Understanding Volatile Electricity Prices in Alberta
By: Nick Clark
What is the problem? Power Pool Prices have become very volatile. In 2016 energy prices were at record lows with the average cost per MWh being less than $20. In February 2019 prices were more than five times higher. Why?
What was the cause? When the Carbon Tax was implemented it resulted in a waterfall of unintended consequences. Fundamentally, if you short the market, prices will increase. Government policies have resulted in economic pain which cannot be masked by giving away millions of dollars in subsidies.
February 2019 was a disaster. In February 2016 AESO paid the Alberta generators $78 million for the electricity shipped onto the grid. In February 2019 the cost increased to over $500 million paid out to Alberta generators. Here is what has happened:
Where is the disconnect? Our government knew that their energy policies would possibly undermine the market. Wholesale prices have become increasingly volatile. To avoid any backlash related to the government’s tinkering with the market, Bill 16 “An act to cap regulated electricity rates” was implemented and advertised as a cap on retail prices at 6.8 cents per kWh. The advertising of this policy was misleading and many consumers do not fully understand what it means or how it will affect them.
Key points to understand about Bill 16 include:
The smell of the skunk is hard to hide.
Only 50% of residential customers on the RRO will benefit from the subsidy. The big utilities have their margins guaranteed, yet at the same time jobs from many of the same big utilities have been outsourced with hundreds of good paying jobs gone. Plus, generators who were paid over a billion dollars when the PPAs were cancelled are shipping generation into the Mid Columbia Western USA market at a time when Alberta needs the generation to meet the increased demand in consumption, given the cold snap.
Who is affected? The biggest losers are industries that are paying a premium in electricity prices. Don’t forget about all of the consumers in Alberta who are paying the Carbon Tax which is now being used to subsidize the margins of the big utilities. This is money being gifted to the same utilities who shipped jobs and profits out of Alberta. If the carbon tax was being used to improve the environment it would be easier to support the objectives. But this isn’t happening.
What’s the solution? Ask the government to kill Bill 16.
What can you do? If you are on the RRO now is the time for a change. Switch over to a local competitive Energy Marketer with subsidy free rates lower than the 6.8 cent “cap”. If more Albertans decided to move off of the RRO, the government would not need to pay out hundreds of millions of dollars to the big utilities. It’s a win-win scenario, consumers pay less and the government can use the Carbon Tax for the original purpose it was intended.
What was the cause? When the Carbon Tax was implemented it resulted in a waterfall of unintended consequences. Fundamentally, if you short the market, prices will increase. Government policies have resulted in economic pain which cannot be masked by giving away millions of dollars in subsidies.
February 2019 was a disaster. In February 2016 AESO paid the Alberta generators $78 million for the electricity shipped onto the grid. In February 2019 the cost increased to over $500 million paid out to Alberta generators. Here is what has happened:
- Coal plants closed, were mothballed and are being retrofitted to natural gas.
- In the depth of Alberta’s recent cold snap, some plants were offline for maintenance.
- In the cold of the winter, wind production is down significantly.
- The reduction in PV Solar production was attributed to the winter snow pack.
- Alberta generators are now shipping surplus electricity into the United States, further causing a shortage and resulting in being able to charge Albertans higher prices.
Where is the disconnect? Our government knew that their energy policies would possibly undermine the market. Wholesale prices have become increasingly volatile. To avoid any backlash related to the government’s tinkering with the market, Bill 16 “An act to cap regulated electricity rates” was implemented and advertised as a cap on retail prices at 6.8 cents per kWh. The advertising of this policy was misleading and many consumers do not fully understand what it means or how it will affect them.
Key points to understand about Bill 16 include:
- Only the government regulated rate option (RRO) customers were protected with a retail price of 6.8 cents/kWh. But, nothing in life is free, as the government is funding the subsidy out of the Carbon Tax.
- Retail prices were not capped. The government is taking money out of the Carbon Tax and paying it to RRO providers to make sure that their utility margins are protected given the volatility in the market.
- Hundreds of millions of dollars will be paid out to ENMAX, Direct Energy and EPCOR plus a further 10% premium paid out to smaller utilities and rural farming Coops. A recent Calgary Herald article has found that tax payers are already on the hook for $37.5 million in subsidies related to the RRO cap.
- During the full life of Bill 16 it could cost Albertans upwards of $700 million.
The smell of the skunk is hard to hide.
Only 50% of residential customers on the RRO will benefit from the subsidy. The big utilities have their margins guaranteed, yet at the same time jobs from many of the same big utilities have been outsourced with hundreds of good paying jobs gone. Plus, generators who were paid over a billion dollars when the PPAs were cancelled are shipping generation into the Mid Columbia Western USA market at a time when Alberta needs the generation to meet the increased demand in consumption, given the cold snap.
Who is affected? The biggest losers are industries that are paying a premium in electricity prices. Don’t forget about all of the consumers in Alberta who are paying the Carbon Tax which is now being used to subsidize the margins of the big utilities. This is money being gifted to the same utilities who shipped jobs and profits out of Alberta. If the carbon tax was being used to improve the environment it would be easier to support the objectives. But this isn’t happening.
What’s the solution? Ask the government to kill Bill 16.
What can you do? If you are on the RRO now is the time for a change. Switch over to a local competitive Energy Marketer with subsidy free rates lower than the 6.8 cent “cap”. If more Albertans decided to move off of the RRO, the government would not need to pay out hundreds of millions of dollars to the big utilities. It’s a win-win scenario, consumers pay less and the government can use the Carbon Tax for the original purpose it was intended.
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