Renewable energy projects could fail and their borrowing costs may rise after Alberta introduced plans to “rewire” its provincial electricity market in ways that undercut the viability of existing solar and wind installations, while extending an already long period of investor uncertainty for new developments, industry analysts say.
In a December 10 direction letter, Affordability and Utilities Minister Nathan Neudorf instructed [pdf] the Alberta Electricity System Operator (AESO) to allocate costs for future grid infrastructure based on “cost-causation principles”. The resulting market rules would require new generators to contribute to the cost of new transmission infrastructure based in their proximity to existing power lines, their specific technical characteristics, and the additional costs they bring to the system.
Neudorf signalled plans to implement the changes with new legislation new year, while blaming renewable energy facilities for grid costs that were incurred before most of the provinces solar and wind buildout occurred.
“The thousands of kilometres of new transmission lines that were required to connect renewables added costs for Albertans, and back-up sources are required to keep the lights on,” Neudorf’s ministry said in a release. “Alberta’s government is making changes to ensure the province’s ratepayers are no longer burdened with the full costs of building new transmission lines,” providing an incentive for new power plants “to be built in optimal locations that take advantage of existing infrastructure.”
But industry sources weren’t buying the province’s contention that the new rules were meant to balance grid affordability, reliability, and sustainability. The “sweeping reforms” will “disproportionately burden the renewable energy sector, hinder its growth, and fail to address the critical need for energy storage solutions essential for a modern, resilient grid,” wrote PVBuzz Media Publisher Derick Lila.
The Canadian Renewable Energy Association (CanREA) said most of Alberta’s “Big Build” transmission projects “were built to get thermal [coal and gas] generation to market, not to support renewable energy integration. In fact, most of this build happened before Alberta had any large solar facilities on its grid, and much less wind generation than what we have today.”
Now, “Alberta needs to proceed with caution,” warned CanREA President and CEO Vittoria Bellissimo. “It is counterproductive to jeopardize existing wind and solar projects, especially when the province requires more electricity. These projects were built in good faith but could fail if they cannot repay their debt, causing credit downgrades across the sector. This will raise borrowing costs for companies and ultimately increase the cost of electricity for customers.”
While the market changes were expected, the CanREA release said the new details raise significant concerns for the renewable energy sector. “With this letter, the Government of Alberta is fundamentally changing the rules that govern how the electricity system is run, shortly after companies invested billions in new projects in Alberta,” the industry association wrote. “CanREA understands that some changes are needed going forward, but stresses that the announced changes add undue costs to existing assets.”
The Calgary-based Business Renewables Centre-Canada agreed the market changes will make it difficult for wind and solar operators to turn a profit.
“We are disappointed the Alberta government has once again added new uncertainties to the renewable energy market,” said BRC-Canada Director Jorden Dye. “Clean energy is what will attract the businesses of the future to Alberta, but the direction we’re headed in is only likely to scare them away to other provinces and countries.”
While it’s now clear that some transmission costs will be passed on to renewable energy developers, the province hasn’t indicated how much, even though “the missing details are likely key to project decisions for many developers,” Dye wrote. “Unfortunately, it looks like the new transmission rules won’t come into effect until 2027, by which time many renewable energy developers will have made decisions to build projects elsewhere.”
In August, BRC-Canada reported that the province’s previous moratorium on new renewable energy development had cost Alberta communities $91 million in tax revenue and triggered the cancellation of 53 projects. In this week’s release, Dye said private sector power purchase agreements (PPAs) for renewable electricity “add substantial wind and solar power to our electricity grid and support the development of renewable energy beyond what the companies directly need, meaning additional affordable energy is fed into the provincial electricity grid, reducing costs for all Albertans.”
Which means that “renewable energy could help the provincial government reach its net-zero status by 2050,” he added. “But only if it actually gets built here.”
