EvC Bonus - HOT TOPIC: Alberta Electricity Update

Another BONUS Podcast Episode!
The electricity file has been popping, especially in Alberta, where on a weekly basis a clash of worldviews on the future of electricity generation is on full display.

About Our Guest
Blake Shaffer is an Assistant Professor in the Department of Economics at The University of Calgary. He works on electricity markets, climate policy, and energy transitions, and frequently provides policy advice to governments at various levels. 

Show Notes
(00:02:44) AB’s new renewable energy rules could ban projects

(00:04:26) AUC inquiry into the ongoing economic, orderly & efficient development of electricity generation in AB

(00:09:00) Assessing potential impact of AB's proposed viewscapes & agricultural land restrictions

(00:10:20) AB brings in new restrictions on renewable power projects as moratorium set to end

(00:13:01) Farms or Solar Farms?

(00:18:56) ‘What We Heard’ during consultations & directions being considered for the final regulations

(00:24:13) Rotating brownouts leave thousands without power

(00:27:52) Transmission Policy Review

(00:31:03) Power Flows: Transmission Lines & Corporate Profits 

(00:31:44) Replacing The Utility Transmission Syndicate’s Control 

(00:33:38) Improving integration & coordination of provincially-managed electricity systems in Canada

(00:34:15) AB's Renewable Electricity Program

(00:35:30) Affordable Energy, Good Jobs, and a Growing Clean Economy

(00:37:07) Recommendations for AB’s Power Market

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Energy vs Climate
www.energyvsclimate.com

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Transcript

EvC Bonus Episode - HOT TOPIC: Alberta Electricity Update

[00:00:00] Ed: Hey EVC fans, Ed here with a heads up about a special in person event coming up in late May. David, Sarah, our producer Amit and I will be at the Establishment Brewing Company in Southeast Calgary after work on Tuesday, May 28th. We'll be there to drink beer and chat with all of you, our listeners and viewers.

[00:00:17] Ed: If that sounds like fun, then head on over to energyvsclimate. com for more details and to RSVP. You can also sign up for email updates while there. See you at Establishment.

[00:00:31] Ed: Hey, EBC listeners and viewers, it's Ed here. We've got more special bonus content for you this month. The electricity file's been popping, especially here in Alberta. Where on a weekly basis, we all have front row seats for the Clash of Worldviews. On the future of electricity generation. A year ago, Sarah's University of Calgary colleague, Dr.

[00:00:49] Ed: Blake Schaefer, helped us to make sense of the role of electrification in the 2023 Canadian federal budget. We thought it worthwhile circling back to Blake to unpack the many electricity developments that have dominated headlines since. Blake is an assistant professor in the Department of Economics at the University of Calgary.

[00:01:07] Ed: He works on electricity markets, climate policy, and climate change. and energy transitions, and frequently provides policy advice to governments at various levels. Prior to his return to academia, Blake had a 15 year career in energy trading, specializing in electricity, natural gas, and emissions markets.

[00:01:23] Ed: David's still away this month, so once again it's just Sarah and me chatting with Blake. Enjoy the show. Blake, it's great to have you back on Energy vs. Climate. So We talked to you almost a year ago to the day about the Canadian federal government's big bet on electrifying the Canadian economy in its 2023 budget.

[00:01:42] Ed: And as a reminder to listeners, the budget included a ton of new spending on things like grid decarbonization and three separate but overlapping tax credits for everything like wind and solar. Uh, electricity storage projects, the manufacturing of storage equipment to big transmission projects, and even money there for what we think is inter provincial trade of electricity.

[00:02:08] Ed: Now, all of us are sitting here today in Alberta, which at that time, a year ago, was leading the country in renewable electricity growth. by about a country mile. Now, a lot has happened on electricity in the past year, especially here in Alberta. Some of it was expected and some of it very unexpected. And perhaps at the top of the list of the unexpected category was the moratorium that the provincial government put on new, uh, renewable electricity developments in early August.

[00:02:44] Ed: So do you mind just for the listeners explaining what was that moratorium? Why was it put in place? And then we can talk about the outcomes now that, uh, the processes is winding up. 

[00:02:55] Blake: It's funny when you, when you said expected versus unexpected, I sort of thought the moratorium might have been in the expected camp, um, based on sort of past comments around renewables from, from this particular government.

[00:03:09] Blake: It's, it's pretty clear that they're not really a fan of, of renewables, specifically wind and solar. Um, the moratorium was effectively a seven month. So it was a directive to the Alberta Utilities Commission to pause any approvals for the next seven months. People could still make applications, things can move through the process, but final approvals were delayed.

[00:03:34] Blake: Uh, it was set to expire in, in February, it did, but coupled with that expiry was sort of more onerous obligations, uh, onerous and nebulous, I would say obligations around applications is this notion of, uh, siting within 35 kilometers of a pristine view scape and, and that, that term being undefined. Pretty challenging for any developer to spend a lot of money on applications when you really have this unclear criteria as to whether or not it'll make it through the process.

[00:04:04] Ed: Uh, Sarah, so Blake started with a good question or a good flag as to whether it's expected or unexpected. We've talked about it on the show before. For me, it was unexpected, but I should have expected it because I was giving a talk at an Energy Storage Canada event and someone in the audience asked, you know, should Alberta put a moratorium on new electricity, uh, renewable electricity development?

[00:04:26] Ed: That should have been a flag. But did you expect it? And what's your take on the moratorium? And, and we should probably spend a bit of time on this pristine view scape requirement because yeah, as, as Blake, you suggested, it's causing a lot of nervousness in the industry right now. 

[00:04:41] Sara: So expected, unexpected.

