Canada’s Carbon Price Will Radically Cut Alberta Grid Emissions
Alberta Canada has close to the worst emissions in Canada as a province from both a grid and a per capita perspective. Along with Saskatchewan’s, its absolute, per capita, and per GDP emissions have risen over the past 20 years. The two provinces have increased emissions as much as the rest of the provinces have decreased them, leaving Canada with no progress to show on national climate targets.
That’s mostly due to ‘industrial’ sector emissions and energy use, which is to say oil and gas extraction, refinement, and distribution. Oil sands extraction is an energy intensive process with steam injected deep underground to separate the oil from the sticky sand and allow it to be pumped to the surface. That process is called steam-assisted gravity drainage (SAGD) and the heat for the steam comes from natural gas co-generation plants that also generate electricity both for oil sands operations and the grid.
When the Notley NDP administration was in power in 2015 they — assisted by my long-term collaborator Tim Weis, currently an engineering professor at University of Alberta and formerly a Director at the Pembina Institute — put in place a climate plan as part of an agreement with the federal Liberal party. As I wrote at the time, the plan was an 11/10 for Alberta, but only a 7/10 for the planet, something Tim objected to. The amazing part was the commitment to shut down coal generation in the province by 2030. The unfortunate part was that roughly the same emissions from coal were granted as expansion territory for oil-sands emissions. The coal generation was to be replaced with 67% renewables and 33% natural gas generation. At the time, I thought the 15-year time frame was too slow and the renewables target too low, but it was much better than anyone could have expected from the oil industry captured province.
When I was headhunted to be a candidate for Director Innovation for one of the electrical generation firms in Alberta few years ago, I’d proposed a three-part strategy of accelerated renewables, only maintaining co-generation gas plants and shuffling all the coal plants and standalone gas plants into a corporate structure that allowed easy divestiture without substantive corporate losses. None of those things happened under the candidate who was actually brought into the position.
As no good deed goes unpunished, the Notley government lost power in early 2019 to a newly blended conservative party, the United Conservative Party (UCP), and under the new premier, Jason Kenney remained committed to eliminating coal, but changed the renewables / gas replacement ratio to 50:50. As just a year earlier the newly elected conservative premier of Ontario, Doug Ford, had torn up 758 renewables contract and prevented compensation by legislation, this was about as good as could be expected.
Recently, more good news came out of Alberta. The low carbon price and other factors had led the private companies currently generating electricity with coal to announce that they would be shutting down all remaining coal plants by 2023. That’s excellent news, even though the intent of the companies is to replace them with natural gas generation.
I’m working on an initiative to establish a virtual power purchase agreement to allow British Columbia’s residential and commercial building owners to achieve net-zero emissions by owning portions of solar farm output in Alberta. The insight of one of my collaborators, Pete Atkinson, principal at Human Studio Architecture and Urban Design, was that putting solar on Alberta’s grid, with its 790 grams of CO2 per kWh and excellent solar resource, made a lot more sense than putting solar panels on buildings in BC, with its 12.9 grams CO2 per kWh and poor solar resource. The challenge is getting that to work.
Enter Keith Hirsche of Elemental Energy Inc.. He’s been working for several years on a very sensible approach of putting ~700 kW solar farms on orphaned oil well sites that are in Phase 1 remediation in southern Alberta. The value propositions are multiple. The first is that there are a lot of orphaned wells, as I’ve written about previously in CleanTechnica, the sites are already leveled, have access roads, and have distribution grid interconnections that were used to power the wells. The second is that both farmers and municipalities used to receive revenue from leases and taxes from those wells, and they are feeling the loss of revenue. Municipalities especially are under budget challenges, as the Kenney administration gave oil and gas companies a year’s tax relief in one of his many funding bailouts to the industry (billions so far) and many of them didn’t bother to restart paying taxes the following year. The third is that Alberta has a credit of $20-$30 CAD per MWh for distribution-side small generation, put in place to provide an incentive for small oil and gas firms to generate electricity with excess, unmarketable natural gas instead of just flaring it off. The fourth is that Alberta’s grid liberalization has come with a standard problem, which is gold-plated transmission upgrades with all costs passed down to people connecting generation to transmission and ratepayers. Fifth, while electrical generation auctions for solar are coming in under $50 per MWh, the electricity markets are paying an average of $70 per MWh to solar farms. Sixth, there is accelerated one-year depreciation for solar capital costs, allowing investors looking for tax breaks to buy in, then sell the operating assets in the second year. Finally, southern Alberta needs a great deal of energy for irrigation pumps in growing season, so distribution-side generation is useful. Keith has an excellent working relationship with Canadian Solar, one of the biggest manufacturers of panels in the world and the winner of recent utility-scale solar auctions in the province. The combination makes the economics work just fine.
