But although the new capacity provides much-needed grid access for developers, it comes at a time when the Canadian province's competitive power market is making investments in new wind projects tougher to justify.
The C$133 million ($132 million), double-circuit 240kV line was energised in early November, just hours before Calgary-based TransAlta Corporation began commissioning 23 newly installed Vestas 3MW turbines at its Ardenville wind farm near the community of Fort Macleod.
"Without the line in place, the wind farm would be unable to deliver energy to the grid," says Jason Edworthy, TransAlta's director of community relations.
Wind development in the south-west of the province has been stymied because of a lack of transmission. The new line, running from Pincher Creek to Lethbridge, will allow several hundred new megawatts to connect. Difficult market conditions, however, are raising questions about how easily Alberta developers will be able to take advantage of the additional transfer capacity.
Wholesale power prices in the province averaged C$35.77/MWh in the third quarter - the lowest the market has seen since spring 2002 - and the average for the year is likely to be in the C$50/MWh range. "Even if wind producers have this transmission capacity, with these soft prices there might not be enough margin to get their bankers to lend them money, unless they can interest a customer in a long-term power purchase agreement or a renewable energy credit (REC) deal," says Allen Crowley, vice-president of regulatory and market studies for EDC Associates, a Calgary-based electricity industry consulting firm.
The challenge is that, in Alberta's competitive market structure, long-term purchase contracts are difficult to come by. Similarly, both REC demand and pricing are subject to variability and uncertainty.
It leaves developers heavily dependent on the wholesale market price and a number of factors have driven Alberta's down. Low gas prices are one, says Crowley, with every C$1 per gigajoule drop in the price of natural gas equating to about a C$8-10/MWh decline in the market price for electricity. An even bigger part of the equation is dropping demand and increasing supply. Demand fell off abruptly around the end of 2008, says Crowley, and has yet to return to its former levels. At the same time the province is adding significant new generation, including 363MW of gas-fired facilities in 2008 and 2009 and, by the middle of next year, a 450MW coal plant.
As a result, says Crowley, EDC doesn't see average power prices starting to climb out of the C$40-50/MWh range until after 2012. "Even then, it will take until about 2015 before the price, in our estimation, is enough to encourage people to build," he says. "It will be at least until 2013 before we start digging into the overhang of extra generation, and then it will take probably another two years before things are scarce enough that people can actually charge what the generation is worth," he adds.
Wind has its own unique price challenge in Alberta as well, Crowley says, particularly in the southwest where the new transmission line is located. "The trouble with wind in the southwest is that it's all in the same wind regime, so it's either all on or all off," he says.
When it is operating it tends to pull down the wholesale market price; when it is not the price goes up, but wind producers are not there to benefit. The result is that wind producers in southern Alberta actually earn about 10-25% less than the average power pool price, says Crowley.
The dynamics at play in the Alberta market are making it difficult for financiers to consider investing, says Bill Sutherland, senior managing director of project finance at Manulife Financial, the leading debt provider to wind projects in Canada.