[00:04:42] Sara: I was reminded actually recently in a conversation with a developer of just how, um, maybe unheralded the announcement was, right? Usually when governments, um, make a policy change like this, that is so significant when it comes to sort of economic activity, there is some kind of discussion with industry beforehand.

[00:05:02] Sara: And, and so I think in that sense, it's fair to call it unexpected. you know, the day of or day before sort of people were just finding out, uh, you know, those that are working directly in this space and, you know, making big bets and big investments were just finding out that this was happening. So on that count, I would say, you know, somewhat, somewhat unexpected and, and somewhat, I would say quite outside of the ordinary of what, you kind of policy processes, you know, in my mind, it goes a bit like when the Ford government came in and, and actually, um, took away some of the wind contracts, um, sort of in that category of, it's not unusual for governments to make forward looking policy change, but when they start to do things that impact projects that are either already under development, or as Blake had said, you know, people had made significant investments in, um, kind of getting to the stage of permitting.

[00:05:48] Sara: That's sort of another level of government interference that I guess I would put in there. When it comes to the viewscapes and sort of generally the outcomes, you know, it's interesting that the AUC has now, uh, for a few weeks ago now sort of published their work, right. And released the report that they prepared and, and sort of their findings on the different, uh, issues that were raised in the moratorium.

[00:06:11] Sara: So, you know, impact on, um, use of land and, and sort of, uh, competition with agriculture, this question of viewscapes. And it seems like the rules and the direction that government has gone doesn't really line up with what the AUC actually said in their report, right? So they sort of flag these issues of, you know, viewscape is a very subjective term and it's very hard to really define, you know, whose viewscape and what exactly is going to be seen as, as disturbing that.

[00:06:36] Sara: So a lot of, I think a lot more questions still than answers, which, which does have a chilling effect on investment, because, you know, if you're going to put quite a lot of money into getting a project to the state of permitting without having certainty of, you know, is it going to violate one of these rules?

[00:06:51] Sara: You know, that just increases the risk for the developers and therefore, you know, increases what they're, what they're looking for in terms of returns. 

[00:06:57] Blake: Yeah, I guess if I can add, I'm probably being tongue in cheek or a bit hyperbolic on the Expected, unexpected. I agree with Sarah. Um, I think the blunt and abrupt nature of just a moratorium is unexpected.

[00:07:11] Blake: That's a pretty severe action to take. It's really chilling on investment and with BC having its large call for wind power and Ontario opening up again for a call, developers are going to move outside the province. So that I suppose, unexpected, the expected part was sort of push back or, uh, making development a little harder for wind and solar.

[00:07:31] Blake: If you had asked me, I was expecting things like increased costs for connection, uh, ancillary service charges to increase sort of the things that regulate and control reliability. I was expecting some of those costs to be pushed down onto renewables, making the returns a little weaker, but the blunt action of a moratorium went further than expected.

[00:07:50] Blake: It's fair to say most people expect. 

[00:07:51] Ed: Yeah, it certainly was a blunt force instrument and unheralded Sarah. I heard about it and I may have mentioned it on EBC in the past. I was just walking out of seeing Oppenheimer with David, David Keith and, and a few others. And Scott Perry, who is the Alberta GM for Northland Power at the time called me and said, Hey, do you know what's coming?

[00:08:09] Ed: And it was like, I'd just seen a movie about a big nuclear blast and here it was another big blast. I couldn't believe it. And then. I, I won't name the innocent, but, uh, folks in the industry. I know a couple went in and met with minister Newdorf, I think the very next day, and rather than sitting down and having a meeting that was specifically about the moratorium, he thought that the meeting, this was just an aside.

[00:08:33] Ed: And Oh, by the way, you know, just so you know, that we're going to announce this moratorium and that's no big thing. We're just taking a seven month pause, uh, and halting all approvals of new development in your industry. No biggie. Hey, would you like a coffee? You know, it was really severely unheralded and understated.

[00:08:51] Ed: So I I've seen different numbers bandied about in terms of investment that has been paused or investment that has gone outside the province as a result. Do either one of you have like a firm figure? I I've seen the Pembina Institute, the business renewable centers. Publish some information. I know it's hard to quantify because it's a counterfactual.

[00:09:11] Ed: It's, you know, what were you planning to do? And that wasn't publicly disclosed and now you're going elsewhere. But can you sort of put a ballpark to how much capital has been lost as a result of this 

[00:09:20] Blake: exercise? Now, I don't have that number, but I would agree that, you know, everything that was in the queue, That would be an overstatement because everything in the queue to get potentially built never does actually get built.

[00:09:32] Blake: But the number's not zero. It's clear that there's going to be, um, investment moving away from this province, uh, because there's better opportunities and clearer opportunities elsewhere right now. 

[00:09:42] Ed: And then just sort of teasing apart, The genuine concerns versus what we might call sort of ideological biases.

[00:09:51] Ed: The premier, by the way, going back to the expected versus unexpected, you mentioned that Blake was very clear about her thoughts on renewables for a long time. And if you could summarize it, it's renewables belong on rooftops. I, you know, small scale solar on, on residential houses. And not on the ground, i.

[00:10:10] Ed: e. the traverse solar level 465 megawatts solar projects or wind projects. And it seems to me that a consequence of it that there is a valid concern if you're a landowner in an area where the renewable electricity or specifically the solar development has been explosive. And I think the stat was around 80 megawatts of solar installed, I want to say 2019 and 2020.

[00:10:35] Ed: to over a gigawatt and that growth happened in three years time. So if you're a landowner and you're next to that and you're seeing suddenly all these fields covered with solar panels, then just for an inability or a challenge in reacting to change, you have a concern. So that concern to me seems valid, but love 

[00:10:53] Blake: to get both of you, your take on it.

