WHY ARE POWER PRICES SO DARN HIGH? in Alberta

[chuckChuck]

Alberta NDP says renewable energy windfall should benefit consumers, industry
The Canadian Press
Published October 24, 2023
7 Comments
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A renewable energy windfall of nearly $300-million for the Alberta government should be used to expand the industry and help low-income people pay power bills, say the provincial New Democrats.

“I think we can start by using some of that money to lower power bills for Albertans,” said Nagwan Al-Guneid, the party’s energy and climate change critic.

Al-Guneid was referring to numbers crunched by the University of Calgary’s School for Public Policy. This week, economics professor Blake Shaffer and co-authors updated the total payments that renewable power producers have been making to the province under contracts signed during the previous New Democrat government.

Those contracts, made under the Renewable Energy Program, contain what Shaffer called a “two-sided” clause.

Companies first bid for the price at which they will sell electricity, the lowest price winning the auction. They are then guaranteed whatever price they bid.

If the market price drops below the auction price, government pays the difference. If it rises above, companies pay the government.

“The net effect for the developer is certainty,” said Shaffer. “It shows the value of (developers) getting certainty.”

The contracts were signed between 2015 and 2017. Companies were then willing to bid between $30 and $43 a megawatt-hour, far lower than expected and a reflection of how cheap renewables have become to install.

Market prices for power have since more than quadrupled. The difference has gone to the government.

By now, Shaffer and his co-authors calculate the total cash value of those payments at $186 million.

But the companies also agreed to relinquish rights to any carbon credits they would generate by replacing fossil fuel-generated power. At about $20 a megawatt-hour, Shaffer figures savings from those unissued credits bring the total gain for provincial coffers to $282 million.

Josh Aldrich, spokesman for Affordability and Utilities Minister Nathan Neudorf, said the government is committed to ensuring Alberta remains a favoured destination for renewable energy investment.

“The Renewable Electricity Program helped early on to attract renewable projects to the province but eventually ran its course,” he wrote in an e-mail. “Any revenue received through (the program) has been used to support the programs and services Albertans need and rely on.”

It’s not clear where the money has gone, Shaffer said.

The United Conservative government did offer a power bill rebate program that ended in April. But much of the rebate under that program will be paid back by consumers in subsequent bills.

“They never earmarked these funds for (rebates),” Shaffer said. “I’ve never seen it in the budget.”

Al-Guneid said the New Democrats have also tried to track where the money went, without much clarity. She does have a suggestion – help Albertans.

“Albertans are struggling with their bills,” she said. “We know people are hurting and it’s the most vulnerable who are hurting the most.”

After that, the remainder could be used to boost the industry that delivered the windfall in the first place. Al-Guneid said leftovers could help build energy storage in the province, increasing the reliability of a renewables-powered grid.

“We need to enhance grid stability,” she said. “We need to look at expanding that sector.”

She pointed out that the International Energy Agency forecasted Tuesday that $1.8 trillion will be spent on renewable power in 2023 alone and that Alberta – which has imposed a seven-month pause on approvals of new renewables projects – risks falling behind.

Shaffer cautions that the windfall won’t last forever. Power prices are expected to fall, reducing the government’s take.

But they aren’t expected to drop below the auction price.

“It’s unlikely that they’ll give up these gains,” said Shaffer. “It’s going to be a trickle, not a flood.”

[furrowtickler]

Should say $1.8 Trillion will be wasted on renewable energy off the backs of the middle class .
There , fixed it for you

[blackpowder]

I'm not going to bother with anyone hung up on terms like "excess profits".
What I will say is that I have some responsibility in this.
For years I stayed on the floating rate and it always seemed to even out. Never paid a lot of attention. Until I was shocked into a wakeup.
August was $.2995/kw. So I did some diligence. 2 yr avg was $.155/kw.
Current contract was $.885/kw for 2 years, which I signed.
Point is the market has changed and my contract price is on par with what the article suggests. I'm not blaming the market for me paying the floating price.
Blocks of power pre priced well in advance is the new norm. Like we do with grain.
Distribution has climbed in recent years. My Dad was on REA boards during the amalgamation phase. Maintenance/replacement costs weren't factored for generations. Now they likely reflect true costs. Had a transformer replaced this week. My bill was zero.
Some things were planned poorly over the years but "excess profits" is a singular, simple minded scapegoat.
Who did Notleys' husband work for again?

[AlbertaFarmer5]

So your article is blaming high electricity bills on high natural gas prices, which as Hamloc noted above, have long since ceased to be a valid reason.

