Today, the wholesale electricity market and retail services are the two components of the electricity industry that are deregulated, giving consumers a wide variety of choice.
What is deregulation?
Back in the late 1990s, the Alberta government made the decision to turn over future investment decisions in the electricity sector to private capital. What that meant was public money would no longer be used to help finance and build new power plants in the province. It also meant companies, such as TransCanada, would need to make prudent decisions on timing and locations for new power-generation facilities in Alberta. The power market largely exists in the same form today as it did when it started back in 2001. More than 6,150 megawatts (MW) of new power generation has been built in Alberta since 2004, with zero government debt incurred as a result. Today, the wholesale electricity market and retail services are the two components of the electricity industry that are deregulated, allowing consumers a wide variety of choice. The wires (transmission and lines and distribution system) system remain as the only regulated components of the market.
How the electricity market works
The electricity market in Alberta is known as an “Energy-Only” market. Unlike some jurisdictions, where generators are provided with a long-term capacity payment from a government or a contract from a public utility, Alberta’s generators are paid based on what they earn from the Power Pool of Alberta (PPoA). The PPoA is essentially a clearing-house for electricity generators managed by the Alberta Electric System Operator (AESO), where all the supply available in the market is offered in for every hour and “stacked” by price from the lowest to the highest. Supply Stack Price & Demand (Example and Highlights)
|Power Generator||Supply Volume (MW)||Price Offered ($/MWh)||Demand Volume (MW)|
In Alberta, generators can offer to sell power for any price between $0.00/MWh and $999.99/MWh. Plants are dispatched on, or dispatched off, by the AESO’s System Controller based on the price the generator has attached to its volumes. Since electricity can’t be stored, the supply of power in the market must always exactly meet the demand for power in the market. This means the System Controller is constantly balancing these two components and can mean the price for electricity can change by the minute, or even by the second. As an example (highlighted above), if demand in the province was 8,900 MW, the price in the province would be set at $60/MWh and every MW of volume that is priced lower than $60/MWh would be “dispatched on” and receive the price of $60. Because the prices and volumes offered by suppliers can change every two hours, there can be a significant amount of competition between generators on a daily basis to ensure plants are dispatched on. Healthy amounts of supply and low demand typically equates to low prices in the market. At the same time, when power generation is offline and/or demand for electricity peaks prices tend to rise.
Alberta’s power capacity and demand
Alberta’s electricity grid is serviced by a variety of fuel sources, including: coal, natural gas, wind, hydro and biomass fuelled power generation.
- Capacity: 15,004 MW (as of November, 2014)
- 2013 Peak Demand: 11,139 MW
- 2013 Demand: 77.5 TWh
Overcoming the volatility of power pricing
Since electricity supply and demand always have to be in balance, changes in either of these factors tend to impact prices — sometimes drastically. In an Energy-Only market, periods of reduced supply and sustained high prices can serve as a signal to generators that it might be time to build new power plants. But that doesn’t mean you need to be exposed to those high prices. In the short term, TransCanada offers a variety of tools to keep your business insulated from that volatility. Customizable Electricity Services Load Following Plans Structured Block Plans Retail Service Options Heat Rate Swap Plans
Whether your business is wheat, hogs or cattle, TransCanada understands that you need a power solution that fits your operation. We provide customized solutions to meet the seasonal nature of your business.
Our diversified asset base supports the oil and gas industry in a variety of ways, while our Power Alberta group provides cost-competitive risk management tools and sound advice on market fundamentals.
We understand the need to provide a combination of high-quality retail services along with load-following commodity products fit to meet the commercial real estate industry’s usage.
Our goal with large commercial and industrial customers is to find a product that provides the greatest flexibility and cost certainty possible, so your time can be spent doing what you do best: operating and growing your business.
Whether we’re lighting the way along your city’s streets or powering future generations in the classroom, TransCanada’s Power Alberta group has a solution to fit the smallest town to the largest campus.
At TransCanada, we see third-party intermediaries as our partners in success. Whether you are a broker, a consultant, an advisor or a friend, we can provide solutions to serve your important relationships.