[00:10:56] Blake: I guess one of the comments I would make and sort of some of the hypocrisy that we've seen relative to, for example, oil and gas developments on those things like landowner rights and reclamation costs, which were one of the highly touted areas. So who pays for cleanup? The big difference here on wind and solar development versus say oil and gas is it's up to the landowner.

[00:11:16] Blake: You do not, you're not going to be forced to develop a solar farm on your. Acreage if you don't want to. Um, if you're worried about who's gonna pay the tab 20 years from now and cleaning up the panels, you can demand a bond. So all of those things are in the control of the landowner, whereas an oily gas subsurface right, can be acquired and access can be effectively forest onto the surface rights owner.

[00:11:42] Blake: Where so reclamation is a real issue there where the landowner doesn't have control over cleanup and development. So I think it's really important to like. I want to really remind viewers of that difference here when we're talking about, uh, renewable, renewable development. If you don't like what your neighbor is building, that's a challenge that we always face.

[00:12:01] Blake: Um, you know, there's apartments going up in my neighborhood that some people don't like. Um, that sort of, I don't like what my neighbor's doing is always going to be a challenge. And I think there's, there is room for land use planning that can, that can deal with it. But what I found overall in sort of the arguments for the moratorium was it really depended on the day which argument was being used.

[00:12:23] Blake: There was so many different reasons being thrown about that it was really hard to understand what is really behind this, which makes one question whether the uh, somewhat reasonable motives really were the reason for it or if it was just purely ideological. 

[00:12:37] Ed: Yeah, and when you're talking about, say, end of life oil and gas assets at their end of lives, just the level of toxicity and I think the challenge of remediation, as a layperson, I think it's an apples to oranges comparison.

[00:12:51] Ed: Used to joke that with a solar farm that, you know, with a couple teenagers and adjustable wrenches, you know, given it's glass, steel, and wires, you can take it apart in a weekend. But Sarah, I know you've done some work on this food versus energy debate. And the concern that renewables is displacing a lot of food production.

[00:13:09] Ed: What, what did your, your research show? 

[00:13:11] Sara: Yeah. So we looked at, you know, a pretty high level question of what percentage of agricultural land you would need to build out, you know, large amounts of solar, sort of looking at what the, The a o had for their net 0 25, 20 35 scenario. Um, and that gives you somewhere around, if you look at sort of all agricultural land, it's less than one 10th of 1% that would be required to, to build up that solar.

[00:13:35] Sara: Um, and I think it's a. It's a really valid question. And interestingly, you know, this sort of food or fuels debate when it comes to things like biofuels, I think is a real issue and it comes down to efficiency of land use. And, you know, if you find that you need 10 percent of your land to, to start, you know, putting solar or putting ethanol, you know, I think there's good reason to be concerned about that.

[00:13:57] Sara: The reality is for solar because the solar technology is really just inherently more efficient than something like ethanol at converting the sunlight into a form of energy that we can use. Combine that with the fact that we do have, you know, a lot of land in Alberta, you come up with this like sub, you know, percent scale in terms of the total land.

[00:14:16] Sara: I think you're spot on Ed with the concern coming from, you know, if you go and look at these solar farms. They are large, right? It's unavoidable. Like you stand by them and they look huge. And, and interestingly, I guess it's like a little bit of a litmus test for your opinion or your, your beliefs. Like to some people that's amazing and wonderful.

[00:14:33] Sara: And to some people that's, you know, a bad thing. So I do think that, you know, I think it just reminds us that changes to the energy system do not happen in a vacuum. They happen, whether it's the way that we're consuming energy or the way that we're producing in that and what that means around us, this has impacts and it's going to impact.

[00:14:50] Sara: different groups of people. And so I think you see that sort of coming through in this, in the moratorium. I would go back to what, what Blake said, though, that I think it's really important that we remember that, Hey, this is not new and this is not sort of some space where, and what the AUC really concluded was all of these concerns are valid, but that they have the tools to deal with them in the approval process, right?

[00:15:11] Sara: It's not the case that you can just show up in Alberta and. build a solar farm wherever you want without anybody, you know, giving you the okay. You have to get the AUC approval as part of that approval process. You have to show, you know, what are all the different impacts of the solar farm. You have to have a process by which neighbors and nearby landowners can voice their concerns and have them, um, address.

[00:15:33] Sara: So I think the challenge with, with all of this, and we're seeing it here in Alberta, but You know, you see, see it happening, I think, across North America with people raising concerns about energy development and renewable energy development is that all energy development has impacts. And, you know, we, we've got to figure out how to develop energy that has the least amount of impacts and how to manage those impacts in the best way.

[00:15:55] Sara: But what we want to avoid doing, which is what I think happened in this case is sort of cherry picking specifically renewables to apply some sort of incredibly hard, some It's a standard that we're not applying to any other forms of energy development. 

[00:16:07] Blake: That's what I was saying throughout in all the interviews I did at the time.

[00:16:10] Blake: The moratorium wasn't necessary. There was tools in place to deal with all of these issues and have them voiced and heard. And so it seems like the only point of it was to send a chilling message to developers and investors in the space. You're not really wanted here. Sure. And, 

[00:16:26] Ed: and as bit red beat to the base as well, interesting.

[00:16:30] Ed: It wasn't a promise made in the election, but you look at the. Folks who made Danielle Smith leader and the UCP leadership party. And I think a lot of them would be sympathetic to this moratorium. And you're right. You there's nothing to say you can't walk and chew gum at the same time and figure out these projects while still having things going through the regulatory queue.

[00:16:48] Ed: And last point, I will say, Sarah. When you stand in one of these farms, as I have, at Traverse, and you look to the horizon line, and you see nothing but solar panels, it really is, it's almost incredible, and it's hard to believe that you're actually seeing this. I liken it to standing on the cusp of an oil sands mine or the Grand Canyon, where it's so vast, it's just overwhelming.

