The cost of electricity reform continues to add up
It should be of no surprise that when our provincial government announced the early forced retirements of coal-powered electricity generators that electricity prices would take a significant jump. However, the speed and rate in which they have increased are coming as a surprise to many.
According to the July TransCanada power update, Alberta electricity prices are up an average of 300% from the year prior to $63.44/MWH (mega watt hour) from just $16.78/MWH in June 2017. This massive jump in electricity prices will take its toll on the pocket books of consumers and businesses paying to operate electrical equipment, for their lights, refrigerators, and if they’re lucky, air conditioning.
For many businesses electricity can be one of their biggest input costs, especially those in the accommodation, retail, and manufacturing sectors. For example, a company utilizing a couple dozen arc welders could easily see power bills in the tens of thousands.
In comparison to most of the world and excluding the odd spike, inexpensive electricity has been a staple of the “Alberta Advantage” thanks to an abundance of (relatively) clean coal power and cogeneration facilities. The infamous Climate Leadership Plan (CLP) will see the phase out and early retirement of the Alberta coal plants representing nearly 40% of Alberta’s total capacity to generate electricity. In turn, the CLP sets a goal of having 30% of our electricity come from renewables. Unfortunately, and as all know, the sun doesn’t always shine and the wind doesn’t always blow meaning the 6,000 MW in renewables require backup generation capacity be built.
This big transition to renewables would not be possible if it weren’t for the changes to the electricity market itself. Part of the plan is to change the market to a capacity-based market, meaning companies will be paid for their ‘capacity’ to generate electricity rather than the quantity of electricity they sell into the market. Most agree the potential for renewable electricity is enormous. However (and at this time) the relative cost, lack of storage, and weather limitations severely challenge their viability. To help ensure the 30% renewables target is met, the capacity market will come into effect late in 2021 and ensure generators receive capacity payments just for having the electricity available to the grid. Potentially (and quite likely according to experts) this will result in the province over-procuring capacity, leaving taxpayers/ratepayers on the hook for power we can’t use.
If this sounds eerily like the nightmare Hydro bill stories we hear coming from Ontario, it’s for good reason. When Ontario went through their own coal phase out, the province signed 20-year contracts with generators guaranteeing them a certain amount of revenue regardless of the electricity produced. According to Ontario’s Auditor General, in 2014 Ontario had built up almost twice the capacity required on average and 35% more than peak demand. Still, the piper has to be paid, and the people of Ontario are paying far more than the rest of Canada.
As if these changes weren’t going to cost Albertans enough, just the implementation alone is already costing us billions. When the changes were announced, major distributors like ENMAX exercised a clause in their contract allowing them to exit the contracts made ‘unfavourable’ by the government’s changes. As a result, the government-owned Balancing Pool saw losses of $2.5 billion through 2016. As well, the government announced it would pay $1.36 billion in compensation for the coal fired generating plants closing early and will likely have to pay more to help the thousands who will soon be out of work.
In reaction to the ongoing increase in electricity prices, the government announced a ‘cap’ on electricity prices at 6.8 cents per kilowatt, meaning when the price goes above, the provincial government will pay the difference above and beyond the 6.8 cents. Unfortunately this is about four times as much as the market rate for electricity in 2017 and as we all know, there is only one ratepayer and collectively, that’s you and I, the taxpayer. If we aren’t paying it on our monthly bill we will be paying it through our taxes and in the case of our current government, adding it to our already considerable debt.
No doubt renewables will be in our future as you don’t have to dig thousands of feet underground and build roads, rails, or pipelines to transport wind or sunshine. Regrettably our government chose to transition our societies means of powering itself before the technology could compete and without a proper framework, leaving Albertans to foot a bill with an ever growing tab and yet another blow to our already fragile economy.