A Brattle Group report was released that analyzes the efficiency and long-term sustainability of Alberta’s electricity market.
The report, Evaluation of Market Fundamentals and Challenges to Long-Term System Adequacy in Alberta’s Electricity Market, analyzes a number of challenges to resource adequacy that the Alberta energy-only market will face over the coming decade, including the potential for new environmental regulations that could force aging plants to retire, the expiration of power purchase agreements (PPA), the addition of wind generation capacity, expanded interconnections with neighboring markets, and the continued long-term outlook of low natural gas and power prices.
The retirements, along with an anticipated growth in load, will require the rate of investment in new capacity to nearly double to 740 MW annually over the next 20 years. In addition, a number of PPAs are set to expire in 2020.
“Based on the scale and timing of PPA expirations and environmental mandates, these challenges are projected to increase the rate of generation retirements in Alberta by 50 percent over the next two decades,” said Brattle principal Johannes Pfeifenberger, a co-author of the study.
The study concludes, however, that the current market design does not need changing and should be able to support this higher rate of generation additions, as long as large simultaneous retirements can be avoided.
The report contains several recommendations to help sustain long-term system adequacy and improve market efficiency, including:
- Monitor Market Outlook – The Alberta Electric System Operator (AESO) should continue to monitor the outlook for resource adequacy over time based on a recommended set of indicators,
- Prevent Simultaneous Retirements – Alberta policy-makers should consider relaxing or revising the current decommissioning cost recovery rule to reduce the risk of simultaneous plant retirements in 2020 when the last tranche of the existing PPAs expire. More generally, policy-makers should avoid introducing regulations that could result in simultaneous retirements, which are difficult to coordinate in an energy-only market,
- Increase Price Cap and Reduce Price Floor – The AESO should consider increasing the current price cap of $1,000/MWh and reducing the price floor below zero,
- Refine Scarcity Pricing Mechanisms – Simultaneous with the increase in its price cap, the AESO should consider revising its mechanism for setting administrative prices under emergency conditions when out-of-market reliability actions become necessary, and
- Coordinate with Other Design Efforts – The AESO should continue its ongoing evolution of market design, including wind integration, demand response expansion, and expansion of intertie capability, and consider their resource adequacy implications.
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