Electricity market review

Overview

The Alberta government consulted with a cross-section of electricity stakeholders to determine whether the province should maintain the current energy-only market or create a capacity market for electricity.

Both are market-based approaches to the sale and delivery of wholesale electricity.

How an energy-only market works:

• generators are paid for the electricity they produce based solely on the wholesale price of electricity, which fluctuates
• these companies decide on the type of generation they produce and on the location of facilities

How a capacity market works:

• private power generators are paid through a mix of competitively auctioned contracts which pay their fixed capital costs and revenue from the spot market
• a capacity market requires a government-appointed entity – the Alberta Electric System Operator, in Alberta’s case – to plan, approve and administer the contracts to buy the capacity needed to meet expected demand

Outcome

Alberta is maintaining an energy-only market as a result of overwhelming stakeholder support.

Why an energy-only market is best for Alberta:

• offers structural and administrative simplicity
• has a proven track record for providing affordable electricity in Alberta
• has a proven track record for providing a reliable supply of electricity in Alberta
• is already established and understood by investors, which offers them greater certainty regarding its future performance
• is supported by the majority of electricity stakeholders, including consumer groups

Next steps

Bill 18 received royal assent on October 30, 2019 to return Alberta to an energy-only market.

Bill 18 amends the Alberta Utilities Commission Act, Electric Utilities Act and Hydro and Electric Energy Act to remove reference to the capacity market. Subsequently, various regulations that extended existing electricity policies to the capacity market will be amended and the Capacity Market Regulation will be repealed.

News

• Restoring stability to our electricity market (October 17, 2019)
• Restoring certainty in the electricity system (July 24, 2019)
• Electricity market review: Minister statement (June 14, 2019)