Alberta power prices projected to rise then fall on higher capacity

By the OGJ Online Staff

HOUSTON, Mar. 28, 2001—Average 2001 Alberta spot wholesale electricity prices are expected to cost 7.5-13.2 cents/kw-hr (Can.), with significant upside risk and continued high price volatility, a Calgary-based energy consulting firm said.

Optimum Energy Management Inc. (OEMI) said its forecast is based on the current forecast level of demand, natural gas prices, and the timing of new supply additions. Spot wholesale power prices spiraled to 13.3 cents/kw-hr last year from an average 4.3 cents/kw-hr in 1999.

The longer term benefits of competition, while still anticipated, are not expected to produce prices that are low enough to off-set the near-term high prices, the consultants said. OEMI said its conclusions are based on the results of a 4 month study, the fourth in a series of studies monitoring deregulation of Alberta’s electric energy industry.

It estimated consumers have lost as much as $3 billion of value from Alberta’s previously regulated generation as a result of electricity industry restructuring. The deregulation process has simply taken too long, said Dale Hildebrand, OEMI regulatory services vice-president. But, he said, “We have no choice but to press on.

“Retail competition, while providing the opportunity for many tangible benefits with respect to new supply, increased efficiency, innovation and consumer choice, may not realize prices low enough—soon enough to offset the high costs already experienced by consumers in 2000 and 2001.”

The delivered price of electric energy to end-use customers is forecast to remain high for the next few years due to a continued tight supply-demand balance and higher priced natural gas and import energy, the consultants explained.

OEMI projected Alberta electricity demand is expected to increase by an average of 2.1-3.2%/year for the next 15 years. The consultants indicated 5,300-7,400 MW of new generating capacity will be required to meet rising demand and to replace aging units that are expected to be retired over the next 15 years.

According to the report, about 1,000 MW of new generation has been built in the past 3 years, while about 4,200 MW is under construction or has been announced for startup over the next 5 years, up substantially from last year and largely in response to higher power prices.

Total Alberta electricity generating capacity could exceed demand with over 4,200 MW expected to be in service by the end of 2006, said Duane Reid-Carlson, vice-president, energy pricing.

However, with only 2,000-3,000 MW required over that period, he said, it is not likely that all projects will be built as announced. Wholesale power prices are expected to decline steadily through 2005-2006 as a result of the commissioning of new lower cost generation supply additions and declining natural gas prices.