A Magic Wand Can't Fix Alberta’s Electricity Market
By: Nick Clark
What a difference a year makes. August 9, 2017 compared to August 9, 2018 the electricity generated from natural gas and renewable generation increased and coal decreased. Natural gas production now outstrips coal. Plus, yesterday the price of electricity jumped to $1,000/MWh.
The amount of generation in reserve to meet demand last year was 24.5% and today it is down to 5.75%. This is dangerously low. With what we have left in the tank and with temperatures expected to reach record highs in some areas of the province, expect the inevitable to happen. The price of energy will most likely spike again towards the ceiling of $1000/MWh today (as it did yesterday).
The relationship between the retail price of electricity and the cost of gas is called a “Heat Rate”. In a normal market it is indicative of the relationship between the cost of supply. In 2017 the average Heat Rate was 10.7 with the cost of electricity being $22.18/MWh and the cost of natural gas being $2.06/GJ. Today there is more natural gas generation than coal and the cost of natural gas during August of 2017 compared to 2018 dropped from $1.74/GJ to $0.92/GJ. Here is the tickler – the Heat Rate this August is 122.7 compared to last years average of 10.7. This is a ten-fold increase. What does this mean? Price goes up, the cost of input goes down and profits balloon. Consumers will pay.
Here is another stat for those that want to know what is happening with renewables. Emissions Reductions Alberta (which used to be called CCEMC) has funded 129 projects to date and has spent $385 million. Some of the projects are pure research and development and no one will argue against the importance of investing in our future. There are some great initiatives. One such investment was the building of “Solar One” a $23 million solar farm project. Our government contributed $10 million to help subsidize the project of which Enbridge is one of the key partners.
Another project was Wind Energy Storage with a projected value of $22 million with 50% funding coming out of the carbon tax. This wind project is being undertaken by TransAlta. Some will argue that the cost of building wind and solar farms is less than the cost of coal facilities. Of course it is if the government is subsidizing the players. I believe that subsidies need to stop. The easiest way to do this is dry up the source of cash that the government is giving away. Roll back the carbon tax.
Ok with this said, how much are solar producers earning today compared to 2017? The price paid to generators during the hours of 8am and 8pm (when the sun is shining) over the first nine days in August 2017 was $29/MWh and this year they are earning $161/MWh. A five-fold increase. Some would call this profiteering, especially when the government funded $10 million out of the $23 million to build.
Yesterday Solar One was paid $475/MWh which is 16 times higher than the average from 2017. Since the government cut this deal and put $10 million into the project are any of the windfall profits coming back to the tax payers that funded the investment?
Just a sign of the times. Yesterday was a very profitable day for Solar. A “Green Letter Day”. When governments attempt to manipulate the market they often get it wrong and the consequences of failed policies can be costly.
But consumers don’t need protecting by the government, they need protection from them. Even though the cost of generation spiked we purchased forward hedges at a lower price and the local Energy Marketers in our network are offering consumers stable low rates (lower than the government’s regulated rate option which our government is subsidizing at 6.8 cents per kWh to try to soften the blow). Say no to subsidies and switch.
The amount of generation in reserve to meet demand last year was 24.5% and today it is down to 5.75%. This is dangerously low. With what we have left in the tank and with temperatures expected to reach record highs in some areas of the province, expect the inevitable to happen. The price of energy will most likely spike again towards the ceiling of $1000/MWh today (as it did yesterday).
The relationship between the retail price of electricity and the cost of gas is called a “Heat Rate”. In a normal market it is indicative of the relationship between the cost of supply. In 2017 the average Heat Rate was 10.7 with the cost of electricity being $22.18/MWh and the cost of natural gas being $2.06/GJ. Today there is more natural gas generation than coal and the cost of natural gas during August of 2017 compared to 2018 dropped from $1.74/GJ to $0.92/GJ. Here is the tickler – the Heat Rate this August is 122.7 compared to last years average of 10.7. This is a ten-fold increase. What does this mean? Price goes up, the cost of input goes down and profits balloon. Consumers will pay.
Here is another stat for those that want to know what is happening with renewables. Emissions Reductions Alberta (which used to be called CCEMC) has funded 129 projects to date and has spent $385 million. Some of the projects are pure research and development and no one will argue against the importance of investing in our future. There are some great initiatives. One such investment was the building of “Solar One” a $23 million solar farm project. Our government contributed $10 million to help subsidize the project of which Enbridge is one of the key partners.
Another project was Wind Energy Storage with a projected value of $22 million with 50% funding coming out of the carbon tax. This wind project is being undertaken by TransAlta. Some will argue that the cost of building wind and solar farms is less than the cost of coal facilities. Of course it is if the government is subsidizing the players. I believe that subsidies need to stop. The easiest way to do this is dry up the source of cash that the government is giving away. Roll back the carbon tax.
Ok with this said, how much are solar producers earning today compared to 2017? The price paid to generators during the hours of 8am and 8pm (when the sun is shining) over the first nine days in August 2017 was $29/MWh and this year they are earning $161/MWh. A five-fold increase. Some would call this profiteering, especially when the government funded $10 million out of the $23 million to build.
Yesterday Solar One was paid $475/MWh which is 16 times higher than the average from 2017. Since the government cut this deal and put $10 million into the project are any of the windfall profits coming back to the tax payers that funded the investment?
Just a sign of the times. Yesterday was a very profitable day for Solar. A “Green Letter Day”. When governments attempt to manipulate the market they often get it wrong and the consequences of failed policies can be costly.
But consumers don’t need protecting by the government, they need protection from them. Even though the cost of generation spiked we purchased forward hedges at a lower price and the local Energy Marketers in our network are offering consumers stable low rates (lower than the government’s regulated rate option which our government is subsidizing at 6.8 cents per kWh to try to soften the blow). Say no to subsidies and switch.