Varcoe: Soaring power prices in Alberta jolt consumers, spark consternation

  • Home
  • Varcoe: Soaring power prices in Alberta jolt consumers, spark consternation

Chris Varcoe, Calgary Herald, August 14 2021

Alberta power prices are on track to hit their highest average level in more than two decades, jolting businesses and consumers into searching for ways to keep rising electricity bills in check.

Wholesale power prices in Alberta have soared this year, averaging $142 per megawatt-hour (MWh) on Thursday — and $103.51 for the year to date, according to data from the Alberta Electric System Operator (AESO).

This is more than double the average Alberta Power Pool price of $46.72 per MWh that was recorded in 2020, and the highest annual price since 2000.

“It’s an expensive year and consumers have different approaches to addressing this,” said Vittoria Bellissimo, executive director of the Industrial Power Consumers Association of Alberta, which represents large electricity customers such as energy companies and manufacturers.

“Some are curtailing their consumption when the price is high, some are purchasing forward contracts…and some are just paying the higher price.”

Industry experts and electricity officials say a number of factors are propelling prices upward.

This includes volatile winter and summer weather that has caused demand to spike, the end of long-term power purchase agreements (PPAs) in Alberta, unplanned infrastructure outages and the impact of drought conditions in western areas of North America.

The ongoing transition of coal-fired generation facilities in Alberta to burning natural gas, higher prices for that commodity, and a broader economic rebound are also at play.

“We have seen a recovery in demand, we’ve seen extremely cold weather earlier in the year, extremely hot this summer, both of which are driving the demand side of things,” Miranda Keating Erickson, AESO’s vice-president of markets, said in an interview.

“Now, we are in a period where we still have plenty of supply, but we have seen some retirement and seen some (generating plants) come offline and some of the really big additions haven’t yet come online…

“We are not worried there is a structural issue in our market.”

However, it appears higher prices are here, at least in the short term.

On Tuesday, the province’s largest power generator TransAlta Corp. bumped up its electricity price assumptions in Alberta for 2021.

“For the balance of the year, we expect Alberta spot prices to settle at approximately the $80 level,” TransAlta chief financial officer Todd Stack told an analyst call.

“The higher average prices experienced year-to-date have largely been a result of market disruptions, higher demand stemming from extreme weather, unplanned generator outages, tie-line outages, and a low wind resource.”

Part of this year’s sharp jump occurred after bitterly cold weather gripped the province in February, with wholesale prices surging as furnaces across the province kicked into overdrive.

Scorching summer temperatures in late June propelled demand to a new summer peak — and prices hit the maximum wholesale electricity price of $ 999 per MWh — as air conditioners and fans were flipped on to provide relief.

The conversion of Alberta’s coal-fired generation fleet to burn natural gas, which has been underway for several years, is having an impact, as is the expiration last December of long-term PPAs, some of which were previously controlled by the province’s Balancing Pool, added Keating Erickson.

Increasing power prices, along with high fixed transmission and distribution costs that consumers have to shoulder, are already causing concern.

In Alberta, industrial consumers make up about two-thirds of total electricity consumed in the province, while residential customers comprise about 13 per cent of the load.

For some of the larger industrial complexes in the province, electricity can account for up to 80 per cent of their input costs, said Colette Chekerda of the Alberta Direct Connect Consumers Association, which represents nine large industrial complexes, including chemical, forestry and cement firms.

She said some companies temporarily stop operating during high-price periods — something that’s occurred more frequently in 2021 than in past years — while others are securing longer-term price contracts to manage escalating costs.

“We are concerned with the rising prices in the electricity commodity market, but we can manage those somewhat,” Chekerda said.

“If you look out at the long-term power prices for the commodity, it does get better in the future, but this is definitely a short-term issue all our members are struggling with and dealing with the best way they can.”

Since Alberta’s power market was deregulated more than two decades ago, power prices have often become highly politicized. Premiers from Ralph Klein to Rachel Notley have either provided rebates or installed rate caps to deal with volatility in residential power bills.

Last month, the opposition NDP called on the Kenney government to reinstate an electricity rate cap after Calgary-based utility Enmax notified customers about higher power bills coming this summer.

“These rising costs are going to become the proverbial political hot potato and we’ve seen tools used in the past, such as rebates or rate freezes,” said Jim Wachowich, legal counsel for the Consumers’ Coalition of Alberta.

“We have to recognize that consumer hardship is real and have to craft solutions to that. But making the heartburn go away with a rate freeze or rebate isn’t as helpful as a long-term or medium-term solution to prevent it from coming back.”

The UCP government notes consumers can also secure fixed-rate contracts and it insists the province is not considering measures such as a mandated price cap.

“This is not a serious solution because taxpayers end up footing the bill for the difference between the capped rate and the market rate in a non-transparent way,” Associate Electricity Minister Dale Nally said in a statement.

Industry experts expect power prices to soften next year as more generation comes online, including previously announced wind, solar and gas-fired developments.

Electricity consultancy EDC Associates forecasts spot power prices will average $88 per MWh for the rest of this year, dropping into the low $70 range next year.

“We are going to see a lot of supply come forward in 2022 and 2023 as many of the coal units get converted to gas,” said Duane Reid-Carlson, EDC’s chief executive.

“We see the current price spike as being transient, and moving into some lower prices next year.”

Chris Varcoe is a Calgary Herald columnist.

[email protected]