As part of the BC virtual PPA initiative, I put together a 20-year grid CO2e intensity model, in part to assess the potential value of carbon offsets that might be recognized by BC’s carbon offset program, something which paid an average of $10.28 CAD per ton CO2e in a recent procurement. That model suggested that grid electricity in Alberta would drop from about 790 grams CO2e per kWh today to about 300 grams CO2e per kWh in 2030 and down to about 150 grams CO2e in 2040. That last decade of improvement was due to greater commissioning of wind and solar as its price dropped even further, making basic market mechanisms favor it. In conversation, Tim Weis suggested that he thought they’d achieve a lower CO2 per kWh by 2030, perhaps 200 grams, but I’m not seeing it and didn’t follow up.
But then the Canadian federal announcement of the carbon price being uncapped and rising to $170 per ton of CO2 by 2030 came out. I wrote about some of the implications of that carbon price recently, and one of the subjects was electrical generation.
“… at $170 per ton of CO2e, that means that a kWh of electricity from natural gas in the province should have a wholesale cost that’s about $0.06 higher than it is today, making it uneconomic. Wind and solar, which have been coming in under $0.05 CAD per kWh wholesale at auctions, are obviously vastly more competitive under a stiffer carbon price.”
In the interest of never letting a previously developed model go unexploited, I spent some time today projecting out the potential implications for the electrical generation mix for Alberta. Anyone investing in natural gas generation today is seeing their business case disappear. Under Alberta’s electricity market, no generation has privileged access to the market in the way that nuclear in Ontario and southern US states does. Electricity that’s too expensive — coal under the current low carbon price and gas under the new carbon price — simply won’t be purchased and the generation plants will sit idle.
Alberta also has excellent wind resources to go with its solar resources (and excellent geothermal and pumped hydro resources as well), as well as people and companies who know how to build things. The combination suggests to me that Alberta’s too-slow pivot to renewables is about to accelerate, that the 50% natural gas replacement is going to be much lower, and that natural gas will drop almost entirely off of the grid by 2040. The SAGD co-generation will be grinding to a halt over the next 20 years regardless, as Alberta’s expensive, heavy, far from water, high-CO2e burdened crude is going to be first off the market globally.
Industrial use of electricity in Alberta will diminish as oil and gas diminishes over the 20 years, but electrification of everything else including transportation and home heating will, in my model, create a slight annual increase in electrical demand. Overall, primary energy inputs in Alberta will drop by 50%, but energy services demands will still increase somewhat.
So what’s the net?
As can be seen, the emissions intensity per kWh was going to drop substantially with coal’s departure, but will drop a lot more with the higher price on carbon pushing natural gas generation off of the grid. The right vertical axis is for additional avoided megatons of CO2e from electrical generation per year from the much more decarbonized grid.
Over the 20 years, more than 200 megatons of CO2e will be avoided on a single provincial grid supporting just over 4 million people due to the higher carbon price. In large part this is because Alberta’s grid is so carbon intensive, but it also illustrates the market power of a carbon price to create big changes.
Of course, this is a projection, not a prediction. There are significant error bars I’m not showing for simplicity’s sake. There are two federal elections before 2030, the last one was fought over the carbon price, and while the Conservatives who wanted to kill the market-mechanism carbon price lost, they’ll have two more chances. I’m sure Alberta electricity generation firms will be making optimistic forecasts that the increasingly regional federal Conservative Party will win and kill the carbon tax at a future time, and they may be correct. As I pointed out years ago, carbon pricing is necessary but has limits.
However, this is the super power of carbon pricing. It makes business cases for fossil fuels and their applications stop making sense, so that clean, modern solutions can take their place. And at the right price, they drive rapid changes.
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