[00:17:08] Ed: It's like, wow, this is really real, what I'm seeing. Now, let's switch topics. Let's talk about the clean electricity regulations. Blake, I'd love to turn back to you. In the time since we last had you on the show, you know, we've had drafts and redrafts, and if I could summarize it, I would say certain provinces complained and the feds listened to a degree.

[00:17:31] Ed: Is that, is that a good one line summary of what's happened 

[00:17:35] Blake: the last year? They were pretty vague on specifics of just, you know, some of the really important parameters of, you know, just, you know, Just how much have you moved in that direction? But he certainly discussed changes to their methodology that would make the rules a little bit more flexible.

[00:17:51] Blake: I found the original rules far too prescriptive. And so they moved in a way of more flexibility, but almost predictably, nothing was enough for the government of Alberta. I think on the day they announced it, they said, still, this isn't good enough. Even though what they announced was so They, one interpretation, if you extended it would have been like, yeah, we can certainly live with this, but, uh, it didn't matter.

[00:18:15] Blake: Um, any revision wasn't going to be in us. Yeah. Any highlights stand out for you, Sarah? 

[00:18:20] Sara: Yeah, I think, and maybe this is a little bit of a foreshadowing of the future and Blake and I have, you know, I think ongoing discussions, debates about the need for something like CER and this value of sort of like knowing where we're going, I think is important.

[00:18:34] Sara: Whether or not it actually becomes. binding in the end, or if it's just, um, sort of setting up the utility operator to say, I need to be able to plan for what's coming, um, because I think we've, we have examples already in Alberta where there was a failure to plan for the amount of renewables that got built.

[00:18:53] Sara: And that's put us on, you know, scrambling sort of on the back foot. 

[00:18:56] Ed: What, what became of the end of life? provision for gas plants. And so during the first draft or initial discussions, I was quite surprised as were other renewable electricity insiders, at least to see that if you had managed to get a natural gas fired, uh, electricity plant, let's say combined cycle, natural gas permitted by December 31st, 2024.

[00:19:20] Ed: So the end of this year, it could operate unabated still for 20 years. So this, the CEO is going to. You know, try to come into a forest and knock down the carbon intensity of electricity, but you could have these gas assets running unabated with no capture until 2045. What happened with the latest redraft?

[00:19:40] Blake: That's one of those ones where the parameters were kind of vague from the federal government. They discussed extending it, going further than the 20 years, but they didn't put a new time estimate on it. I mean, that's one thing where, yeah, I would be probably on opposite sides of the debate with perhaps both of you.

[00:19:57] Blake: I do think we need that. I think it should be longer. I'm not so concerned about gas plants running unabated because we have a carbon price. If you want to run unabated and we're getting up to 170 a ton, that's a really big marginal cost for a gas plant. You've got a big disincentive to run that. So if you're running it, it says we need it.

[00:20:18] Blake: It says we need it badly. I do think we want that. We want the, the envelope of being capable of using these gas plants for flexibility. What we don't want is a lot of energy being produced out of them, but. The economics don't justify a lot of energy being produced for them. 

[00:20:33] Ed: Yep. But it's a big, if ironically we spoke with Mark Jack, Mark Jackard two weeks ago about the carbon price.

[00:20:39] Ed: And you say, we have a carbon price for now. We're almost certainly going to learn the consumer. We're going to lose the consumer carbon price. We did talk about the industrial carbon price. And I think we agreed that from, and everything it's early days, you know, there's no federal election call what we hear now.

[00:20:56] Ed: Looking into a crystal ball is the industrial carbon price will stay in place, but I think the odds of it going up to 170 per ton are quite long at this point. 

[00:21:05] Blake: Perhaps, although you have a lot of people in industry making investment predicated on that. Um, so I, I don't think at their peril, that's why there's a risk to it.

[00:21:13] Blake: That's why there's a challenge. I agree with you. Carbon, the consumer price is likely gone on a, on a new election with a new government, certainly, obviously the industrial one, the conservative party has never really been truly against it. All their prior platforms were either silent on the industrial one or actually supportive of it.

[00:21:29] Blake: The Alberta one predates federal policy. Um, so I think you wouldn't see large pushback against that one. But even at 65 a ton, and if we just leave it as is, that's a really big impediment to using natural, um, natural gas. So if you go and put a really prescriptive and restrictive ban on natural gas, well, that will just get rescinded by a new government.

[00:21:53] Sara: I'm with you on that one, Blake. I'm less worried about, as we've discussed, I'm less worried about a little bit of use of natural gas for a long time, right? As you say, that has a lot of value. And I mean, some of the modeling that I've done has shown that, you know, that that can be an important part of even a very highly decarbonized electricity system.

[00:22:12] Sara: I think it's about making sure that you're are enabling the renewables that can contribute to come online and not putting up barriers, whether direct, you know, direct barriers that we just talked about or indirect barriers through lack of, you know, transmission connection opportunities. That's really where I see the CR being quite important.

[00:22:30] Sara: And then once you do that, and once you have those renewables, then you're definitely not going to run those gas plans when you have an alternative. So it's a, it's a question of. We want to end up in the same spot, Ed, in terms of that decarbonization of the electricity sector. But I think that you can at this point and at sort of the relative prices for these different generation, you can do that much better by making sure that you have an open runway for what you do want to build rather than necessarily saying, you know, you absolutely have these very prescriptive regulations on, on, uh, natural gas gen.

[00:23:02] Ed: Sure. And I agree a little bit of gas run for a long time still adds up to a little bit of the gas. But if it's completely unabated and it starts as a little bit, what actually prevents it from not encroaching and becoming a lot of gas running unabated for a long time? 

