CRITICAL TIMES AHEAD FOR ALBERTA POWER MARKET
The Alberta power market has entered a phase of very tight supply-demand balance. Supply additions are not keeping pace with the fast-growing demand. Wholesale power prices are trading at levels higher than needed to support new construction and are reaching the bid cap of C$1,000 per megawatt-hour (MWh) at increased frequency, sending strong signals of the need for new capacity. The Alberta Electric System Operator issued emergency alerts on at least seven different occasions in 2006, indicating the tightness of the supply-demand balance. Power plant developers, however, are not reacting yet with commensurate plans for new power plant construction. Looking ahead, CERA anticipates
*Tight supply-demand balance. Reserve margins in the Alberta power pool are likely to remain below the target levels for at least the next five years, as the current pipeline of new generation projects lags the anticipated demand growth. Maintaining the supply-demand balance will be a tightrope walk.
*High wholesale power prices and continued volatility. Increasing reliance on supply resources that are highly uncertain could result in wholesale power prices' remaining elevated and reaching the C$1,000 per MWh bid cap at an even higher frequency.
*Potential retail rate hikes. Alberta's plan to completely deregulate its retail electric market in 2010 with retail electric rates fully determined by wholesale power prices may come just as reserve margins are at their nadir and wholesale power prices reach new highs. A sharp jump in retail prices could create a political backlash and also threaten the acceptability of deregulation among Alberta consumers.
