Alberta is Canada’s Primary Destination for Wind and Solar Energy Investment

Evan Wilson | September 14, 2020

While Alberta is well known as the home of Canada’s petroleum industry, it has also become the key province of interest for developers of wind and solar energy in Canada. Throughout the latter half of 2019 and through 2020 to date, wind and solar energy developers have announced a steady stream of new projects, coming online over the next several years. These are all significant projects, including the 117 MW Rattlesnake Ridge Wind project, the 132 MW Clareshome Solar project, and the 39 MW Burdett and Yellow Lake Solar Projects. These are not the only large scale renewable projects announced in Alberta over the past 12 months, but they do have one thing in common: they have publicly announced a contract with a customer (or off-taker) that has agreed to purchase a bundle of both electricity and carbon credits.

Indeed, these projects are likely only the tip of the iceberg. The Federal Government  will soon be holding competitive procurements to obtain similar contracts and there are many discussions underway between energy users and the renewable energy producers who currently have thousands of MW of proposed projects in the Alberta Electricity System Operator (AESO) Connection Project List.

Corporate purchases of renewable energy are driving significant new wind and solar energy development globally, and Alberta is leading Canada in this “corporate off-take agreement” approach. With all this excitement, we wanted to provide some context for why it’s happening.

During the 2019 Alberta election, the now governing United Conservative Party (UCP) announced that they would be taking a market-based approach to renewable energy, and these contracts illustrate how such an approach can work.

All renewable energy developers seek to reduce risks in volatile energy markets, where prices may fluctuate hour to hour, throughout the year. Securing an agreement to a fixed price for some or all of the power produced over the length of a decades-long project reduces these risks and attracts investment to the sector. 

There are three main reasons why Alberta is leading the way for such exciting announcements in Canada, including Alberta’s first-rate wind and solar resource, the provincial energy only market and the Technology Innovation and Emissions Reduction, or TIER, regulation.

Alberta’s Wind and Solar Resource

Alberta’s solar and wind resources are among the best and most productive in Canada. The maps, prepared for the Alberta Electricity System Operator (or the AESO) for its Long-Term Transmission Plan, demonstrate the productivity, in “hours of sunlight” for solar and “capacity factor” for wind. Where the maps are yellow, orange and red, we see the most productive regions in the province.

These resources have made the southern and south-eastern regions of Alberta among the most active areas for energy development in the country. The strength of the resource in these regions is perhaps best exemplified by the result of the AESO’s previous renewable procurements, which awarded wind contracts at an average price of 4 cents per kWh, or by the result of Alberta Infrastructure’s Solar procurement, which awarded a solar contract for 4.8 cents per kWh. For comparison, the average price on Alberta’s market between 2009 and 2019 was approximately 5.3 cents per kWh.

Alberta’s Energy Only Market

It is evident from the contract prices noted above that solar and wind energy are very competitive with other forms of energy in Alberta. This makes investment in renewables in Alberta a very welcome opportunity. And unlike in other provinces, where power is supplied by a Crown Utility, which is owned by government, plans the system and sells power, Alberta is home to a de-regulated market, where private investment determines the power mix. That is, if a developer can get a project approval and find money from investors, they can connect their project to the grid and compete for a share of the market.

So, if a company thinks that they can develop a project at a low enough cost to compete with the other generators already on the system, they can make the choice to do so. Once they have connected, they have three basic options for revenues – they can sell the power they generate to the “power pool” at the hourly price, they can sell their power to a single customer who would pay for all the power generated, or they can do a mixture of both options. The first option is the riskiest, meaning that the power plant operator may collect zero dollars in revenue in some hours, but higher revenues in others. Once power starts to be sold in a contract, the opportunities for high revenue hours disappear, but so does exposure to zero dollar hours.

For many investors, the tradeoff between the opportunity for high dollar hours and the risk of low dollar hours is one that they would like to reduce, and signing a long term, predictable contract is worth the lost opportunity of the high dollar hours. Fortunately for them, Alberta’s energy only market provides with the opportunity to make that choice.

The TIER Regulation

The Technology Innovation and Emissions Reduction regulation, which provides market-based incentives for emissions reduction in the industrial sector, provides opportunity for developers to earn revenues by selling more than just power.

Here is how:

The TIER regulation sets limits on how much carbon a given industry facility can emit into the air. If they emit too much carbon, they must pay a carbon levy to government. If they emit less carbon than they are permitted, they collect credits from government, which can be sold to other facilities, who can give these credits to the government instead of paying the levy. So, if the carbon levy is $30/tonne over the limit, but you can buy carbon credits for, say, $25/tonne, and then give that to government instead, it’s a much cheaper way to be in compliance.

This type of transaction also provides a revenue stream for industrial facilities that emit carbon below their limits. This is especially true for wind and solar facilities, which have no emissions once in operation. So, for every kWh of energy they create, a renewable power generator creates a credit that can be sold to another industrial facility. In fact, generators in Alberta have realized that they can sell power and credits to customers for a long-term, locked in price, which creates two predictable revenue streams for a developer to bring to the bank. And it is this kind of business arrangement that has led to the announcements of the projects mentioned earlier in this post.

So, to recap, Alberta is currently Canada’s leading market for renewable energy investment and a lot of that is because of the unique opportunities to secure bilateral corporate off-take agreements in the Alberta market as a result of:

  1. Alberta’s world class renewable resources, which make wind and solar cost competitive with other fossil fuel generation.
  2. Alberta’s Energy Only Market, which provides an opportunity for entrepreneurs to make investments and sell power to customers on both an hourly and a long-term basis
  3. The TIER regulation, which provides opportunities for renewable energy generators to monetize and generate revenues from the environmental benefits they bring to the system.

Learn more about the Canadian Renewable Energy Association and connect with our team at [email protected] if you’d like to join our Alberta Caucus.