Dispatchable Renewables? We Were So Close

I left the AESO in early 2017 because I was not comfortable with the role I was going to play in implementing the NDP government’s Climate Leadership Plan (CLP), which provided government contracts to wind generation (the Renewable Electricity Program) and government incentives to prematurely retire coal-fired generation. I believed that these actions would negatively impact system reliability and competition in the energy market and I have no regrets on my decision to leave. However, I recently came across a report from 2018 that shows that the government at the time did at least recognize some of the potential reliability impacts the CLP may have.

On November 29, 2017 the Alberta Department of Energy issued a direction letter to the AESO that stated:

“The government appreciates the potential value that on-demand renewables can provide to Alberta’s electricity system reliability, especially as significant intermittent generation is brought onto the grid through initiatives such as the Renewable Electricity Program (REP). We also recognize the importance of ensuring any approach specific to dispatchable renewables is consistent with Alberta’s competitive generation market.

To that end, additional analysis and stakeholder engagement is required to determine the precise need, and subsequent best means, to secure these system benefits through a competitive process compatible with Alberta’s electricity market. The Government of Alberta requests the AESO to conduct a review of the electricity system requirements as described above, engaging technical and other stakeholders as necessary, and that this be completed by May 2018.”

In response to the government’s direction, the AESO published the “Dispatchable Renewables and Energy Storage” report on May 31, 2018 that reached the following conclusions:

“Conclusion: no emerging reliability need to procure additional system flexibility

The AESO’s flexibility analysis was based on scenarios that achieved the renewable energy target. The analysis revealed the following key results:

• No emerging reliability need exists to specifically procure or enable additional flexibility into the system

• Flexibility needs are connected to the timing of additional intermittent renewable generation

• The energy and regulating reserve markets are expected to provide sufficient flexibility to reliably deliver on the forecast variability to 2030 with 30 per cent renewables penetration

• Supply surplus generation is forecast to be marginal at less than one per cent of variable generation with a potential increase in generation on/off cycling

• As no procurement for flexibility is required, there will be minimal market impacts or incremental costs incurred outside of the market to meet future flexibility needs”

In 2025, seven years later, we’ve exceeded the 2030 30% renewables with renewable installed capacity (wind + solar) sitting at 32%, supply surplus is certainly not marginal and less than 1% of variable generation, and system flexibility has become a significant operational need as reflected in the AESO’s excellent Reliability Requirements Roadmap.

The AESO came to these conclusions using the data and assumptions they had at the time, which included the assumptions that a capacity market would be implemented, that there would be no significant solar generation developed, and that the pace of renewable energy development would be far slower than what subsequently occurred. The harsh reality is that all forecasts are wrong and the best you can hope for is to be directionally right.

What I couldn’t have known when I left in early 2017, nor could anyone else at the AESO, was that the CLP was one of many similar government policies worldwide that would soon drive an explosion of renewable energy development to meet corporate ESG targets and significant demand for renewable energy credits (RECs) across jurisdictions. This rapid global policy push for net-zero electricity completely decoupled wind and solar energy development from power system supply-demand and electricity market fundamentals. In deregulated jurisdictions like Alberta, generation is developed based on economics, not system need, and much of the renewable capacity that was built here was built based on out of market economics, not Alberta system needs. Back in 2017 no one anticipated that government policies, ESG, and RECs, not power demand and local market economics, would soon become the dominant driver for generation development in deregulated jurisdictions.

I didn’t agree with the government’s direction back then, but when I read the 2017 direction letter now, I have to give them a bit of credit for recognizing some of the potential reliability problems their own policies (articulated in the CLP) would create and directing the AESO to assess whether action was required. And just imagine if Alberta had begun pursuing “dispatchable renewables” in 2018. We would have been an industry leader and our power system would operate very differently today.

As governments race to “electrify everything”, decarbonize everything, host data centre development, develop nuclear power, and who knows what’s next, the industry needs to recognize that it will be government policies, not economics and engineering, that will increasingly influence and dictate power system outcomes in deregulated electricity markets. And because of this, we have to evolve the way we plan and forecast to ensure ongoing system adequacy and reliability. We have to move beyond levelized costs and traditional utility economics and think bigger and ask questions like: How far can this policy go and how big could it get?, What out-of-market incentives will these policies create?, How does nuclear generation change the picture?, How do data centres change both demand and supply load flows?, How will the natural gas system affect the power system?, How do we plan for distribution and transmission system convergence?, etc. We’ll need to be creative and find ways to stress test the limits of our power and natural gas systems against government policy objectives to ensure we understand the risks we’re taking so that policy makers get good information before decisions are locked down.

We can’t change the past, but we can learn from it. We may have missed an opportunity for dispatchable renewables in Alberta, but the implementation of the Restructured Energy Market and a new transmission policy in Alberta give us another opportunity to think far into the future and ask the big “what if” questions.

As Reid Hoffman said, “The future is sooner and stranger than you think”, so this time, let’s get creative and go beyond traditional utility thinking to enable a robust and future-proof market and grid for Alberta.