Analysis: Alberta takes first step in support of wind

CANADA: Alberta's first left-leaning administration in over four decades plans significant cuts in carbon emissions, giving the wind industry hope in a province long dominated by fossil-fuel suppliers.

Environment minister Shannon Phillips announced a higher carbon price from next year

Alberta’s plan to increase its carbon price and strengthen its emissions reduction target will not be enough on their own to drive new wind energy development in the province. But the industry is hoping it is just the first step toward improving the business case for wind projects in a market that has proven notoriously difficult for developers in recent years.

"It is definitely moving in the right direction," says Tim Weis, policy director for the Canadian Wind Energy Association (CanWEA).

The government announced in June that it will hike the province’s regulated carbon price from the current C$15/tonne to $20 next year and $30 in 2017. Large industrial emitters, which now have to reduce the CO2 emissions intensity of their operations by 12% from 2007 levels, will see that obligation increase to a reduction of 15% next year and 20% in 2017. Environment minister Shannon Phillips also appointed an advisory committee to consult with stakeholders over the next three months and develop recommendations for a more comprehensive climate change strategy in time for the COP21 world summit in Paris at the end of the year.

"I don’t think what the government has done is enough to move the needle for wind," says Luke Lewandowski, research manager for Make Consulting. "What’s more exciting, though, is the fact that we’re hearing some refreshing rhetoric coming out of government in Alberta indicating that they are taking this seriously."

Surprise result

Politics in Alberta was turned on its head in May when the left-leaning New Democrat Party won a surprise election victory over the long-governing Conservatives, coming to power with a policy platform that includes the phasing out of coal-power electricity generation, the expansion of renewable energy sources, and more aggressive action on climate change.

The election has raised new hopes among wind producers that solutions to the multiple challenges they face in the Alberta market may finally be found.

Unlike provinces such as Ontario and Quebec, where government policies have driven thousands of megawatts of new wind installations, Alberta’s competitive power market has no specific incentives to support renewable energy deployment. Long-term power purchase contracts are exceedingly rare, making it difficult to secure the revenue predictability necessary to attract financing.

Low market payment

A supply surplus has driven spot market prices to their lowest point since the market deregulated 15 years ago, averaging only C$29.03/MWh in the first quarter of 2015. And because wind generation in Alberta is skewed towards off-peak hours, and also tends to flood the grid when it is operating, driving down wholesale prices, producers end up earning significantly less than the average. In 2014, for example, the average spot market price was C$49.42/MWh and wind generators earned an average of about 35% less.

A higher carbon price could help boost revenues for wind. Emitters have the option of buying greenhouse gas offsets from non-emitting generation sources to help meet their reduction obligations, but because the target is based on emissions intensity, a C$30/tonne carbon price works out to only about C$18/MWh.

"That doesn’t quite close the gap," says CanWEA’s Weis.

Open to discussion

The higher reduction targets could also increase demand for wind offsets, adds Weis, but potential buyers are unlikely to commit to long-term purchases while the province’s broader climate change strategy is still a work in progress. Current rules are also a barrier. Wind facilities are only allowed to sell offsets for eight years, with producers given the option of applying for an additional five years. It adds just enough uncertainty to keep banks from factoring the long-term value of wind offsets into the financing equation, says Weis.

Alberta emitters also have the option of paying into a special fund, which has collected C$578 million to date and is expected to grow much more quickly as the carbon price rises. If renewable energy projects could get access to that money, which now largely goes to support the development of innovative new technologies, it could help drive new wind development.

For now, Alberta’s wind industry is watching to see what comes out of the climate consultations and how the provincial government decides to approach its goal of expanded wind and solar development. Phillips has already demonstrated her interest by touring the 300MW Blackspring Ridge project during her first month on the job. "The new government is definitely open to having a discussion," says Weis.

With additional support for renewable energy, says Lewandowski, Make expects wind power in Alberta to double to 1.1GW from 2015 to 2020. It could go even higher if "strong, targeted policies" to support wind projects and the necessary transmission upgrades are implemented, he adds. "Alberta’s got huge potential as long at is can correct itself."