November 23, 2016 / 9:07 PM / in a year

Canadian province Alberta switching to new power market structure

CALGARY, Alberta (Reuters) - The Canadian province of Alberta is switching to a new power market structure to encourage investment in electricity generation and help meet its renewable energy targets, the government said on Wednesday.

Alberta will switch to a “capacity” market by 2021, in which electricity generators such as gas-fired power stations, wind and solar farms are paid to keep capacity available to produce power when needed. Contracts for providing capacity will be awarded through an auction process.

Right now, the province has an “energy-only” market, one of only two still left in North America, in which generators are paid wholesale market prices only for the electricity they produce. The other energy-only jurisdiction is Texas.

Energy minister Margaret McCuaig-Boyd said the new structure will deliver more affordable prices over the long term for consumers, reduce volatility and lure investors because of the stable revenue stream it provides.

“Moving in this direction will help Alberta attract investment in the new, lowest-cost capacity we need to smooth our move away from coal-fired generation,” McCuaig-Boyd said.

A year ago, the left-leaning New Democratic Party government introduced a climate plan in which it pledged to phase out coal emissions and ensure 30 percent of Alberta’s emissions come from renewable sources by 2030.

Electricity prices are expected to rise as the capacity market is implemented, but no more than they would have in an energy-only market, according to the government.

On Tuesday, Alberta introduced a price cap of 6.8 Canadian cents per kilowatt hour, nearly double the current rate, for consumers from 2017 until 2021 to help ensure stability during the transition to a capacity market.

Alberta power prices are languishing near multiyear lows as a result of excess supply and slowing economic growth in the oil-producing province.

Over the next 14 years, Alberta said it will need up to C$25 billion ($18.54 billion) in new investment in electricity generation to support the transition toward renewable sources of energy and meet its electricity needs.

“New capacity will be needed to back up renewables in Alberta as it transitions to a cleaner energy future,” said Scott Thon, president and chief executive of Altai, Alberta’s largest regulated electricity transmission company.

The move to a new market structure was recommended by the Alberta Electrical Systems Operator, which oversees the province’s electricity system.

($1 = 1.3487 Canadian dollars)

Editing by Jonathan Oatis

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