[00:23:16] Blake: Cheaper alternatives prevent that.

[00:23:18] Blake: Yep. Okay. I mean, that's what we have in our system right now. It's causing some challenges because we don't have a system set up for it. But when the renewables are there, They don't cost 

[00:23:26] Ed: anything. We've got a provincial government that has just put up massive barriers to new renewable electricity development.

[00:23:33] Ed: Including this, as we said, this nebulous term of viewscape. And to one, like, a viewscape can be a pristine mountain environment, it might be a grain elevator. That's my pristine viewscape, and now that gives me a massive cudgel that I can use to whack on the head of a renewable electricity developer and stop a 

[00:23:49] Blake: project.

[00:23:50] Blake: Yeah. And that's where I go to what Sarah just said. What they need is the open runway to develop all of these assets. Um, because that is what would get built if we didn't have these schedules. But saying these things can't be built is challenging. I would genuinely be concerned about reliability if we are too prescriptive on the CER.

[00:24:09] Blake: So certainly the first version of it was a non non flyer in my view. 

[00:24:13] Ed: And Sarah, the brownouts that we've had, or the, the, the notable brownout, the alert that went out, and I want to say it was a couple of months ago. I think it was during that cold snap in January. You had presumably a lot of baseboard, a lot of electrical heat, you know, supplementing whatever we're doing for thermal heat.

[00:24:30] Ed: And then this, all this note went out, we all got it on our smartphones saying essentially, hey Albertans, ease off on your electricity use if you can't. But that brownout, Was, is that not an argument in favor of needing flexibility on the system? 

[00:24:44] Sara: Yeah, exactly. And I mean, there were, so there were two separate events, right?

[00:24:48] Sara: So there was the warning in, I guess it was, I think, as you said, January, um, that asked for reduced demand and actually didn't, I believe, lead to any. Um, you know, prescribed brownouts. So we got enough demand response, enough people turned off whatever it was that was, you know, using power in that moment, um, to, to reduce our demand.

[00:25:07] Sara: Then there was the more recent event in the much more temperate, uh, weather where we actually did have, um, some pretty limited, I mean, they think they were pretty short term, but we had some rotating brownouts where, and, and maybe I'll. I'll flip that over to Blake to sort of tell the latest version of that story of what happened, but where we didn't actually get any call for reduced power.

[00:25:27] Sara: And I think these are both signs that there's certainly something in the electricity system right now that's not in Alberta that, that, You know, needs to be addressed. And there's a lot of pointing fingers at, you know, what the cause is of that. And everybody, of course, picks their least favorite, uh, generation technology to, to point as, I think it's a good example of what happens if we don't plan for what's coming right.

[00:25:49] Sara: In this sort of sense of like, we have a lot of renewables development. It was patently obvious and should have been patently obvious for many years now that that was happening. And, and we, you know, just simply weren't planning for it. And now we're dealing with the repercussions of that, but Blake, maybe you can speak a little bit more to the recent brownout we had and also what people have said about it.

[00:26:09] Blake: Yeah. I mean, I've characterized exactly as the way you just said at it is, it is speaking to the need for more flexibility in our system, because, The challenge we face here is we're a relatively small system with limited interconnection. You know, an individual plant going offline suddenly has a big effect.

[00:26:26] Blake: We don't have the ability to balance it out amongst, you know, a broader system that can handle these variances. So, so in that particular case, you know, it was a combination of. Uh, the ASOs come out saying that their, their wind and solar forecasts the night before was for much more than what realized and while the forecast was declining as we neared delivery, and you can, you can see that in the data that it was getting closer and closer to what actually developed, they didn't respond quickly to that, but also they had trips or sudden outages, unexpected outages at gas plants.

[00:26:58] Blake: And so there didn't have the capability to, to respond. You know, I think the premier, uh, in a press conference responded by this just speaks to the need for more baseload power. It doesn't, it was actually baseload gas that tripped. It speaks to the need for more flexibility. And maybe we just speak in different jargon, but baseload is something that runs all the time.

[00:27:17] Blake: That's not actually what you want in this situation. Runs all the time until it doesn't, you want things that can ramp really quickly up and down. Flexible demand, it's peaker plants, it's transmission, it's battery storage. And so we do need to enhance that capability. And Sarah's right. This has been a long time coming that we've sort of seen the writing on the wall for needing more flexibility, not just because of the renewables, but also because we've got a really aging thermal fleet.

[00:27:44] Blake: These are really getting to be older plants. They're going to trip more frequently. And we don't have good flexibility, especially that with our, with our neighbors. Well, well, let's 

[00:27:52] Ed: knock that one off right now. Let's talk, because you'd mentioned interconnection and our neighbors. Two things have happened in the past year.

[00:27:59] Ed: One is Alberta affordability, affordability and utilities put out a transmission regulation discussion paper that had questions about interconnection and inter regional transmission. And then here on EVC, we actually, in October, had Michael Skelly, the CEO of Grid United, we unpacked that topic, and Grid United is purpose built to develop inter regional transmission.

[00:28:25] Ed: So, my question is, on that one, do Albertan regulators and system planners and, provincial officials, do they have like an interregional transmission development mandate right now? Like, are they actively working with neighboring balance, balancing authorities, whether it's BC or Saskatchewan or, or, or Montana to on things, you know, development planning tools to, to support interregional transmission?

[00:28:51] Ed: Or is that just a big gap that we need to push for right 

[00:28:53] Blake: now? From a bigger perspective, is anyone pushing for greater integration and all of that? No, I'd say that is a real gap. It is part of the whole parochial system of governance of electricity systems. And so the idea of connecting them is something that's a little lost on Canadian entities, especially as compared to U.

