February 2021 was an eventful month for Alberta – a seemingly unending polar vortex, the continuing shift from coal- to natural gas-fired power, as well as record-breaking electricity demand (PPA). Unfortunately for consumers, this all adds up to inflated power bills.
Additionally, the tight supply cushion within the Albertan electricity market has caused extreme volatility on the wholesale market, with the flat pool price averaging at ¢19/kWh in February 2021 as of Feb. 17th. (supply cushion refers to the ratio between (a) the supply and demand gap (i.e. difference between total offered volume and demand) and (b) supply.)
READ MORE: Why Alberta Electricity Bills are Getting Higher — and What you can do About it
Below, we’ll go into more detail on how market changes and weather events can affect the price of electricity and consequently increase your power bill.
How did electricity bills get so high this March?
- The polar vortex and how extreme cold affects energy bills
Unsurprisingly, cold weather increases electricity demand. In particular, with windchill temperatures between -40 and -55˚C during February, an all-time record for power demand was set at 11,729 megawatts on February 9th, 2021, according to an article from the CBC. That’s up 31 megawatts from last year or the equivalent of 25,000 extra homes needing power. Prices also increased another 61% compared to last year, averaging $254.25/MWh.
With temperatures warming up, however, prices are expected to come down for the remainder of the month.
A more extreme example of cold weather increasing electricity demand and prices is the recent Texas snowstorm – the pool price of electricity in Texas settled at $9000/ MWh for 4 consecutive hours. In case you don’t know, the pool price the floating price of power that is published every minute that tends to fluctuate often.
- The conversion of coal-fired power generation to natural gas
Ever since the Government of Alberta announced that it would be eliminating emissions from coal-powered generation by 2030, several coal-powered plants have either been slated to close over the next decade or are converting to using other sources of energy, such as natural gas. The conversion of coal-fired power generation to natural gas has forced large volumes of electrical generating capacity to go offline during maintenance. Additionally, coal-fired power plants closing earlier than scheduled can also result in increased electricity prices in the short term.
- The expiry of Government Power Purchase Agreements (PPA)
As of December 31, 2020, most Government Power Purchase Agreements expired, meaning supply capacity is being returned to generators as of early 2021.
So then – what exactly is a power purchase agreement? Power purchase agreements were a way for Alberta to introduce competition into the generation sector of electricity, as described by The University of Calgary Faculty of Law. In the past, coal generation was the predominant form of generation, and such facilities were owned by one of three main utilities: EPCOR, ATCO or TAU (TransAlta). With only three generators, such a market wouldn’t have been competitive.
PPAs were then formed to limit the market power of these generators and to increase competition and consequently lower prices of electricity. PPAs did this through allowing facility owners of the power generating facilities a reasonable opportunity to recover their fixed and variable costs of generation while transferring the right to offer the output of the plants into the power pool to intermediaries (PPA Buyers).
It was predicted that by the end of the PPAs that there would be more parties in the electricity market so that EPCOR, ATCO and TAU would no longer have a dominant market share. Since all PPAs have now expired, it ultimately means that there may be less market competition and that market electricity prices may rise as a result.
What can you do about it?
There’s little you can do about your March 2021 bills at this point, however, there are steps you can take as a consumer for the long-term to avoid being surprised by energy bill spikes in the future.
Now that you know about why you may see an increase in your power bill in March, you’ll likely want to know what you can do to mitigate your inflated electricity bill. For one thing, it’s always good to shop around and compare electricity rates of the local providers in your area. Sites like EnergyRates.ca make comparing energy rates easy – through inputting your postal code, you can see all the energy rates available in your area.
In Alberta, you can choose what energy retailer provides you electricity as well as which one provides you natural gas as both electricity and natural gas are deregulated in Alberta.
You may also want to consider if your energy plans are based on fixed or floating rates. In light of extreme weather events and market changes, being on a floating rate plan can leave you vulnerable to paying higher power bills. On the flip side, floating rates can help you take advantage of market changes that result in lower energy prices.
In comparison to floating rates, fixed rates provide more certainty and allow you to budget for your power bills in advance. However, when market energy prices decrease, fixed rates will stay the same while floating rates will decrease.
