The Grid of Tomorrow

A Look at Renewable Generation in Alberta.

Nate Heywood, CFA

With Alberta power companies strategizing to be off coal by 2030 and the potential for increased carbon costs up to $50/tonne of CO2 by 2022, the future grid complex will look to renewable power generation to substitute conventional power generation in Alberta. We have observed a significant trend towards commercial/industry purchase power agreements (PPAs) and “behind-the-fence” or “distributed” generation, which provides power directly to demand centres. With large industrial power users prioritizing ESG metrics, securing renewable power from green sources has become low-hanging fruit to improve ESG screening.

Alberta Market Design is Well Positioned for Renewable Growth
The Alberta balancing pool PPAs will expire at the end of 2020, transforming the province’s baseload power market to merchant competition. As the reliance on coal continues to slide, some market projections are calling for wind and solar power generation to reach 8.3 GW of capacity by 2025, a significant increase from current levels of 1.9 GW. Rystad Energy, a European analytics firm, is calling for 83% of wind and solar capacity built in Canada to be housed in Alberta over the next five years.

Market Implications of New Generation
Traditionally, we would expect new generation capacity in the province to pressure power prices, but given the smaller-scale and reduced utilization capacities of renewable projects, the impact may be more muffled than expected. Given the deregulated energy-only market in the province, and the roll-off of the Balancing Pool PPAs, there may be upward pricing bias in the future as generators focus on “return-on-capital”. We may also see a trend of renewable projects that will be directly tied in to new industrial power demand centres with limited merchant power reaching the grid. We also anticipate the reduced reliance coal generation as carbon costs reduce the economics of the conventional power source. However, we do note the potential for current coal operations to be pushed out by other baseload generators (e.g., the 900 MW Cascade CC facility and Suncor’s (SU-T; NR) proposed 800 MW Base Plant Cogeneration facility).

Who Will Ride the Wave of Renewable Growth?
As commercial offtake agreements for renewable capacity gain traction in Alberta, we are expecting some of the currently proposed projects sitting in limbo to be beneficiaries should the PPA trends continue. In the full report, we highlight some of the near-term projects which we believe have a realistic possibility of reaching completion. Some of the highlighted names include Capital Power, TransAlta, Northland Power, Greengate Power (Private), Boralex (BLX-T; NR), Suncor, Capstone Infrastructure (Private), and BluEarth Renewables (Private). While Capital Power and TransAlta already have significant Alberta capacity, we expect both companies to be actively involved in Alberta’s power market in the future and will be focused on developing renewable technologies.

Nate Heywood, CFA 403-539-8584

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