
On Thursday, the Alberta government unveiled the policies that will get it there.
1. Competitive auctions with 5 GW of wind for 30% renewables by 2030
2. Literally paying coal plants $1 billion to gradually shut down by 2030
First up is a 5 GW tender for wind power, beginning with the first 400 MW in 2017, and 450 MW annually from 2019
Alberta will offer 20-year power purchase contracts, with the first round to be in operation by 2019. The first tender, in 2017, calls for 400 MW of wind power, and competitive auctions will be held for an additional 400 MW biannually thereafter.
David Hickey, Siemens Canada VP of wind, told Recharge that winning bids in the first round could see wind priced between 3.7 cents and 4.5 cents(USD) per kWh. Alberta’s coal based electricity is a bit lower, because it has a fleet of aging coal plants with long paid-off capital costs.
Wind auction winners would be paid partly through “Contracts for Difference” payments — a fixed amount above the market price.
The funds to pay for this top-up would come from carbon fees charged for Alberta’s large-scale carbon emitters. “In this way we’re turning emissions today into renewable energy tomorrow,” Alberta’s new Environment Minister Shannon Phillips told Recharge.
At the same time, the new government will pay coal plants $1 billion to shut down
Environment Minister Phillips also plans an accelerated phase out of coal-fired generation with the increased deployment of renewable energy to replace it. Carbon capture has fizzled out. But wind potential in the state is superb.
Alberta burns more coal for electricity than the rest of Canada combined, and 17% of Alberta’s carbon pollution comes from its coal dominated electricity mix. The oil sands emit 22%, and other oil use accounts for 24% of its emissions.
Three of Alberta’s coal producers, TransAlta, ATCO, and Capital Power, will be paid more than $1 billion Canadian dollars (about 3/4 of a billion in US dollars) to shut down their plants entirely over the next 15 years, with complete shut down by 2030.
Until all the coal plants are completely shut down in 2030, the coal industry will be required to support the communities of laid-off workers in the surrounding communities. Just one last utility in Alberta, Enmax Corp, is still in negotiations with the Alberta government.
Each wind procurement round and grid connection from now till 2030 will be timed to substitute for coal power electricity as that gradually is phased out as coal plants in the region are closed.
Innovative ideas built on success elsewhere
Breaking with its past as a notorious carbon polluter for its tar sands, the new Alberta government reached out to citizens for input on climate policy ideas and is proposing major changes.
One challenge is that Alberta has almost no wind industry, so there is not the extensive existing wind power manufacturing and supply chain in Alberta that there is in the US. The Democratic majority in 2009 passed $38 billion in investment in clean energy infrastructure, including a wind manufacturing supply chain.
So costs are expected to be higher initially than US wind, and to help jumpstart a new wind industry, prices will initially be higher.
Among the ideas for how to pay are a new capacity market for electricity, which ensures that existing investments, including existing renewables, are treated fairly and that there is a level playing field for competition.
According to the Government of Alberta, consumers will be protected from any price volatility while the government switches to new clean energy investment because of the new capacity market.
“Think of capacity markets as ‘Market Plus.’ They support better planning and reliability, while using markets and competition to meet the energy demands in the most cost-effective way possible. And, because they’re used all over the world, capacity markets are familiar to investors, who like the stability and predictability they bring. Moving in this direction will help Alberta attract investment in the new, lowest-cost capacity we need to smooth our move away from coal-fired generations and create jobs as we do,” Energy Minister Margaret McCuaig-Boyd stated at the new electricity capacity market announcement this week.
Generally, a capacity market structure is seen as providing both price stability to consumers and revenue certainty to developers and investors in new generation. Renewable generators in a capacity market are paid from the spot market for electricity, partly by the prices they fetch in the market, but also partly through fixed payments.
PJM Interconnection is an example of a mature capacity market structure. Private investors from around the world have built over 30,000 megawatts of new generation in PJM under this market structure, which kept the lights on at stable prices.
The 20-year contracts, along with a carbon-fee-paid top-up will give the certainty needed to facilitate new investment in developing a new wind power supply chain in Alberta.
Image Credit: Premier of Alberta Shannon Phillips speaks to the Climate Change Advisory Panel