Product Description

Project Background

Climate Leadership Plan Announcement

On November 22, 2015, the NDP government announced its much anticipated Climate Leadership Plan. This Plan extends previous initiatives at the provincial and federal level (see Appendix 1 for a brief history of Climate Change legislation affecting the Alberta electricity market and a summary of recent changes). The published Climate Leadership Plan1 and subsequent press releases and announcements have vaguely outlined a set of regulations which would mandate complete elimination of coal energy production by 2030, incent a very aggressive increase in energy production from renewables (a target of “up to 30%” of generation2), inflict a much more extensive tax on carbon and create a performance standard3 for remaining generation. The magnitude of the impact of the eventual form of the Climate Leadership Plan, in terms of emissions, costs, medium-term pool price, fleet mix and reliability, margins of existing generators and future investor confidence, is expected to be quite profound.

The NDP Plan was informed by over 500 submissions to the Climate Change Panel led by U of C Professor, Dr. Leach and various industry discussion group meetings. The Plan also declared the government’s intention to engage in further negotiations and facilitation and the use of “evidence and fact” before the fine details were codified into law.

Policy Element Uncertainties

With so much uncertainty regarding the details of the proposed policy, EDCA extended its modeling capabilities to analyze the effects of the proposed NDP Plan. Many of the policy choices for specific design elements of the Climate Leadership Plan scenario are still not precisely specified. EDCA identified about a dozen different elements, such as the shape of the accelerated coal retirement schedule, the definition of the target renewables penetration parameter, the fraction of retired coal that would be replaced by renewables, the rate of substitution of renewables for the retired coal, ultimate target for and blend of renewables to be incented (percent of wind, solar, hydro, solar, biomass etc.), the style of Renewable Energy Credits (RECs), the likely load demand growth, the design of the auction of these credits, as well as the method and amount of coal compensation paid.

Each element can be set at any number of different levels and the different policy elements could be combined in an infinite number of ways. This study work helps readers to more fully understand the implications of alternative policy choices on the environment, the customer, the system and all of its participants. The exact combination of final policy choices will be very critical to the success of the Plan and the competitive “energy-only” market itself. Accordingly, in March 2016, EDCA undertook this very voluminous, multi-client funded study. This document presents the details of that study.

Numerous policy scenarios and sensitivities were tested, including different timings for the accelerated coal retirement schedule, corresponding percentage substitution by renewable capacity, the ultimate target renewables penetration and mix, REC auction design, and many other important elements of the proposed GHG policy. In addition, several input variables were also tested, including the rate of load growth, the price of natural gas and the likely relative levelized costs of various technologies.

The breadth of policy choice assumptions tested should provide good, feasible coverage of the range of potential final outcomes. The analysis quantifies the potential long-term impacts of different alternative formulations of the Plan on four key metrics

1. Emissions reductions
2. Costs
3. Reliability
4. Investor Confidence

Each of these four main metrics is supported by numerous sub-metrics (e.g., Cost sub-metrics include pool price and volatility changes, Renewable Energy Credit (REC) costs, lost future margin of incumbent generators, additional transmission costs, and incumbent generator compensation).

The report is laid out in several sections. This first section describes the overall organization and governance of the multi-client sponsored and guided study. The second section describes the analytical methodology and introduces the fixed inputs, the range of the twelve policy elements and nine exogenous variables (e.g., alternate forecasts of gas prices, load, and reactive offer behaviours as well as how the outcomes will be quantified using four key multi-dimensional metrics of the various scenario and sensitivity runs. The third section introduces, compares and contrasts and then interprets the results for each completed scenario.