[00:29:12] Blake: S. where there is a lot more integration. What we've seen, I guess, in the past year is, I would argue, it's gone the other way, Ed, on the B. C. and Montana connection in particular, that feeds into, into the Western Electricity Coordinating Council, Western Grid. Uh, we've actually had a reduction in the usable capacity.

[00:29:31] Blake: of those two lines. And that's something I think this is like one of the biggest own goals of the electricity system for the past while. Because renewables came in faster than the ASO expected, they were in a deficit of something they need, which is fast frequency response. Um, so as a result of that, they've curtailed the intertie because they can't handle big swings on the intertie for one reason, and also they want space on the intertie.

[00:29:58] Blake: If they need to bring in more, so they curtailed the usable room that too much to the chagrin of British Columbians. I'm, I'm, I'm part of the BC government's BC. I do a task force is something that comes up frequently. I regularly meet with people from BHE energy who are upset and they've launched a, uh, a court challenge, um, uh, against the curtailment of their line.

[00:30:20] Blake: I'm meeting with the U S consulate on this. Matt, this is a potential international issue that's arisen. Um, Cause of these curtailments. So we've actually had less capability on our intertie this past year. We're going the wrong direction. I heard the premier talking to press conference about she's interested in expanding interties, uh, but then went on a lengthy diatribe about how British Columbia sells power to us at high prices and buys when it's low.

[00:30:46] Blake: And that's what you would do when you have more flexibility. So I don't see why that's so horrible. Um, but it is, uh, it's flexibility that we could certainly use 

[00:30:55] Sara: on the inner tie topic. I think there's a couple of really interesting papers that have come out recently looking at sort of maybe a little bit of some of the why behind this stuff.

[00:31:03] Sara: I mean, not, not so much the fast frequency response issue necessarily directly in the Alberta case, but one by Catherine Housley. Men out of the states looking at sort of the real costs of the congestion that ha we've had on the transmission line in terms of cost to electricity system consumers. And basically, you know, that was, that was a case for, she looked at a, a specific sample down in the States, but I think a lot of the findings would translate.

[00:31:26] Sara: that having these constrained transmission systems leads to real costs for consumers, as in electricity prices and electricity costs are higher than they would be otherwise. If you had this ability to sell power, you know, even if it's, you're going to be sold it when things are a bit. more expensive, it's still more efficient overall.

[00:31:44] Sara: And Ari Pesco, also out of the States, um, has, has a similarly interesting paper looking at sort of one sort of idea of where this comes from and, and the ability of incumbent industry to, um, sort of influence and control the way that decisions are made around building transmission lines, and that we actually have sort of a system that was set up that, you know, arguably maybe worked pretty well at the time, given the different players, but that as you have more competitors coming in and sort of this, this mix of dispatchable fossil fuels, but then more renewables coming a lot online as well, that you're giving certain entities the power to basically block the build out of transmission lines.

[00:32:25] Sara: in a way that leads to these higher costs. And so I find that quite interesting that these, this conversation is moving forward because I think we've heard for a while like, Oh, well, we should have transmission lines, we should have them. And then we don't end up having more of them built. But what I think that, you know, some of Ari's Pesco work and others is sort of starting to say, well, let's look at the reasons for this in terms of how are we actually making these decisions?

[00:32:47] Sara: Who is who stands to gain? I'm going to sound like a conspiracy theorist here, but, you know, it stands to gain by not having these transmission lines built. And are they really the ones that are being given the power to basically block them from happening? And to some extent, they don't. You know, that is the case, right?

[00:33:01] Sara: And so, but I, but I have some hope that if we sort of maybe uncover that and start to understand that a bit more, we can find ways to make progress either by shining a light on that issue or having more realistic discussions of, you know, there are going to be winners and losers if we build out transmission between Alberta and BC.

[00:33:17] Sara: Overall, we will all win. There will be more money on the table to play with, but individual parties will lose. And so maybe we need to have a more pragmatic conversation about compensating some of those losers with some of the, some of the savings that are available in order to kind of break this log jam of, you know, we've been talking, it feels for years now about how we should have more interprovincial Thailand.

[00:33:38] Blake: In part, that's a market design conversation because yeah, if you're a thermal incumbent here in Alberta, you count on the occasional high price period to make back your fixed costs and what imports can do is really truncate those high price periods and so if you're banking on that and then you're If you're talking about a development that's going to limit the number of hours that occurs, of course, you're going to push back on that.

[00:33:59] Blake: So they need to, like you said, whether it's compensation or a different market design structure that gives them the comfort that they'll earn back their investment, even with more imports. That's important. The other thing on, uh, intertie is that, that I don't think that's enough, um, attention. And Sarah and I wrote on this a while ago, but people often think of them like they think of pipelines delivering power from A to B.

[00:34:21] Blake: They're bi directional and, and really bi directional, like you can swing from hour to hour. And this is really important. It's not just about bringing in peak power to Alberta and reliability thing. It actually enables investment in generation in the province because it expands the accessible market. If you want to develop something in Alberta, it's not just a small Alberta market that you are beholden to.

[00:34:45] Blake: You potentially have access to much broader markets in effect that raises your realized price. So it would boost returns for investors because it's giving you a broader market. And I think that's really important. And I suspect barring more pushback on renewables that any intertie with, especially with BC and expansion there, the energy would flow in the other direction.

[00:35:07] Blake: The, the net energy annually would be flowing to British Columbia. We have the cheaper energy source. We'd just be pulling high price power during the peaks because they have better access to peak capacity. 

[00:35:18] Ed: Yeah, one often forgets when we talk about, um, intertides that reciprocity is an important planning principle and a 500 kilovolt line crossing can, yeah, send electrons in either direction.

