After much speculation and waiting, on November 3, 2016 the Government of Alberta (GoA) released plans on how it intends to achieve key aspects of its ambitious Climate Leadership Plan (CLP), including endorsing the recommendations put forward by1the Alberta Electric System Operator (AESO) for a provincial Renewable Electricity Program (REP).
The goal of the REP is to add 5,000 megawatts of electricity from renewable energy sources (e.g. wind, solar, hydro, geothermal, biomass, etc.) by 2030. With the corresponding planned phase-out of electricity from coal sources under the CLP, this will mean that at least 30 percent of the province’s electricity will come from renewable energy sources by 2030. The GoA projects that the REP will attract more than $10.5 billion dollars into the Alberta Economy by 2030 and lead to the creation of 7,200 jobs in the province.
On the same day, the GoA also introduced Bill 27: Renewable Electricity Act, which establishes the legislative framework for the REP. Under the REP, the AESO will hold a series of competitive processes for renewable electricity procurement, with each competition having up to three stages and lasting roughly 7-11 months. The stages will be overseen by an independent Fairness Advisor and will comprise the following:
- Request for Expressions of Interest – A non-binding preliminary stage to gauge the level of interest and help potential bidders decide whether to participate in the competition (runs 4-6 weeks)
- Request for Qualifications –The stage that informs bidders of the eligibility requirements and qualifies them to submit a bid. Bidders will pay a qualification fee and describe their proposal, demonstrating a) project eligibility, b) financial strength and capacity and c) development, construction and operations capability (runs 4-6 months), and
- Request for Proposals –The final bid stage where bidders provide a refundable bid security and submit a final binding offer price (runs 2-3 months). The winning bids will be based primarily on the proposals with the lowest acceptable costs for the generator. Successful bidders then have the opportunity to enter into a Renewable Electricity Support Agreement (RESA).
The first renewable electricity competition will procure up to 400 megawatts in renewable electricity capacity and will launch in the first quarter of 2017. Prior to this, the AESO will release a key commercial term sheet for stakeholder feedback on November 10, 2016 with a deadline for comments on December 9, 2016. Eligible projects may be new or expanded projects in Alberta that must provide at least 5 megawatts of renewable electricity capacity, be operational in 2019 and utilize the existing transmission and distribution system. The approach taken by the AESO is neutral to energy type, so long as it meets the Natural Resources Canada definition of renewable energy (energy derived from hydro, biomass, wind, solar, geothermal or oceanic sources). These eligibility requirements are subject to change in future competitions.
Successful bidders entering into RESAs will receive 20 year contract terms, supported by an indexed renewable energy credit payment mechanism. This will mean that generators are guaranteed a bid price for the purchase of their electricity, which would then be subtracted from the market-driven pool price to determine whether the government pays the generator or vice versa.2 The design of the credit attempts to balance minimizing costs to the province while providing for a level of certainty of return to private investors. The GoA’s support for projects under the RESAs will come from reinvesting monies obtained from the Climate Change and Emissions Management Fund under the Climate Change and Emissions Management Act or otherwise from the GoA’s General Revenue Fund.3
Further details of the carbon levy were also released on November 3, 2016 through an Order of the Governor in Council, releasing the Climate Leadership Regulation.4 This regulation sets out the formulas used to calculate the applicable levy in specific circumstances as well as the applicable exemptions from the levy. As we know, the carbon levy will come into force on January 1, 2017.
Overall, it appears that the REP will attempt to strike a balance between creating a market incentive for the growth of the renewable electricity sector while attempting to minimize costs to Albertans. Given current market conditions and the low price of electricity, this is a challenging task. Of key interest will be the AESO’s release of the term sheet on November 10, 2016 and request for stakeholder comments. This release will provide a chance for industry participants to voice feedback and begin planning potential projects based on the commercial terms in the term sheet. . We will continue to monitor the situation and issue further updates in this regard.
Due to the general nature of the content, this Bulletin is intended as information only and not as legal advice. If you require any additional information please contact the authors directly or any of the lawyers in our Energy Group.