AESO market shakeup with looming restructuring by 2027, AESO analyst Report, VPP case study and more

We have a lot of interesting topics to cover in this edition of our weekly newsletter. Also, we at Arcus Power Corp believe in energy democratization, and in that pursuit, we suggest following our X (Twitter) page. Starting from AESO markets, we will have our "AESO Quick Look" go out every day, to help power traders, industries, data analysts, and large power users make informed decisions using our comprehensive solutions to energy intelligence. Follow our page here.

AESO Market Shakeup

Alberta's electricity market is gearing up for a significant overhaul. However, industry participants fear that a long period of uncertainty could deter vital investment in power generation.

Power companies have been awaiting further details since the UCP government's Utilities Minister, Nathan Neudorf , was tasked to develop an electricity grid plan and tackle high consumer energy bills after last year's provincial election.

Key Takeaways:

1. Alberta's electricity market is slated for a major overhaul with new rules expected by 2027.
2. This lengthy review period is causing industry concern due to the uncertainty it presents.
3. The Canadian Renewable Energy Association is worried about the potential negative impact on Alberta's renewable energy sector.
4. Alberta remains committed to an energy-only model and is under pressure to rapidly decarbonize its grid to meet federal Clean Electricity Regulations.

On Monday, companies got more information. Mike law, AESO (Alberta Electric System Operator) CEO, announced at a power industry conference in Banff that his organization is to draft a restructured energy market design by fall 2024. The goal is to implement new electricity market rules in Alberta by 2027.

Law stated that the current situation is unsustainable, and changes to the energy market need to be made to meet current and future needs. He added that the next steps involve working closely with stakeholders to create a detailed design.

However, the possibility of a long review period with new rules not coming into effect until 2027 is causing concern among some industry participants.

On Tuesday, the Canadian Renewable Energy Association (CanREA) expressed its worries about "prolonged and increasing uncertainty" for Alberta's renewable energy sector, potentially making the province less attractive to investors.

CanREA President, Vittoria Bellissimo, hopes for a speedy resolution to provide market certainty but sees the current uncertainty as a significant risk to investors. She stated that any market reform must incentivize wind, solar, and energy storage technologies, but a lengthy overhaul period could damage an already struggling sector.

Alberta's electricity market, unique in Canada, is a for-profit, deregulated system. It pays generators only for the power dispatched onto the grid and nothing for standby generating capacity.

Under the previous NDP government led by Rachel Notley, a transition plan from an "energy-only" to a capacity market was proposed but scrapped by the UCP.

Utilities Minister Neudorf stated at the conference that the UCP government remains committed to an energy-only model as it promotes competition. However, he acknowledged that significant reforms are necessary, given that the current market rules were designed 25 years ago for a predominantly coal-powered system. With coal rapidly phasing out and renewable power growing, the old rules are no longer suitable.

In a notable instance, Alberta had to declare an emergency grid alert in January due to various natural gas plant outages and insufficient wind power. The province also had to offer temporary electricity rebates last summer to help residents with drastic rises in their power bills.

Alberta, with very limited access to hydroelectric resources, is under pressure to quickly decarbonize its grid in light of the federal government's proposed Clean Electricity Regulations. The province, still reliant on fossil fuels for non-intermittent, dispatchable power, has said it cannot meet the federal targets by 2035 without risking the stability and affordability of its power system.

Alberta Premier Danielle Smith previously estimated that transitioning Alberta's electricity grid to clean power could cost over $400 billion, a figure many experts agree with given the magnitude of the task.

In his speech, AESO president Law said that a restructured energy market aims to have a balanced perspective on generation types. The proposed reforms will incentivize generators to offer controllable, flexible resources. A "day-ahead market" allowing power producers to offer their electricity for the next day's use is also planned.

Capital Power, based in Edmonton, expressed satisfaction that the province has committed to maintaining the energy-only system but emphasized the importance of investor certainty.

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AESO Analyst Report and Quick Look

Recap from Friday, March 15th to Sunday, March 17th

On Friday, low prices were noted throughout the day, with a daily average price of 24.31 $/MWh. The prices were 30.37 $/MWh and 12.21 $/MWh for on and off-peak hours, respectively. Demand was low due to above-average temperatures, peaking just over 10,400 MW in the late afternoon. Wind generation exceeded 1,900 MW for most of the day, peaking over 3,200 MW in the early morning. Solar generation rose above 1,100 MW between 12 p.m. and 4 p.m., then fell to minimum values after 7 p.m. due to sunny weather in southern Alberta. The combination of high renewable energy production and low demand resulted in surplus power generation in the province, leading to prices remaining under 40 $/MWh for most of the day, even dropping to 0 $/MWh in the early morning. Despite exports exceeding 900 MW, prices remained low.

