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Alberta is developing a capacity market in electricity generation, as one of a number of steps announced by government to change Alberta's electricity sector. The changes are intended to ensure consumers are provided with a reliable supply of electricity at stable and affordable prices.

As an expert, independent utilities regulator, the Alberta Utilities Commission has an advisory role in the development of Alberta's capacity market and will have a key regulatory and adjudicative role when it is established. The AUC has been and is closely involved in multi-organization and stakeholder discussions on capacity market development being led by the AESO.

The AUC is also carefully enhancing its internal resources to set the stage to meet requirements when a capacity market is launched.

To better prepare for the establishment of an Alberta capacity market and the regulatory obligations that will accompany it, the Alberta Utilities Commission established a dedicated capacity markets group to centralize, coordinate, expand and strengthen our staff work in this area.

The AUC's capacity markets group is headed by Carl Fuchshuber, who brought more than 30 years' experience in the electricity sector including transmission, generation, electricity market and regulatory matters to the table. Carl was previously the vice-president of regulatory and strategic planning at a major Alberta generating and transmission company. Working with Carl are AUC experts in law, finance, economics and other areas.

In addition, as part of its contributions now and in the future, the AUC commissioned a third-party study into capacity market economics.

That study, The Economic Foundations of Capacity Markets, by Charles Rivers Associates, can be found here.

In an electricity market with a capacity component, companies bid for the right and obligation to make their generating capacity available to produce electricity. Private power generators will be paid through a mix of a competitively auctioned capacity payments and electricity prices from Alberta's wholesale spot market. The government has stated its intention to have a capacity market in place by 2021. This will complement what has historically been Alberta's energy-only market, where only the electricity commodity is priced, bought and sold and new generation is initiated solely on decisions of generating companies based on those commodity electricity prices.

An electricity capacity market is a very significant development in Alberta's utility sector and in the oversight and regulation of Alberta's public utilities. The move to develop the market, announced in November 2016, followed study by the Alberta Electric System Operator around impacts of Alberta's Climate Leadership Plan to reduce carbon emissions and transition to renewable electricity generation from coal-fired.

The changing supply mix as renewables are introduced and coal is phased out prompted examination of what is needed to ensure electricity supply adequacy for Alberta in the long run. The system operator concluded that an energy-only market "will not ensure the investment in new generation that Alberta will need in the future," and after examining a number of potential options, that a capacity market would "ensure continued reliability of the system in a cost-effective manner."

The AUC's Charles River report explores three subjects that are crucial to understand in the proper development of capacity market structures:

  • The economic and reliability rationales for why capacity mechanisms exist within the context of competitive electricity markets.
  • The different forms of capacity mechanisms along with their related pros and cons.
  • The basic capacity market design principles and features needed to achieve efficient outcomes and, thereby, realize the benefits of competition.

The AUC continues to refine, enhance and strengthen its knowledge, competence and expertise to capably address the regulatory dimensions of developments, evolution and policy decisions in Alberta's electricity sector, and generally in the province's broader utilities sector. With a regulatory and public interest history that stretches back more than 100 years, the AUC is committed to being a trusted leader that delivers innovative and efficient regulatory solutions for Alberta now - and in the future.

Here is some background on the development of an electricity generation capacity market in Alberta:

Information on the AESO's Capacity Market Design Working Groups can be found here.