In March 2024, the Minister of Affordability and Utilities (MUA) directed AESO (the Alberta Electric System Operator) and MSA (the Alberta Market Surveillance Administrator) to commence drafting up a technical design proposal for a Restructured Energy Market (REM). The directive was influenced by informed recommendations from the respective reports of the AESO and the MSA. The AESO Report revealed that its preliminary plan for the REM is designed to improve system reliability and affordability.
Two temporary policy changes were announced to support the transition to the REM. These amendments are to be implemented through new regulations and alterations that work within AESO’s rules, such as:
- Ensure an appropriate reserve margin of electricity supply by requiring advanced commitments from natural gas generating assets, directed by AESO, when there is an anticipated risk or peak, such as extreme weather or other peak demand situations.
- Prevent market dominance by any single electricity generation supply entity within Alberta by mandating an equitable pricing standard if net revenues exceed a predefined threshold.
Major modifications to the current energy-only market are part of the REM strategy and these changes are being phased in according to milestone dates that have been set by AESO and how the new REM system is going to work.
The ultimate purpose of REM is to ensure a robust and flexible energy supply that can adjust to the interconnected electric grid’s changing requirements while advancing clean energy/decarbonizing initiatives. REM further seeks to mitigate the influence of market dominance and offer consistent investment signals to bolster reliability throughout the province. AESO’s report for phasing in the REM system to implement it will allow for the effective introduction of critical measures, such as:
- Enhanced reliability through optimizing existing supply and potential new reliability services and standards.
- Short-term price protection for consumers via a market power mitigation framework.
- Medium-term investment incentives in dispatchable energy and demand response with new pricing mechanisms and markets.
- A long-term option to directly contract controllable supply to ensure reliability, used only as a last resort due to its significant impact on investor confidence and the market.
That all stated what the REM is proposed and meant to do, in December 2024, changes were announced that:
- Costs for new transmission infrastructure will be assigned on a cost-causation basis, where those who use the most power pay for any cost increases. Currently, ratepayers pay 100% of the cost to build new transmission lines.
- The changes ahead also include moving to a day-head model, meaning that if there are any expected electricity peaks or usage, it will be notified a day ahead for electricity providers.
The new legislation for this is expected in the spring of 2025. Affordability and Utilities Minister Nathan Neudorf said that transmission costs are roughly equalized throughout the province and distribution is very regional. Northern rural Albertans currently pay three to five times as much as those in metropolitan centres. Ratepayers will save money regardless of where they live with the new proposed project.
It’s been said that while it’s difficult to pinpoint what the average Albertan pays for electricity, the changes will mean that ratepayers will now be paying 100% or less, regardless of area. When an area needs to be developed, ratepayers whose power usage increases would pay for the additional cost. However, that said, if the needs are already met in a certain area, where a resource such as wind or solar is available for example, those advocating for that resource would bear the cost of upgrading the systems. Neudorf also mentioned that say, those building off the grid would need to pay to build transmission lines.
Some recently announced data centres will be self-sufficient, with no need to connect to the transmission grid. The proposed changes aim to encourage the building of new power plants in optimal locations and on existing infrastructure.
Day-Ahead Market Changes
Currently in Alberta, power generators provide a real-time price as it is going and working. The province’s proposed market reforms will include moving to a day-ahead market where instead, the power generators will commit their power 24 hours in advance rather than a couple hours beforehand, which will help with any unforeseen circumstances where the grid may need more power. This gives system operators clear information about how much power is available so that the system can respond to power fluctuations with increased reliability and stability, reducing the risk of any grid alerts.
This change will also provide more competition and discipline in the bidding behaviours of all the provincial generators because they will all see their pricing 24 hours in advance and be able to see the trending numbers and prices. With most jurisdictions in North America going towards the REM changes, that will help discipline the price spikes onward to a more stable pricing market.
There are several temporary measures in place before the legislation gets approved, including the mark power mitigation legislation that was passed last spring, which has restricted generators from charging high prices.
The purposes and benefits of the new changes including the new day-ahead markets, new reserve products, dispatch to manage reliability, wider price range and scarcity pricing, co-optimization, and market power mitigation have their own key benefits listed below.
New day-ahead markets
- Allows parties to firm up pricing a day in advance to inform operation decisions, and ensures that adequate resources are available and can be delivered in real-time. Key benefits of this are more centralized coordination and control of generator operation and short-term revenue certainty to dispatchable generators
New reserve products
- New markets to ensure resources are rewarded for providing attributes needed to respond to changing supply and demand conditions. The benefits of this are raping products will compensate for the dispatchable capability that is held back to meet more frequent ramp events.
- DAC product creates a market signal for the value of dispatchable capability
Dispatch to manage reliability
- Effectively manages transmission constraints, unit commitment, net demand variability and ramping. Current tools will not be robust to operate a system with more transmission congestion and greater variability.
Wider price range and scarcity pricing
- More effectively and precisely communicate the value of energy and reliability products at times of scarcity, including to attract more import responses. Benefits of this are dealing with supply surplus situations effectively and attracting more response.
- Demand response and imports during times of scarcity are included.
- Better market signals for the value of dispatchable capability.
Co-optimization
- Achieve the lowest cost to meet energy and reserve requirements given the new suite of products, benefits include robust pricing framework to handle clearing all offers and setting prices for energy and reserve products every five minutes based on system conditions.
Market power mitigation
- Providing guardrails to limit the potential for excessive exercise of market power, while allowing the price of energy and ancillary services to be determined by strategic offers.
- Economic withholding is a key feature of the new electricity market
- That said, excess withholding can produce economic inefficiencies and adversely impact the affordability of electricity for consumers.
That all said, these are the current announced changes proposed and will be rolling out as the timeline is dictated by the AESO and markers met. It should be in full effect by spring of 2025.