On Saturday, low prices were again observed for most of the day, with an average daily price of 54.30 $/MWh. Demand was low due to above-average temperatures, peaking just over 10,000 MW in the morning. Wind generation fell below 300 MW in the morning and afternoon, but rose above 700 MW overnight. Solar generation, however, increased above 1,200 MW between 11 a.m. and 4 p.m., then fell to minimum values after 9 p.m. due to sunny weather in southern Alberta. Gas generator HR Milner (HRM) went offline between 4:02 p.m. and 10:27 p.m., and Cascade # 1 (CAS1) went out of service at 4:50 p.m., removing more than 250 MW from the grid. However, Nexen # 1 (NX01) came online at 7:20 p.m., adding over 40 MW to the grid. Despite low gas and wind generation, high solar power generation and low demand kept prices under 50 $/MWh for most of the day. Prices rose above 130 $/MWh at night due to renewable generation below 800 MW. Exports remained below 400 MW in the morning and overnight, preventing higher prices.

On Sunday, very low prices were observed throughout the day, with a daily average price of 32.38 $/MWh. Demand was relatively low, peaking just over 10,200 MW in the evening. On average, wind generation remained above 1,800 MW, peaking at over 3,300 MW at night. Solar generation increased above 1,200 MW between 10 a.m. and 4 p.m., then dropped after 7 p.m. Gas generator Sheerness # 2 (SH2) went offline at 12:40 p.m., removing more than 300 MW from the grid. However, gas generator Cascade # 1 (CAS1) came back online at 7:31 p.m., adding over 150 MW to the grid. Despite lower-than-expected gas generation and exports above 700 MW for most of the day, prices remained very low due to high renewable generation and low demand.

Today's Forecast: Monday, March 18th

Today's temperatures are expected to be similar to those of yesterday across most of the province, while demand will be considerably higher. Wind generation is expected to remain above 1,600 MW for most of the day, but will drop below 1,200 MW for a few hours in the afternoon. Solar generation is projected to exceed 1,300 MW between 11 a.m. and 4 p.m., and then drop after 7 p.m. due to sunny weather in southern Alberta. Gas generators Battler River #4 (BR4), Sheerness #2 (SH2), and Calgary Energy Center (CAL1) are offline, reducing available power by over 500 MW. Owing to the relatively high renewable generation, exports are projected to exceed 300 MW for most of the day. The AB-BC intertie may be out of service after 9 a.m. due to maintenance. Given these factors, prices are expected to remain relatively low for most of the day, with the potential for higher prices during some hours in the late afternoon and at night.

VPPs' untapped potential and Case study

At a time when sustainable energy solutions are in high demand, Virtual Power Plants (VPPs) have emerged as a pivotal innovation. They reshape our approach to managing energy resources by harnessing the collective power of Distributed Energy Resources (DERs), VPPs offer a sophisticated method for balancing supply and demand, enhancing grid reliability, and promoting energy affordability.

The Untapped Potential of VPPs

Although Virtual Power Plants (VPPs) offer many advantages, their integration into the US utility sector is still in its early stages. These networks have the potential to transform the energy landscape by adding flexibility to the grid, but there are several challenges that need to be addressed. Regulatory hurdles, the need for proof of concept, and the complex dynamics of utility incentives are some of the main reasons for the industry's hesitancy. As a result, the full potential of VPPs is yet to be realized.

Case Studies: California and Massachusetts Lead the Way

California and Massachusetts are examples of the transformative power of VPPs. In California, the Emergency Load Reduction Program (ELRP) and the Demand Side Grid Support (DSGS) Program show the state's quick response to extreme weather conditions and grid reliability challenges. These programs have demonstrated the feasibility and benefits of deploying flexible capacity through DERs, significantly mitigating resource adequacy issues.

The Connected Solutions program in Massachusetts was launched to achieve energy efficiency and clean peak goals. It has been successful in enrolling both residential and commercial participants in Distributed Energy Resource (DER) initiatives. As a result, Massachusetts has not only met but also exceeded its targets. It has significantly reduced peak summer loads and demonstrated the scalability of such programs across multiple states.

The success of Virtual Power Plants (VPPs) in California and Massachusetts highlights the importance of supportive policy and program design. To replicate these achievements, three key policy principles are needed:

1. Integration of DERs: Utilities and regulators should incorporate DERs and VPPs into their planning processes. This ensures a balanced approach between demand-side and supply-side resources.

2. Support for DER Deployment: The effective deployment of DERs is crucial to the success of VPPs. Policies that facilitate this include tax credits, rebates, and financing options that encourage the adoption of DER technologies.

3. Fair Compensation: For VPPs to be sustainable, participants must receive fair compensation for their contributions to the grid. This includes ongoing performance payments and dynamic tariff structures that reflect the value DERs bring to the energy system.

By adopting strategic policy and program design, VPPs can unlock the grid's untapped energy resources. It is up to regulators, utilities, and stakeholders to embrace these principles and foster an environment where VPPs can thrive and lead the energy sector towards its full potential.

The message is clear: we must carefully craft policies that support the deployment and integration of VPPs to ensure a brighter, cleaner future for all.

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