[00:35:30] Ed: The, the challenge seems to be not who wants this, but who doesn't want it. And who doesn't want it while Alberta should want it. You've got incumbents who don't because it might impede their market power. You've got renewable electricity developers until recently or happily signing PPAs. BC should want it, but they're not interested possibly in reciprocity.

[00:35:50] Ed: So the feds should want it. And the feds have laid out a bunch of money. As I said, at the top of this recording and a new investment tax credit that seems custom designed for interconnections and inter regional. Transmission. I'm not sure anyone is doing anything on it right now. And I'd love to get both of your comments.

[00:36:11] Ed: We have now the Not In My Backyard Bill, which is the latest salvo from the Smith government to try to discourage any federal involvement in what they see as provincial jurisdiction. But I just think in the absence of federal leadership, On interregional transmission and interconnects, nothing's going to happen.

[00:36:30] Blake: Yeah. On the fed thing. Yes, they do want this. This, this satisfies a lot of goals for them. I've heard directly from them. They're pens down until they have champions in the respective provinces. They're not going to go marching in me like here's my bag of money to build transmission if they don't really have.

[00:36:47] Blake: Market participant partners in that. And like you just said, it needs now to be the provincial level is what Alberta is indicating. And in BC's case, it has to be because the Crown Corp. So they really do need the provinces and the feds to sit down and be like, you know, what's in our best interests and our mutual best interests and how can we proceed.

[00:37:07] Ed: So let's, with the time that we have left, talk about what we can do. And a couple areas I want to talk about. One is market redesign, and that's changes to the energy only market. And the other is, you know, this broad category of demand response and getting more flexibility into the electricity system. So Blake, I'll throw to you, you know, what's an energy only market and what, what changes have been proposed?

[00:37:29] Blake: The simplest way to think of an energy only market is kind of like any normal market, really. You're only going to get paid. Uh, the reason that sort of stands out in electricity is that in a lot of markets, you're paid something akin to a standby payment. So it might be a call to capacity market, might be a strategic reserve, but you're getting paid something as a generator just to exist.

[00:37:56] Blake: Uh, just so we know that you can be there when you're needed. Maybe you think of that like insurance or something. Alberta doesn't use that. Alberta, just, you pay, you get paid, uh, uh, sometimes a very high price, sometimes a very low price, but only for the megawatt hours that you generate. And the idea is that over time, there's a sufficient number of high priced hours to make it worth your while.

[00:38:17] Blake: This has booms and busts. Uh, sometimes it's working really well for generators. The past few years have been that example. Uh, but the years before that, so 2015 to 18 were terrible time to be a generator. In the province, they were just barely recouping their, their cost to run, not earning any return. And so, yeah, there's been a concerted effort to look going forward.

[00:38:38] Blake: Is the market suitable for things that we need? And, uh, the ASO and the MSA, which is the market watchdog, put forth recommendations. Full disclosure, I was part of the working group with the ASO. providing input onto it. It wasn't part of the recommendations. It was theirs, but provided some input. Mostly they were addressing, I would call it short run issues of how do we deal with letting the price get really high on occasion?

[00:39:04] Blake: Really kind of focused on that a little, quite a bit less so on the other important part of a market, which is how do we get investment in the future? And normally the short run price can drive that, but that that's a little tricky at the moment because they're changing the short run price. So they did a series of things that Uh, you know, in the near term won't help investment.

[00:39:22] Blake: The near term was their capping offers from generators after they've earned a sufficient return. Uh, and that's really just to deal with the high prices we've been through. Although in my view, that's a moot issue because we've got so much supply coming on, we're no longer in a period of those high prices going forward.

[00:39:39] Blake: But the other thing they did is they're redefining how high prices will form in Alberta going in the future. So, in the kind of the two year plus timeframe. Instead of generators just saying, here's my price. Come get it if you want it. It'll be the ASO that says, okay, we're in a period of scarcity. The price is going to X.

[00:39:58] Blake: And since it's more complicated than that's formulaic, it will be more like true scarcity will drive high prices rather than just a few companies have a lot of control and they can raise the price. That's actually where Texas has gone. It's where Australia has gone. So we're, in many ways, we're kind of modernizing the energy market to align with where other places have gone.

[00:40:21] Ed: It's good to know. And yeah, it sounds like long overdue modernizing along the lines of what's happened in other jurisdictions. Sarah, do you, and maybe then last word to Blake, want to talk at this, give us a sense of at this, this highest level, what's the top two or three things that we should be doing to get more flexibility into the electricity market?

[00:40:41] Sara: Yeah, I mean, this is an area where Alberta, especially on the non industrial side, is really lagging, I think, other, at least some other jurisdictions, and, you know, the, the fact that in January, we saw that we were able to avoid the Brownouts by asking people to use less. I think that's sort of a proof of concept that there is some flexibility there.

[00:41:02] Sara: And, you know, I think it's important when we talk about flexibility in the energy market and, and thinking about just sort of how we run our system in general, this is not really about asking people to sort of suffer in the cold or something like that. Right. But it's coming down to it costs different amounts of money to provide electricity.

[00:41:21] Sara: at different hours of the day over the year based on what generation is available and based on how much electricity people need. And there are different ways to deal with that, right? We could build up systems that just are much larger, that have a lot more generation or a lot more storage and just build a lot more and just always meet that demand.

[00:41:39] Sara: But that would come at a cost and electricity would be more expensive. And so if we can, you know, the reason that that we kind of, I guess, continue to harp on this demand flexibility is that. If there is uses of electricity that happen at certain times when it's really expensive to provide electricity that are not really that important to use right then, there's really big opportunities to save everybody money by allowing that, um, electricity.

