The AESO (Alberta Electric System Operator) stands behind the operation and development of the wholesale electricity market in Alberta. As per AESO, “At approximately $3 billion in energy transactions per year, the market is a key enabler of the province’s $300 billion economy.” In the province where electricity is sold, purchased and generated in a competitive market, the AESO established the hourly real-time market price, also known as the pool price.
Basically, the pool price calculates payments to suppliers and how much consumers should be charged. (Head to AESO Reports, and select Current Pool Prices to see the hourly established pool price.)
Of course, pool price determination does not come without certain restrictions. Each pool participant is subject to a financial review by the AESO. This is a necessary step to assess the creditworthiness of each participant. By doing that AESO can determine any unsecured credit limit. Retailers can also be asked to provide cost-effective solutions based on the average energy consumed. (“The past two months of settlement periods multiplied by the estimated pool price,” as per AESO.)
Market Operation
Alberta’s electricity system is based on the principle that supply (generators) and demand (consumers) should always perfectly match. That is why AESO has a System Coordination Centre (SCC), a team of skilled system controllers that manage the real-time operation of Alberta’s electricity system and wholesale electricity market.
The management system collects data from generators that are connected to the transmission system and matches the supply of electricity with demand. Besides, SCC monitors whether the provincial electric system functions properly.
Another function of SCC is the Energy Trading System. Alberta’s electricity market matches offers from market participants (between market participants who sell electricity bids and those who wish to buy it), and stock exchange.
Electricity Supply and Demand Chain
To understand how pool prices are determined, it is also important to clarify how the electricity supply and demand work together.
“Typically, the electricity demand is higher in the morning as Albertans prepare to start their day and declines slightly to a steady level throughout the day,” as per AESO. The second increase in demand for electricity happens when residents come back home from work and school and use both appliances and lighting in houses and on streets. Of course, during winter months the demand for electricity goes much higher compared to summer due to the necessity to run heaters, and furnaces and keep the light on throughout the whole late afternoon and evening.
Hence, System Controllers are responsible for monitoring those variations and matching the supply between consumers and generators. Supply offers and demand bids are typically sorted from the lowest to highest price (for each hour of the day). The list of those bids is called a merit order. SCC uses the merit order when balancing the supply of electricity and lowest to highest priced offers and ensuring that Albertans’ electricity needs are met.
Setting The Pool Price
The pool price is defined by the cost of a megawatt hour of electricity. Measured at the end of a given hour, the price is paid to generators (local providers) for supplying electricity. Simpler put, the average pool price is 60 one-minute system external prices collected over one hour.
The process of setting the pool price involves offers submitted by the market and dispatched by SCC every hour. The pool price is posted to the AESO website after the end of the hour and is used to calculate payments to suppliers and charges to consumers.
As per a detailed look at the pool price, the importers and producers of power submit electricity offers to AESO’s system controllers. Further, exporting companies that will supply energy all over Alberta submit purchasing bids. At the same time, consumers set a demand for a certain price at which they would purchase electricity.
System Controllers continue sorting those offers from the lowest to the highest price based on the hour of the day (merit order). SCC also keeps supply and demand in balance. For instance, if system demand increases, then they would move the order and dispatch the next eligible supply. If, on the contrary, system demand decreases, the System Controllers would instruct suppliers to reduce the output. This navigation of the system ensures that Alberta’s electricity prices are kept as affordable as possible.
