Under a Clean Power Transformation scenario, within two decades Alberta could reduce its reliance on coal-fired power for grid electricity from today’s 63.8 per cent to a mere 3.6 per cent of energy, without switching to heavy reliance on natural gas. Figure 6 demonstrates the much larger diversity of supply capacity in the two clean power scenarios.
This shift would deliver an impressive 69 per cent reduction in annual carbon pollution from the province’s power sector relative to business as usual, as shown in Figure 7. It would also substantially decrease air pollution, improving public health outcomes and lowering healthcare expenditures.
In the Clean Power Transition scenario, the province could reduce its reliance on coal power from 63.8 per cent to 11 per cent. Doing so would cut annual electricity sector greenhouse gas emissions 45 per cent below business as usual by the year 2033. All of this can be accomplished without significantly increasing costs to the consumer in the near term and actually decreasing costs below the Continued Fossil Reliance scenario in the long run.
We engaged Solas Energy Consulting Inc. to model the consumer price impacts of the different portfolios of generation. The company determined the power price using an average merit order for the years 2023 and 2033 created from actual 2012 merit orders.
A summary of the methodology is provided in the Appendix. The assessment yielded wholesale energy prices and per-MWh revenues for various generation technologies.
We worked with Solas to adjust generation mix scenarios. In particular, the modelling relied on an iterative process to ensure a sufficient rate of return to support new builds in gas, hydro and renewable generation. In some scenarios, energy revenue alone was not sufficient to stimulate renewable development, and a policy-based incentive would be required. The cost of the incentive is included in the resulting wholesale cost of power presented in Figure 8.
As Figure 8 shows, as we replace existing generation sources with new capital investments, electricity prices will rise under any scenario—i.e., regardless of what new generation sources we choose. With an acceleration of coal unit closures in the Clean Power scenarios, and the upfront costs of new capital investment in a greater diversity of generation sources, there is a small increase in the wholesale energy prices in the medium-term (year 2023). However, in the long-term (year 2033) we see the payoff from investing in renewable energy, which is insulated from fuel cost increases. By the end of our scenario projections, we see clean electricity supply reducing consumer energy costs.
Moreover, both the Clean Power Transition and Clean Power Transformation scenarios significantly diversify the province’s energy mix. They avoid the projected continued reliance on fossil fuels that would result under the business-as-usual Continued Fossil Reliance scenario. That scenario projects a simple switch from relying 64 per cent on coal and around 20 per cent on natural gas annually as we do today, to relying 64 per cent on natural gas generation and 20 per cent on coal in 2033.
That business-as-usual projection is rife with risk for Alberta residents, schools, businesses, and industry alike. Natural gas power generation sets the market price more than its proportional contribution to supply—a result of the way in which natural gas power generators bid their energy into the market. As its supply to the generation mix grows, this price-setting dominance will only increase (Beblow, 2013).
When natural gas fuel prices rise, the consumer will bear the brunt of the increases—especially if the province begins to lean heavily on the fuel, as it would in the Continued Fossil Reliance scenario. This can explain why new natural gas generation is currently such an attractive investment—at least, for electricity generation companies. However, this single fuel reliance also presents a major risk to Alberta electricity consumers over the longer term.