Visions Differ for Alberta’s Electricity Future
Posted July 6, 2010 in Energy
Photo shows Gary Holden, CEO of ENMAX
By Terry Inigo-Jones
Two different visions are vying to be the future of Alberta’s electricity industry.
One scenario sees an investment of at least $14 billion in new transmission infrastructure to help deliver electricity at competitive prices throughout the province. Some experts believe this favours the existing generation model of large-scale facilities in the north of the province that will deliver power wherever it is needed. This model is more likely to see coal continue to be a major fuel for generating electricity, although nuclear energy or hydro power from northern Alberta could become large suppliers.
But other experts see a future of more localized power generation, known as distributed generation, without the need for as much expensive infrastructure, and with a heavier reliance on a variety of generation sources, including natural gas, wind, solar and cogeneration to produce both heat and electricity.
In its long-term transmission system plan last year, the Alberta Electric System Operator (AESO), an independent, not-for-profit organization which plans and operates Alberta’s grid, forecasts that demand for electricity in the province will grow by an average of about 3% per year over the next 20 years. That means that about 5,000 megawatts (MW) of new generation will be needed over the next 10 years and about 11,500 MW of new generation over the next 20 years, on top of the current supply of about 13,000 MW, says Jeff Nish, director forecasting with AESO.
Alberta has a deregulated electricity retail market. It is in this approach that Alberta differs from many other jurisdictions, say experts. Alberta leaves it to market forces and private-sector generators to determine what source of generation is best and where to locate that generation.
Since early in the 20th century, electricity markets in North America were government controlled and included government-run monopolies. In the 1990s, some jurisdictions began to deregulate and allow competitive markets for electricity – Alberta among them. By 2008, about a dozen states in the U.S. had deregulated their markets, including California and Texas.
However, other jurisdictions have played a stronger role in creating a framework or overall vision for what electricity generation and transmission should look like. For example, the Ontario government, which considers itself to be a hybrid of the market and government-planned models, has decided to phase out coal generation and last year passed a Green Energy Act that set fixed rates or feed-in tariffs that will be paid for renewable energy sources in the hopes of promoting those power sources.
In Alberta, it is AESO’s mandate to ensure that the transmission lines and infrastructure are in place so that private-sector generators can get their commodity – electricity – to the marketplace, wherever power is needed.
“Because transmission in the province is a public good, effectively, it is similar to roads and other infrastructure in that it is an enabler of economic development,” Nish says. But these transmission lines have to be planned well in advance in order to give the private sector the confidence to go ahead and invest the billions of dollars it costs to build a generation plant to tie into the grid, he says. AESO does not favor one type of generation over others, Nish says, adding that Alberta’s industrial base is going to continue growing and will demand more and more power from “all sorts of sources.”
Distributed or localized generation, along with cogeneration (where industrial plants or large facilities create their own power, rather than taking it from the grid) will be valuable additions to the mix of supply and have been factored in to the AESO forecasts, Nish says. Whatever the source of the electricity generation, a strong grid is needed to ensure competitive pricing in Alberta’s model of supplying electricity, he adds.
The price paid for electricity is set in a bid system. Each generator makes bids for how much they will charge for units of power. The units offered at the lowest prices are used first, and then the system moves on to the next-lowest bids. With open access to a robust grid, consumers can draw from every generator in the province, including those offering power at the lowest prices. The theory is that the wider the access to more power suppliers, the more competitive prices will be. With a less robust grid, or less access, consumers would be more dependent on local generators, at whatever prices they are currently charging.
To help fund the new transmission infrastructure, Albertans can expect to pay at least $100 more per year on their electricity bills over the next eight years.
Steve Snyder, president and CEO of Calgary-based TransAlta Corporation – Canada’s largest publicly traded provider of wholesale electricity and renewable energy – notes that Alberta is one of many jurisdictions across North America upgrading their transmission systems. “They have recognized that these ‘backbone’ centralized systems are critical to allow inter-connections for reliability, to support renewables and ultimately the emerging smart grid technologies,” Snyder said.
However, others in the industry have a different vision of the future.
“We didn’t set out to be different. We have analyzed the market, perhaps in a different way,” says Gary Holden, CEO of Calgary-based electricity supplier ENMAX Corporation in Calgary. While Holden acknowledges that demand is likely to grow by 3% per year, about half of that will be due to oil sands operations, he says. With oil sands growth, you can predict where that demand will be and build a generation plant on site to meet that specific demand.
If oil sands are taken out of the equation, growth in electricity demand in Alberta has been at about 1.5% – comparable to other North American jurisdictions. “You don’t need a large penetration of distributed generation to offset 1.5% (growth),” Holden says. Another reason to shift the focus of new power towards distributed generation is that there will be increasing regulatory pressure on Alberta to reduce its reliance on coal, he notes.
“The Canadian government talks a lot about synchronizing with the U.S. government. The U.S. government I believe (is) moving very rapidly towards the regime . . . where extending the life of coal will be regulated out. Substitution of coal with natural gas will be promoted, and those substitution decisions will be optimized to lessen the amount of transmission required,” Holden says. Rather than relying on coal, Holden envisions a future with a heavier use of a variety of generation sources, including natural gas, wind, solar and co-generation. With wind power being dependent on wind speeds, it is best to partner it with a flexible generation source like natural gas that can be adjusted up or down, depending on whether the wind is blowing, he says.