[00:42:06] Sara: to be used in more flexible ways. And so the, the classic example, um, that I think probably heard from both Blake and I at different points is, you know, when you're cooking dinner, you don't have a lot of flexibility in the use of your, uh, your electric stove. Say, if you have an induction stove, you know, your family's probably not going to be too excited if you tell them, sorry, like, We're going to have dinner two hours from now because that's when power prices will be lower.

[00:42:29] Sara: On the other hand, if you have an electric vehicle or you have an electric hot water heater, all they really care about is, you know, is the car ready to drive in the morning or do I have hot water to take a shower when I want to take it? And you actually have some, you know, we think about energy storage often as like a battery that we can store energy in to use later.

[00:42:46] Sara: But there's a lot of uses of energy storage, of energy that, that sort of have those batteries either directly, and EV, you know, actually has a battery. But a hot water tank is also a sort of form of battery. You're just storing the energy in the form of hot water that can be used later. So that's my, my long pitch for, you know, why demand, demand response is sort of valuable and it matters.

[00:43:03] Sara: But what comes down to now is that in, in Alberta, we just don't really have the structure and rules in place to actually compensate people for using less energy or shifting their energy uses to times when it's cheaper to meet other than in this emergency way of saying, Hey, there's a, you know, there's an alert, turn off your power.

[00:43:20] Sara: Or if you're, you know, really into like checking the ETS, you can see when prices are high and be like a really good Albertan citizen and not use your uh, electricity as that time. But actually right now we have certain rules that push us the other way. So if you have rooftop solar, you have an incentive to use that solar when it's generating, and that could be times when the system would need it more.

[00:43:41] Sara: And so this all becomes much more important though now when you do have more variable generation in the form of renewables on your grid, because you can't. tend to get these times when it's either much more expensive or much cheaper to meet electricity demand. And so maybe I'll turn it over to Blake to talk about how we, you know, create rules to actually make that possible.

[00:44:01] Ed: Well, I'll just interject quickly in a couple thoughts. One, in some provinces, utilities will actually pay you to use your hot water tank as a flexible energy storage mechanism to help them balance load demand. And then two, Pre 2015, Alberta was like the only jurisdiction in North America without a provincial or a state energy efficiency planning authority.

[00:44:21] Ed: And we had that, and now it's gone, and as far as I know, we're back to being the only jurisdiction without that provincial or state energy efficiency planning authority. Last word to you, Blake, to Take us home on flexibility into the electricity system and wrap up this, this great conversation. 

[00:44:38] Blake: Yeah, you bet.

[00:44:39] Blake: So I mean, flexibility is the name of the game and that's really what we need more of going forward. It's what the rolling brownouts really drove home. And that comes from a few things. So one is exactly what Sarah said. I would echo that demand response. So demand flexibility. Critically important. It's not for everyone.

[00:44:56] Blake: Some people hear that and they just recoil. Not going to be, has to, you know, shiver in the cold or cook dinner at midnight. But there's a lot more devices in the home that have flexibility. And the key is technology is enabling us to manage that in a way where, no, other than maybe Sarah and I, Checking the, the ASO page and watching the prices.

[00:45:18] Blake: No, you don't have to do that. It would all be automated. And I've done a lot of pilots in this area with utilities around the country and here in Alberta, and just finding the benefit of the sort of set it and forget it approach and giving people a discount on their bill. And you can modulate certain behaviors.

[00:45:32] Blake: Hot water heaters are probably the best. Biggest in terms of impact, not so much here in Alberta, but because we don't have much electric hot water, but in other provinces where they do here in Alberta, EVs are a substantial shifter. So with Enmax, we found giving them a three and a half cent discount on overnight charging led to about over 80 percent of charging happening in the off peak.

[00:45:52] Blake: So it's, people are really responsive to small savings because they're very flexible. So demand response, the second one would be transmission. We had a great conversation about the barriers and impediments and that incumbent obstacle that needs to be overcome. It will require government involvement, uh, and multi government involvement, which in this day and age seems like a very challenging obstacle to overcome, but there's a lot of benefits to many to have that.

[00:46:17] Blake: So I think that's a key one. And the last one I say on this market redesign, Long overdue, some, some good steps in the right direction. Having prices, it's important to have hourly prices that do swing pretty broadly, because that is what's sending the signal for flexibility. So you want that, and then you want an overlay that keeps the average price, which is what consumers ultimately pay to be something moderate.

[00:46:42] Blake: So that was in that proposal that I had written was this element of forward contracting, uh, with load entities. So you get the average price is moderate. Okay. But you send this strong signals to shift consumption and supply to the right times. Uh, we're moving in that direction, which is promising to see.

[00:47:00] Ed: Well, you heard it here on EBC First, folks. The recipe that we need. Demand reflects flexibility. Transmission with multi jurisdictional government involvement. A market redesign with hourly prices that swing broadly. to send that signal for flexibility. Thanks to you both. Thanks, uh, and especially Blake for joining Sarah and me on this bonus episode of Energy Versus Climate.

[00:47:22] Ed: Thanks, Ed. It was great to be back. Thanks for listening to Energy Versus Climate. The show is created by David Keith, Sarah Hastings Simon, and me, Ed Whittingham, and produced by Amit Tandon. With help from Crystal Hickey, Serena Gibson, and Talia Grunow. Our title and show music is The Wind Up by Brian Lipps.

[00:47:40] Ed: This season of Energy vs. Climate is produced with support from the University of Calgary's Office of the Vice President, Research, and the University's Global Research Initiative. Further support comes from the Trottier Family Foundation, the North Family Foundation, and our generous listeners. Sign up for updates and exclusive webinar access at energyversusclimate.

[00:48:00] Ed: com and review and rate us on your favorite podcast platform. This helps new listeners to find the show. We'll be back on May 7th to talk battery storage with David's University of Chicago colleague, Dr. Shirley Meng. See you then.