Alberta is preparing to switch from an energy-only market to a capacity market by 2021. This move by the government is designed to attract companies to build more eco-friendly power plants and to offset the cost of phasing out coal-fired generation.
The current energy-only market
The problem with an energy-only market is the unpredictable price swings in the cost of electricity. Electricity prices are volatile because generators are paid only for the energy they produce, not for how much (the capacity) they can produce. Supply and demand determine the price of electricity which means that price often fluctuates.
What is a capacity market?
In a capacity market, a company is paid for both the price of the electricity and the capacity a generator could produce. The dual revenue stream guarantees income to electricity producers which in turn incentivizes them to invest in green energy sources.
What does a capacity market mean for you, the consumer?
A capacity market will mean more stable prices for the consumer, but not necessarily cheaper prices.
Pros:
- Less price volatility
- Supply stabilizes and is capable of meeting unexpected demands
- Investors are incentivized to build new, green, and sustainable energy sources
- Creates a smooth transition to adopting cleaner power without relying solely on new energy sources
- Companies compete to provide the lowest packages for consumers
Cons:
- Currently, we are enjoying low electricity prices due to excess supply and low demand. These prices may be cheaper than capacity market prices
- Taxpayers are likely to be burdened with the additional cost to pay for the capacity
What will happen between now and 2021?
The government will be working with the Alberta Electric System Operator (AESO), consumer groups, electricity generators, electricity agencies, among others to determine and implement a capacity market. Below is a timeline for the transition per the AESO website.
You can follow the stakeholder engagement schedule to stay up-to-date with the transition progress: https://www.aeso.ca/market/capacity-market-transition/stakeholder-engagement/
What do you think about the change from an energy-only market to a capacity market? Do you prefer stable prices, even if the prices are higher than what you currently enjoy? We’d love to hear from you.
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