“Gas is the one that is most friendly to wind. It can turn off. Nuclear and hydro can’t,” Holden says. “It has the luxury and the nicety of also being the cheapest. So you have the cleanest, the cheapest, the most flexible (fuel) and it helps bring more wind on . . .”
Holden is not convinced of the need to spend $14 billion on transmission infrastructure, especially new infrastructure built on speculation. You could, he argues, put a 165-MW gas-fired plant in every town in Alberta for less.
More than 90% of electricity in Alberta is produced by burning coal and natural gas – the highest amount of thermally generated power among Canada’s provinces.
WADE (World Alliance for Decentralized Energy) Canada, an association for the decentralized energy industry, believes Alberta could miss an opportunity to develop localized generation and become a leader in sustainable energy technologies. WADE sees a future where improved technology brings more localized generation, more cogeneration at large facilities or industrial plants, more energy-efficient homes that reduce their demand for power from the grid, or even supply power to the grid, and more efficient wind and solar power.
“Alberta has been very cautious and there is a little bit of an attitude that, ‘What has worked for the past 100 years is still working now (so) why change it? Let’s build more of the same,’” says Anouk Kendall, president of WADE Canada.
An alternative path could be to take some of the $2 billion the province is investing in research into carbon capture and storage and use that to invest in avoiding emissions instead of burying them, Kendall says. Alberta could invest in technologies for more sustainable energy generators to plug into the grid and develop new industries here.
Ontario, for example, has a system where you cannot feed in to the grid unless 50% of the generation system has been manufactured in that province. This has recently led to Samsung investing $7 billion to set up manufacturing facilities in southern Ontario to build wind turbines and solar panels, with a plan to create 16,000 jobs. A similar policy could bring new manufacturing to Alberta, Kendall says.
Alberta seems to be stuck in a bigger-is-better mindset, she adds. “We are getting close to capacity in our grid, so instead of looking at investing in some of the existing technologies that can help defer investment in transmission and distribution infrastructure, we are just going to supersize it.”
Uncertainty over the future of the electricity industry could endanger Alberta’s economic future, says Michal Moore, senior fellow at the Institute for Sustainable Energy, Environment and Economy at the University of Calgary. There isn’t enough information from government or sufficient public participation in the planning process, he says.
In November 2009, the Alberta government passed a new law that eliminated the need for public hearings conducted by the Alberta Utilities Commission (AUC), the provincial regulator for utilities, on the need for “critical transmission infrastructure projects” – and entrenched that decision with the provincial government cabinet. The AUC will still conduct public hearings but only on specific projects, to examine issues as such transmission line routes and impacts on landowners.
Moore, an economist and former regulator in California’s energy industry, says an independent, completely transparent needs assessment should be done of Alberta’s future transmission infrastructure requirements. There should then be public consultation and public hearings to discuss all the issues, including what are the best sources of power generation, changing technologies and growing global pressure to reduce carbon emissions, he says.
“Trying to plan without a pretty active public process results in a lot of errors and the worst part, at least for me, is the misallocation of capital,” Moore says. “Capital markets hate uncertainty. … These are long-term extremely expensive capital facilities and they don’t respond well to inconsistent planning or really inconsistent estimates of where the markets are going to go.”
One possible scenario is that Alberta will end up building a large export line capable of carrying a large amount of power from north to south, and some balancing from south to north. Such a line will benefit the coal industry that is not likely to be able to meet long-term control strategies for carbon emissions, he says. To Moore, this vision of Alberta’s electricity future “looks a lot like driving a 1955 Ford on the freeway and hoping to pass emissions tests with it. It still gets you around, it still moves you and your family, but it’s doing it with about 112 tons of steel and a not very efficient engine.”
But Nish at AESO says that there has been significant public consultation on the overall plan for energy transmission and on individual transmission projects. Over the last two-and-a-half years, about 300 open houses have been held throughout the province, attracting about 3,000 people. There have been meetings with administrators and elected officials at municipalities, counties, districts and at the provincial level.
Whatever the future holds, everyone agrees that the electricity industry has a vital role to play in Alberta. It is, says Moore, the backbone industry of any nation or province. “Let’s face it, without power, we don’t have an economy.”
Terry Inigo-Jones is a freelance editor and writer who lives in Calgary, Alberta. This story first appeared in the June 2010 issue of EM magazine, published by the Air & Waste Management Association.
Alberta’s current generating capacity (Megawatts)*
* Includes industry cogenerated electricity not used by the residential sector
Sources: The Energy Resources Conservation Board and the Alberta Electric System Operator (AESO)
Coal 5,972
Gas 5,142
Hydro 900
Wind 657
Biomass 308
Waste Heat 61
Fuel Oil 13
TOTAL 13,053
Alberta’s electricity usage in 2009 (GWh)
Source: AESO
Industrial 52.2%
Commercial 26.4%
Residential 17.7%
Farm 3.7%
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Comment made on July 6th, 2010 at 12:46 pm by Fuel SystemReport