Contributed by reader Exile.
Many people are wondering what it means that the Notley NDP government has announced that they are moving Alberta from a Market based system to a Capacity based system.
In the traditional Market system producers are paid based on how much electricity they are putting into the grid on a minute by minute basis and based on the wholesale power price at that time. To keep the grid running the current system has both base load and peak power plants. The base load ones run 24/7 and always contribute into the grid, therefore the owners of those plants have a very good idea what there income will be. The peak plants are designed to produce power only when the demand is high. Then we have wind and solar, both of these are very irregular and both of these contribute as they can, when they are not producing then the peak plants have to make up the difference. One of the advantages of this system is it tends to keep prices very low, it also means that plants can be run at the optimal method for that particular plant. The disadvantage is that no one wants too much excess capacity plants sitting around as they produce no income. Also large energy users (like big factories) are effected by the daily price fluctuations; but small users (ie your home) are not billed on a minute by minute basis and so you see a low constant rate.
In a Capacity based system all producers hooked up to the grid are paid based on the theoretical maximum capacity of the plant. For all plants they would receive an income even if they were shut down and not producing power. This type of system is very popular with wind power producers as they are paid even if the wind doesn’t blow and they make the same amount of money even if the wind is blowing at low value times (ie middle of the night). These systems also tend to encourage lots of new investment as anyone can tie a solar panel or a wind turbine into the grid and get a steady income with no risk. For the owners of large stable plants (ie coal or natural gas) it’s a huge disadvantage, you are getting paid even if your not running but unlike the market system you MUST start running when the regulator tells you too. For some current plants the cost to run them is such that they only run when the spot price is high, under the capacity system they can be forced to run even at a loss or be forced to operate in a mode that is damaging to the facility. An example is that base load facilities are not designed to start or stop very often, doing so damages the turbines; in a Capacity system if you have lots of wind turbines and the wind dies down you can see a massive drop in power output and wind producers won’t care as they get paid even if they are not making electricity, but the gas and coal plants will have to quick start to make up the difference and that causes excess wear and tear.
I see this move as being done for several reasons.
1) With the plan to shut our coal plants down Alberta will loos about 40% of it’s current capacity. Unfortunately that 40% of capacity is also 90% of our base load plants.
2) Shutting down the coal plants means we need to find 6800 MW of additional stable capacity. The province estimates a cost of $25 billion to replace this; industry says building that capacity as gas powered plants would be closer to 40-50 billion.
3) A capacity based system rewards unreliable wind and solar systems and punishes constant coal and gas plants.
4) A capacity system is going to drive away new investment in fuel powered systems and encourage people to build unreliable wind and solar plants.
5) Replacing our 6800 MW of coal plants with wind means that our current 1400MW of wind would need to be expanded to 8200 MW of capacity – on paper. Unfortunately wind plants are only about 20% efficient so they only produce 20% of rated capacity. That means we would need to increase our wind capacity by 34,000 MW or we need 17,000 NEW wind turbines. there is not enough space to install that many new ones and even if you did there is no guarantee that they would even produce enough power at the right times.
6) Most of the states and provinces that have gone to a capacity based system (ie ontario) have had massive price increases for average consumers. All of the places with very low or stable pricing have been market based.
7) I suspect the plan is to cripple Alberta’s ability to grow the economy.