Government and Opposition at odds over benefits of capacity market

by Morinville News Staff

The Government of Alberta says it will move from an energy only to a capacity market model for electricity as part of its plan to ensure consumer protection from price volatility by creating a reliable supply of electricity at stable, affordable prices.

Currently, the province uses an energy-only model whereby energy producers are paid wholesale market prices for what they produce. By contrast, capacity markets pay the producers to maintain the capacity to produce energy when needed.

The government says capacity markets serve millions of electricity consumers in more than 30 U.S. jurisdictions, the United Kingdom and elsewhere.

Alberta’s capacity market will be developed, the government says, in consultation with stakeholders and will be in place by 2021. The province says this will ensure that existing investments, including existing renewables, are treated fairly and that there is a level playing field for competition.

“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,” said Energy Minister Margaret McCuaig-Boyd in a release Wednesday. “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.”

David Erickson, President, and CEO of the Alberta Electric System Operator, approved of the new direction.

“After thorough analysis, the AESO concluded that the current energy-only market will not ensure that Alberta has a reliable electricity system in the future,” Erickson said. “There has been a growing reluctance for developers to invest in energy-only markets and this global trend was a critical factor in our recommendation to move to a capacity market.”

Wildrose Opposition Leader Brian Jean called the move an NDP power play that will raise the cost of electricity and taxes, and hurt Alberta families.

The Wildrose argue that Wednesday’s announced changes are the culmination of various poorly-thought-out decisions made by the NDP government since coming into power in May 2015.

“There is no difference between ratepayers and taxpayers,” Jean said. “For families, today is a bad announcement as it will only mean the costs in every household across Alberta will increase. There exist only three ways to cover risk for a private company investing in Alberta’s electricity market. Either ratepayers, taxpayers or industry covers that risk. Today’s announcement puts the burden entirely on electricity consumers and taxpayers.”

The Wildrose argue Bill 27, the Renewables Electricity Act, will leave taxpayers at risk for billions of dollars in payouts.

Wednesday’s announcement follows the government’s move to put a price cap of 6.8 cents per kilowatt hour in place on the Regulated Rate Option from June 2017 until June 2021. This amount is roughly twice the current rate.