Alberta's electrical cogeneration operators face different futures in the new "capacity market"

Alberta energy minister Marg McCuaig-Boyd. Image: Aaron Parker/JWN

The impact of Alberta’s planned capacity market for electricity on co-generation at oilsands and other oil and gas sites will depend on the type of co-gen, says Alberta Electric System Operator (AESO) president David Erickson, describing it as an environmentally responsible and “very affordable” way to produce power.

The Alberta government this week announced that it would create a “capacity market” for electricity, shifting from the current "energy-only" market.

In an energy-only market, generators are paid for the electricity they produce based solely on the wholesale price of electricity, which fluctuates. These companies decide on the type of generation they produce and on the location of facilities.

In a capacity market, private power generators are paid through a mix of competitively auctioned contracts which pay their fixed capital costs and revenue from the spot market.

Cogen operators that produce just enough power for their own requirements should not be affected that dramatically by the change because they will be able to continue to do so, Erickson says, while those who produce power and sell it into the grid will have to decide if they want to continue.

“They can enter into the capacity market if they so choose but they must recognize that will come with obligations on them because they must provide power when we require it under the capacity contracts.”

Alternatively, they could choose to be simply a price-taker in the energy market, which is how they operate today, he explains.

“All of this says we need to do a very good and detailed job of consultation over the next number of years so that we make sure we end up with a capacity market model that enables [companies] to make the right decisions for their businesses, and that there is good co-generation power available to the system as a whole.”

This transition was recommended by current and potential energy investors, external experts, consumer groups, and the AESO, which oversees the province’s electricity system in the interest of the public.