Alberta Power market Issues Wade Canada Roundtable

1
Alberta Power market Issues Wade Canada
Roundtable

• Sheldon FultonExecutive Director, IPCAADec 2nd,
  2009

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Who pays The Bills?
80 Industrial and Commercial Highest in North
America
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Provincial energy strategy

• Its all about the oilsands
• Royalty Revenue
• 80 of provincial revenues by 2020
• Main driver in new investments for electrical
  energy
• Needs carbon offsets in the new NA carbon arena

4
Market Design

• Concern that current design is not sufficiently
  robust to attract new investment in an efficient
  and competitive manner
• Single price supply merit structure does not
  provide for adequate new capital for future
  generation investment
• Need exists for a major review of the design to
  ensure we do not have government intervention in
  generation market.

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Alberta Power Market Load Perspective

• Alberta as an energy-only market what does this
  mean for loads? How do we make it work?
• Zero-dollar offers do they really deliver
  energy for nothing? Do we need to develop an
  energy-ahead market?
• Demand Response can it facilitate a more
  competitive market? Will it drive generators to
  forward contracting
• Future Investment do we have the right price
  signals? Can we finance 20 to 30 billion of new
  investment with the current market price
  mechanisms?
• Transmission infrastructure should it lead or
  follow generation? Should we build before we fix
  the investment problems?

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Markets (and Engineers) Depend on FeedBack Loops
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Market Scale Mismatch
Market is the interactions between groups of
buyers (the demand side) and sellers (the supply
side)
Demand
Price
Supply
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The AESO Hourly market
Balances demand level by stacking up supply offers
An energy offer is assumed to represent the
marginal energy cost for a generator at a
specific level of output
All generators in the offer stack receive a
uniform market clearing price
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2008 Load/Price Duration Curve
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2009 Load/Price Duration Curve
Average Price - 47.75/MWh
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What are Basis Price Modifiers?
Electricity Basis
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What are Environmental Attributes?
ELECTRICITY
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Quality Basis Differentials
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Negative Attributes

• blood diamond noun
• Pronunciation \'bl?d\ \'di-(?-)m?nd\
• Synonyms conflict diamond dirty diamond war
  diamond
• refers to a diamond mined in a war zone and sold
  in order to finance an insurgency, invading
  army's war efforts, or supporting a warlord's
  activity

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Generation Investment and Value Relationship

ROI
Development
Operation
CAPITAL
CONSTRUCTION
EQUIPMENT
REGULATORY/ SOCIAL APPROVAL
FIXED COSTS
0
Years
0
5
20
CAPACITY
UTILIZATION
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AESO Alberta Value - 5 Intervals For 2008
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What Does This Mean?
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What and Where do we need to build

• Need demand for generators to build
• Nuclear minimum 10 to 12 years away
• Slave Hydro - Significant losses due to distance
• Coal with Carbon Capture and Storage
• 35 decrease in efficiency, Cost increases from
  approx 1.5 to over 3.0 M/MW
• Wind - 35 utilization
• CCGTs w/ thermal must run efficient when steam
  used

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Future factors that Need Analysis

• How do we integrate 3,200 MW of wind into a 9,000
  MW market - let alone 6000 MW (by 2020) into
  12,000 MW market and all primarily in the
  south?
• Will the projected 75 load growth to 2028
  actually occur given only 8.5 over the past 7
  years?
• How much load growth will actually require
  transmission of energy given distributed
  generation projects and oilsands co-gens as the
  major adds in the past 10 years?
• What is the impact of 80 of the energy
  consumption being commercial and industrial on
  future demand growth (energy efficiency
  self-supply demand response demand
  destruction)?
• Will higher transmission costs encourage more
  loads to get off the grid?
• What are the future impacts of carbon pricing on
  generation supply in a provincial economy based
  on hydro-carbon supply?

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Resolution Within Ten years

• An electricity market that is sufficiently robust
  and dynamic as
• to provide proper price signals to differentiate
  electrical energy by fuel source
• to efficiently signal investment decisions in
  preferred technologies and
• to effectively capture price differentials that
  reflect location, time of use and quality
  attributes

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Questions?

• Sheldon Fulton
• Forte Business Solutions Ltd
• 5856 Dalcastle Drive NW
• Calgary, AB T3A 1Z3
• (T) 403 815 1341
• (F) 403 247 6514