Business

A giant drag line works in the Highvale Coal Mine to feed the nearby Sundance Power Plant near Wabamun. John Lucas / Edmonton Journal



The Alberta government is set to embark soon upon the equivalent of walking across a couple of live wires: phasing out more than half of the province’s power supply that comes from coal while boosting renewable energy generation.



It has a laudable goal waiting on the other side — greening Alberta’s power grid.



But the province better make sure its policy is well-grounded or there will be trouble ahead.



While much attention in recent weeks has focused on Alberta’s new carbon tax, the electricity file will heat up this fall with some significant decisions that should soon be headed to cabinet.



The province is trying to negotiate an arrangement with the operators of coal-fired power plants that are required to shut down early.



It must also come up with new rules to entice investors to build solar, wind, hydro and other renewable generation by 2030. The province will offer subsidies to developers to reach its target of 30 per cent of all electricity coming from these renewable sources.



The goals aren’t insurmountable, but are fraught with difficulty.



The province has made the phase-out of all coal-fired power plants by 2030 a cornerstone of its climate policy.



Six of the newer coal plants in Alberta would have been able to operate until as late as 2061, and owners of those stranded assets are seeking compensation.



Terry Boston, a U.S. electricity veteran hired by the province to lead negotiations with industry players, recently finished his work.



“He has advised government what he thinks it will take to make sure the coal transition happens smoothly, our electricity system remains reliable and that no capital is unnecessarily stranded,” says a statement from the Alberta Energy Department.



“Government is currently deliberating (on) Mr. Boston’s advice and will make its decision known this fall.”



No one is saying what advice he’s given, but if compensation is paid, it could be expensive.



Analysis by Edmonton-based Capital Power Corp., which has a stake in three of the six newer coal plants, has pegged industry compensation costs at around $2 billion.



A government decision on the matter could be announced later this month or in early November.



Removing coal power isn’t an insignificant chore. Coal served 64 per cent of the electricity demand in Alberta last year.



When you remove coal generation and factor in demand growth over the next 14 years, the province will need to replace it with almost 9,000 megawatts of firm generation, primarily from natural gas, according to the Alberta Electricity System Operator (AESO).



“There’s going to be substantial need for new investment in generation in the province,” Nicole LeBlanc, AESO’s director of analytics and forecasting, told a Canadian Energy Research Institute power conference last week.



“Our estimates put that capital costs in the range of almost $18 (billion) to $25 billion.”



Aside from coal plants being shuttered, Environment Minister Shannon Phillips has set a firm target of adding a further 5,000 MW of renewable power by 2030.



AESO vice-president Michael Law estimates the renewable target will require about $10 billion of capital investment. The rest of the $25-billion investment target will likely come from developers building natural gas-powered facilities.



“The positive aspect of that is it’s a very unique investment opportunity for developers and investors,” says Law, vice-president of renewables development and sustainability at AESO, which manages the provincial power grid.



“We have looked at what it takes in order to do that and we believe it is perfectly feasible to deliver that level of generation.”



How will Alberta attract up to $25 billion in new investment into the system, particularly with power prices slumping and the economy in recession?



A lot will depend upon the decisions the province makes in the coming weeks to entice investors into building generation, such as how it structures the renewables incentives.



Evan Bahry, executive director of the Independent Power Producers Society of Alberta, says industry will need to see a significant price signal to invest, as well as a degree of policy certainty.



“There’s a significant concern that investors have about the lack of policy clarity in Alberta today,” he said.



Critics are skeptical it can all be done smoothly without putting consumers at risk.



“The government has their head in the sand if it thinks the investment community is going to put $18 billion into this province,” says Wildrose MLA Don MacIntyre.



“We’re talking about billions all the time like it’s just Monopoly money. It isn’t.”



However, analysts point out slumping power prices aren’t sustainable and will rise as coal plants are closed in the coming years and the economy rebounds.



The key is to make sure it’s all synced up so when coal plants are closed, there’s ample supply to replace it.



“The short-term challenge is, of course, the low market price we have right now for electricity. It doesn’t provide any signal for investors to come in and invest,” says CERI president Allan Fogwill.



“But the bigger challenge is the magnitude of coal in the Alberta electricity mix.”



Unlike Ontario, which phased out its coal plants at a massive cost to consumers, most of Alberta’s power supply comes from burning coal, not from hydro or nuclear, he notes.



Add all these factors together and it makes Alberta’s looming power transition a precarious high-wire act.



Getting to the other side will require some big steps, with little margin for error.



Chris Varcoe is a Calgary Herald columnist.