"We've got a capacity problem in the southwest where we've got wind generation developments beyond what I could have imagined and all demanding access to the system, and we've got to comply with that," says the AESO's Dale McMaster. One set of proposed upgrades, costing C$68-71 million, is required to serve existing generation and 304 MW worth of projects in advanced stages of the interconnection application process. A second set, with a price tag of C$7.2-8.9 million, will proceed if sufficient commitments from a proposed 300 MW wind plant are received. The work is expected to be done by April 2006.
The province's wind power developers say the upgrades are critical. "The line into Pincher Creek substation is full and any extra capacity is spoken for. There will be no more wind development down in that region without reinforcement of that line," says John Keating, CEO of Canadian Hydro Developers. Canadian Hydro's 40.9 MW Cowley site has had operational restrictions placed on it because of grid concerns and the company has another 150 MW of projects in the development pipeline that are "not capable of moving forward" without more transmission capacity, says Keating.
For Vision Quest Windelectric, the reinforcements cannot come soon enough, says the company's Jason Edworthy. "We're extremely pleased to see this moving forward. It has been discussed and talked about for close to five years." Vision Quest had to go outside the congested area to build its 75 MW McBride Lake Wind Farm last year, says Edworthy, and was only able to proceed with the 68 MW first phase of its Summerview project, for completion this year, because the AESO reshuffled the interconnection queue to ensure projects at more advanced stages of development were able to go ahead. The company has another 423 MW in the pipeline for interconnection.
Not everyone seems keen on the AESO's proposal, however. The Industrial Power Consumers Association of Alberta, whose members use more than 35% of the province's electricity, argues that "given the nature of the project and its potential impact on consumers, the project costs, assumptions and other issues need to be tested in an oral proceeding." BP Canada and Encana Corporation, a major oil and gas company that also owns and operates several gas-fired power plants, are also petitioning the EUB, questioning whether wind projects can "maintain reliability of supply to load customers" and whether the AESO considered other alternatives. A hearing on the application has been scheduled for July 6.
Underpinning the AESO's proposal, and the concerns it is raising for consumers, is a controversial government policy designed to ensure transmission is built where and when it is needed. Announced last year, the policy reversed an EUB decision that would have seen generators planning projects in areas requiring transmission upgrades paying zonal interconnection charges to help cover the cost of new lines. Instead, the government said, consumers would pick up the tab through a single, postage-stamp transmission rate. Although generators still must make a so-called "system contribution payment," it will be refunded over ten years from the start of any commercial operation.
Wind producers in southern Alberta and cogeneration developers in the northern oil sands are the biggest beneficiaries of the policy, says consultant Alan Moon, because both are located in remote areas where costs are higher. "The transmission policy says we'll let consumers pay some of those costs for you rather than let the market decide whether generation should be built in Fort McMurray or southern Alberta," he told delegates to the recent Independent Power Producers of Alberta annual conference.
Consumers are worried the policy forces the AESO to gamble on where generators will invest. Without meaningful market-based signals, they say, consumers could end up paying for transmission that is stranded if anticipated generation is not built. "The allocation of costs make consumers the only party with anything to lose if the AESO bets on the wrong horse," says BP Canada's Norman Mills. "Maybe that is not the best analogy because the policy compels the AESO to put money on all the horses."
Not a gamble
But Vision Quest's Fred Gallagher argues the prospect of building unneeded transmission in most parts of Alberta, including the southwest, is simply not an issue. "We're already stretched to the limit. We are not pre-building for new capacity in a lot of these areas. We're just responding to the fact that there is a huge backlog because of congestion problems."
Like the oil sands at the far northern end of the grid, the windy southwest has a significant resource potential that cannot be ignored, he says. "Clearly there are thousands of megawatts of opportunity for wind energy to come on stream," says Gallagher. "Wind developments there, because of the quality of the resource, are very economic relative to natural gas in this market today and, I would venture to say, probably as economic or possibly more economic than new coal developments. Coal has seen very large capital costs associated with it and significant environmental pressures being placed up on it."
But some consumers question whether the lower capacity factor of wind power generation justifies the cost of building transmission for it, an argument Edworthy challenges as the wrong way to measure wind power's contribution. "In southwest Alberta, when you look at the performance of wind on the system, it is really only on at least 90% of the time when the load is up. So it tends to behave very much like a dispatched peaking plant. Most peakers have a very low capacity factor because they are only on when it matters," he says. "So the capacity factor point is either moot or uninformed. What we do need is peaking and if wind is providing the peaking then this is excellent value."