5 Ideas for the Alberta Energy Sector

Premier Notely's State of the Province address has again shone a spotlight on the government's plan to phase out coal-fired electricity and promote renewable energy. Details of this plan are to be released this fall. This leaves us with one question: "What is ahead of us?"

First on the agenda: In addition to the upcoming release of the specifics of this plan, watch for Terry Boston's report on the estimated cost of closing down coal-fired power plants early. Some of the existing plants still have a life span of 40 plus years and the owners with stranded assets will be seeking compensation. How many billions will it cost to phase out coal?

Second: Watch for more details to arrive on how proponents will be able to bid into Alberta's market to replace coal generation. AESO has plans to publish guidelines for the subsidy REC reverse-auction designed to entice investors to build renewable generation by 2030. Once you start paying a subsidy - it is like a gift that never stops giving. It will be interesting to watch on which technology solutions the government bets. Who will be the winner?

Third wave of change: The Carbon Levy is designed to collect money out of the pockets of consumers to pay for the decisions that our political leaders will be facing. It is going to be expensive. We are now less than 100 days away from the new tax going into effect. With so many unanswered questions and uncertainties on "What's the Plan," why are we rushing down this path into the dark? Consumers are the people who will be asked to pay the bill. Shouldn't we know how our money is going to be spent? Shouldn't we know what the plan is?

Keeping costs in check and building a sustainable future

Others in the world are rushing to close down coal plants, build solar farms, or put up wind power generation plants. Still, is this the right decision for Alberta? Many would answer, "Yes" and, in part, they are right, but let's see the master plan prior to burning through millions and billions of dollars. We suggest that Alberta should be focused on a well designed “Energy Security” plan that includes all technologies and not one preference over the other to ensure we are keeping costs in check.

Our political leaders should be careful to not simply run down a path, just because they want to be seen as a world leader on the stage of Climate Change policy and Carbon Taxing. It is better to be a prudent investor into building a sustainable future.

Even the smartest of people go off on tangents and, as we plan for the future, we should be careful that our political leaders have a well-designed rock solid game plan. You don't want to do something just because it is sexy.

Here is an example of an ill-fated plan. Some will recall ENMAX's 50% investment stake in NaiKun Wind Operating Inc. The vision was to install 110 turbines towering 80 meters above the ocean between the islands of Haida Gwaii and B.C.s Mainland, with the financing for the wind farm backed by federal government loan guarantees. Did it ever get built? How many millions were invested of Alberta dollars in a wind farm slated for Northern B.C. in the cold waters of the Pacific? Smart people make wrong decisions all the time. Let's make sure our political leaders don't go down the same path which could cost us billions.

Understanding the uniqueness of Alberta

Our politicians often refer to Germany and the Scandinavian countries; these jurisdictions are often held up as examples of 'good policy and practices'. At the same time, consider two important realities. The population base is large enough to absorb the cost of some of the decisions and the Transmission Grid interconnects multiple countries to move surpluses around to balance the supply and demand curve as the wind shifts. Alberta is isolated. We are a small island with a massive land mass...a small population and an economy in the tank. And an even smaller tax base when you consider that much of the Carbon Levy to be collected from consumers is going to be rebated back to consumers in the form of a tax rebate. So who is going to pay for the master plan?

"WHAT IF" ... rather than building a stand-alone provincial solution, why not consider a Pacific Northwest Pool. Link Saskatchewan, Alberta, B.C., Washington, Oregon, and Montana into a powerhouse. Leverage each other's assets and save billions of dollars in doing so. Invest in infrastructure to move electricity over a larger grid and capitalize on the unique nuances of our collective people. Clinton in her remarks last week, in the US presidential debate, painted an interesting option of cross-border trade in electricity. If Clinton is elected, Premier Notely possibly should consider pushing forward on this agenda item.

Remember one thing. What we do today should have a 50 to 100-year outlook. We cannot reverse the problems of Climate Change in the world in one or two terms of the government in power. The energy business is like the old liquor control boards - provincial controls don't necessarily offer the best options for consumers. So why not engage everyone in a master plan with a long-term view and mindset of regional, provincial and state governments across borders and a collective group of people working together.

Read David Gary's blog of October 13th. He suggests that B.C. and Alberta could profit if we had access to B.C. hydro and when we had a surplus of wind and solar, we could ship power in the other direction. If our government could accomplish transparency and inclusion, they would be acclaimed as a positive influence in helping to solve a problem that impacts everyone, regardless of political affiliation.

Learning from others' mistakes and successes

What can our political leaders learn from progress and mistakes in other jurisdictions? Here are 5 observations and questions we hope our political leaders are evaluating.

  1. B.C. will have surplus hydro power available from Site C. Would it be economical to build and expand interprovincial transmission lines in the short term, rather than planting new solar farms in Southern Alberta's sun belt? Logically, the southern part of the province is the right place for solar but do we have enough transmission capacity to move electricity from the south up into the economic heartland of Alberta? Or is the province also planning on investing in expanding our Transmission Grid as well as subsidizing solar producers? Whatever decision is made will cost us 10s of billions of dollars.
  2. Take a look at Chile. They were successful in obtaining the lowest cost in the world for Solar - without subsidies.
  3. Don't copy the Ontario model or you will have a revolt over higher prices.
  4. Look to California. This state has demonstrated that early procurement of modest quantities of emerging technologies ultimately becomes a cost-effective resource once scaled up. At the same time, they are now running the risk of the famous duck curve. Be careful you don't put Alberta into the same situation. When the sun starts to set in California, there's one thing you can count on: thousands of megawatts of natural gas-fired power plants quickly firing up to keep California aglow. It's a growing daily phenomenon given overly ambitious clean energy goals that have boosted the state's use of renewables. It is a costly solution. Can we afford this as a small province?
  5. Invest in technologies that help consumers reduce the energy they consume. What's our government's plan for demand response and smart meters? The energy you save and don't use is the cleanest energy of all. This is an infrastructure issue and Alberta might want to discuss the success of similar programs in Texas.

What should trouble taxpayers the most? Does our government have a clearly articulated plan on how to use the billions of dollars they start to collect on January 1st? It is a complicated maze of opportunities with each path mined with associated problems.

It is time to put our trust in the experts

The Calgary Herald's Don Braid described the NDP's new growth industry - advisory panels - in his piece on Oct 13. Sure, it is wise to make use of advisory panels as they are great at fostering new ideas and recommending strategic policy direction. But with regards to the electricity industry, maybe the government should simply put their trust in the hands of the pool of talent already working at the AESO, AUC, CCEMC, MSA as well as within the Wires and Transmission Corporations of the province. There is a wealth of knowledge in this group. We might end up with practical solutions rather than the process being managed by the political agenda or vested interest groups. Attempting to micro manage the complexities of this industry by committees or advisory panels is short sighted and limiting, especially if the panel doesn't truly understand the operational realities and complexities of the day to day challenges in keeping the lights on.

Answers to these questions are above our pay grade. Only a few of us will live long enough to see the possible positive results or cost of errors if we back the wrong horse.

Nick Clark | Oct 24, 2016