Alberta’s Ambitious Renewable Electricity Program: The Long-Awaited and Eagerly-Anticipated Details Unveiled

Courtesy of Stikeman Elliott and Canadian Energy Law. View original article here. 

Almost a year after Alberta Premier Notley first announced her Climate Leadership Plan in bold but extraordinarily broad strokes, the details of how she hopes to achieve a target of 30% renewables on Alberta’s grid by 2030 are finally taking shape.

Coincident with the first reading of Bill 27 – Renewable Electricity Act in the Alberta Legislature, Environment Minister Shannon Phillips and Mr. Mike Law, the VP of Renewables Development and Sustainability at the Alberta Electric System Operator (AESO), each gave presentations at the Canadian Wind Energy Association (CanWEA) annual conference (auspiciously held in Calgary this year) revealing aspects of Alberta’s Renewable Electricity Program (REP).

Minister Phillips announced that 5000 MW of renewable capacity would be added by 2030, beginning with 400 MW to be procured under a program based on the AESO’s Renewable Electricity Program Recommendations Paper, which has only now been publicly released. The Government anticipates that the program will result in new investment totaling $10.5 billion and 7,200 new jobs. Mr. Law then provided a detailed overview of the REP and the first procurement process to be administered thereunder by the AESO.

Here’s what we now know:

  • It is anticipated that there will be a series of competitions held between now and 2030 to incent the 5000 MW of renewable generation capacity. Competitions will be timed to parallel the pace of coal plant retirements. Existing, approved and planned transmission developments will be used first to minimize costs.
  • After consultation with stakeholders on commercial terms, to commence on November 10, 2016 and take place over the course of the next two months, the first competitive procurement process will get underway in Q1 of 2017. The competitive procurement process will be fuel-neutral[1] and will be for 400 MW of renewable capacity. Further details on the program as it unfolds will be made available here, including details on how to become involved in the consultation process.
  • Qualifying projects must have a capacity of at least 5 MW and be operational by the end of 2019. They can be new or expanded projects, but they must be located in Alberta.
  • Similar to prior competitive procurement processes for transmission facilities, the REP will be overseen by a Fairness Advisor who will monitor and report on the implementation of the competitive procurement process (Renewable Electricity Act, s. 6).
  • The competitive process will unfold in three stages:

(1) Requests for Expressions of Interest – A 4-6 week process (Q1 2017) during which industry can provide feedback on the competition without obligation. Aimed at gauging interest in the process.

(2) Requests for Qualifications – A 4-6 month process (Q2 and Q3 2017) to determine on a pass/fail basis, which bidders are qualified to proceed to the Request for Proposals stage.  Bidders will be required to pay a non-refundable qualification fee and demonstrate their qualifications in (i) project eligibility (New or expanded renewable project ≥ 5 MW able to meet in-service date? Ability to connect to existing transmission or distribution system?); (ii) financial strength and capacity (Net worth relative to project size? Financial sponsor or guarantor? How does the bidder intend to secure equity contribution in order to construct?); and (iii) technical capability (Recent projects of similar size/complexity? Experience with all stages of development including siting, stakeholder consultation and land acquisition).

(3) Requests for Proposals – A 2-3 month process (Q4 2017) during which qualified bidders must provide bid security and submit their final binding offers (i.e. bid price). Successful bidders to be selected based on lowest price.

  • Finally, and most significantly, the payment mechanism will be based on an Indexed Renewable Electricity Credit (IREC) to be set out in a 20-year Renewable Energy Support Agreement (RESA) between the AESO and the successful bidder. The amount of support paid for the renewable attributes of the particular project will be determined based on the difference between the bid price and the reference price (i.e. the pool price). That is, the IREC paid is automatically adjusted so that when pool prices rise, the value of the support to be paid falls. If the pool price rises above the bidder’s strike price,[2] the bidder must pay the difference to the Government of Alberta. This design is intended to minimize program costs to Albertans, while providing sufficient revenue certainty to investors.[3] As outlined in the proposed Renewable Electricity Act, the Government of Alberta will provide funding for the cost of each RESA to the AESO on a monthly basis, which will subsequently be paid to the generators subject to each RESA. It appears that the intent is to fund the REP first through the Climate Change and Emissions Management Fund, with any shortfall coming from the General Revenue Fund (Renewable Electricity Act, s. 12).

In short, where renewables are concerned, Alberta is open for business. The commercial terms of the RESAs will be the subject of consultations to be undertaken in the coming weeks, which we will continue to monitor and comment on. We will come to know in a matter of months whether the REP strikes the right balance to incent the desired renewable capacity, but it will take longer to appreciate the full cost of this dramatic transition. If the size of the crowd at the CanWEA conference was any indication, there’s no shortage of interest.

[1] For the first procurement process, the Government will not specify what type of renewable fuel source must be used. In other words, wind, solar, hydro or other renewables can all participate, but successful bidders will ultimately be determined based solely on the economics of their respective projects. The goal being to minimize the cost to the Alberta Government of supporting renewable generation. Fuel source may, however, be specified in future procurement processes.

[2] As noted at p. 3 in the AESO’s Renewable Electricity Program Recommendations Paper, the strike price would be expressed in $/MWh and, in essence, would be a bidder’s lowest acceptable cost for the bidder’s proposed renewable project.

[3] The AESO noted at p. 18 of its Renewable Electricity Program Recommendations Paper, that this mechanism would “encourage financial innovation and allow project financed solutions versus just balance sheet solutions.”

Courtesy of Stikeman Elliott and Canadian Energy Law. View original article here.