Somehow you have overlooked the politically motivated infrastructure costs related to retiring/repurposing functional coal generation, the cheapest, most reliable, most inexhaustable, easily storable, rampable, generation source. The consumer will be paying for this folly for years to come. Now we also get to pay for the volatility that goes along with natural gas prices.

Meanwhile, chalk up another example of increased low cost renewables, coinciding with increased cost to the consumer. Probably just a coincident though, just like in every other example ever, anywhere in the world. Unless of course you have found an exception to prove me wrong yet?

[AlbertaFarmer5]

I'm not going to bother with anyone hung up on terms like "excess profits

Isn't it strange how the poster most concerned about excess profits, doesn't seem to have any concerns whatsoever about the arrive can app.

[AlbertaFarmer5]

WHY ARE YOU YELLING ABOUT POWER PRICES?

Weren't you the poster accusing me of having anger issues. And here you are yelling at us about the price of electricity in a different province.

[Hamloc]

So you are paying 26.69 cents per kwh delivered? If so no wonder you guys are so pissed off. In Saskatchewan with Sask Power and regulated rates we are paying only about 14 cents per kwh!

You can thank your Alberta Conservative governments for deregulating! But at least you got your market freedom! Freedom to be overcharged! LOL

Actually I am paying 20 cents a kwh on my contract that was signed up in Dec of 2022 when gas prices were high and 26 cent a kwh on the contract signed up in August of 2023 when natural gas prices were lower by half.

[AlbertaFarmer5]

It's sad when educational institutions teach/push agendas rather than focus on basics

I've noted before, when I took mechanical engineering at U of C, most of the professors found the need to insert their leftish political views into their lectures in completely non political courses.
That was bad enough, but the social science courses we were forced to take, were abject propaganda by professors who wore their hatred of Harper and Bush on their sleeve.

[cropgrower]

CC got very worked up when i said exactly that 🤣

[chuckChuck]

So your article is blaming high electricity bills on high natural gas prices, which as Hamloc noted above, have long since ceased to be a valid reason.

Somehow you have overlooked the politically motivated infrastructure costs related to retiring/repurposing functional coal generation, the cheapest, most reliable, most inexhaustable, easily storable, rampable, generation source. The consumer will be paying for this folly for years to come. Now we also get to pay for the volatility that goes along with natural gas prices.

Meanwhile, chalk up another example of increased low cost renewables, coinciding with increased cost to the consumer. Probably just a coincident though, just like in every other example ever, anywhere in the world. Unless of course you have found an exception to prove me wrong yet?

Wrong again A5! At least you are consistent! LOL

The U of C took the change from coal to gas into account when they look at the impact on prices during the stated time period. The impact was relatively small at 1 cent per kwh. The biggest single factor in the price increase was market markup at 3.5 cents per kwh. So you can thank the deregulated market and market concentration for that. At the bottom they explain what market changes happened.

• First, the mix of power plants changed in 2021, with many coal plants converting to natural
gas. Also, the hourly shape of load differs between the years. Both factors combine to raise
our “benchmark price” by about $2.50/MWh (0.3c/kWh).

• Second, demand was nearly 3% higher in 2021 versus the year before. Higher demand
means more costly power plants are needed to keep the lights on. This adds $10/MWh
(1c/kWh) to our competitive benchmark.

• Third, natural gas prices—a key input to most power plants in Alberta—rose by over 60%.
Higher gas prices mean higher costs to generate power. This adds $7/MWh (0.7c/kWh).

• Next, the provincial “TIER” carbon price increased by $10/tonne. Despite the attention,
this adds only a small amount, roughly $2.50/MWh (0.3c/kWh).

All told, these changes to the cost to generate power account for $22 of the $57/MWh price
increase. So what’s behind the other $35?

The answer lies in how Alberta’s power market
differs from much of the rest of Canada. In other provinces, regulated utilities pass on all
their costs to consumers through regulated rates. Whereas in Alberta, generators compete
in an open market, with no guarantee the revenue they earn will be sufficient to recoup their
fixed costs of investing in power plants. To do so, they need to earn revenues over and above
their marginal costs of generating power.

In 2020, the difference between the realized market price and what we get from our model
with all firms offering at their marginal cost—what we call the “market markup”—was only
$9/MWh. In 2021, this markup nearly quintupled: to $44/MWh—a change of $35/MWh.

Why the sudden jump? The end of Alberta’s 20 year PPAs (Power Purchase Arrangements)
left control of more power plants in the hands of fewer power companies. This increase in
market concentration, coupled with a generally tighter market overall, means firms can more
easily exercise market power and profitably raise their offer prices.