Wind Energy in Alberta is Affordable
November 3, 2016
CanWEA sets the record straight on assumptions that overestimate the costs of hitting Alberta’s “30 for 30” renewable electricity goals
A recent study by EDC Associates in Alberta has attracted attention due to its conclusions regarding the amount the Alberta government would pay for renewable energy credits (REC) if Alberta used a REC only procurement model to meet its new renewable electricity generation targets by 2030. While the Alberta Government announced today that it will be using a different procurement model for new renewable energy than that assumed in the EDC study, one that will likely lead to lower costs for wind energy projects, it is nonetheless worth reviewing the assumptions underlying the EDC study to understand its conclusions. Our initial review of the study has led us to conclude that the EDC study made a number of incorrect assumptions that resulted in a significant overestimate of the costs of RECs.
The EDC study correctly assumes that, under a “RECs Only” procurement model, the value of a REC will be the difference between revenues collected from Alberta’s energy only market and the revenue required to ensure an adequate rate of return for any renewable energy projects procured by the Alberta Electric System Operator (AESO).
The revenue required to generate an adequate rate of return is heavily influenced by assumptions about the “levelized cost of electricity” (LCOE) produced by a wind energy project. A project’s LCOE considers the cost of capital, financing, operation and maintenance, as well as a project’s capacity factor and other technological details. A number of incorrect assumptions in the EDC report have the effect of increasing the LCOE of wind energy projects, which results in a need for higher REC payments.
We provide two examples. First, EDC bases its estimates of wind turbine capacity factors (electricity production) on Alberta’s existing turbine fleet and not on the more efficient wind turbine technology companies would be installing in Alberta in the 2018-2020 timeframe. Second, the study also assumes that the LCOE of wind energy will increase significantly over the next decade. This assumption runs counter to the majority of analysis which concludes that the LCOE of wind energy projects will continue to decline over time. Wind energy has been improving in efficiency and reducing in cost over the past 10 years and is broadly expected to continue on this path.
Taken together, these assumptions lead to conclusions that wind energy is both more expensive than it currently is, and will be, and that more government revenues would be required to purchase RECs than is actually the case.
Our initial review has identified other assumptions that we believe may be problematic and we are doing a more detailed review of the study to assess their validity. We are confident that integrating more reasonable assumptions will lead to different conclusions than the ones in the EDC study. Wind power provides a cost-effective solution for reducing greenhouse gas emissions and diversifying Alberta’s economy.
Featured Photo : Evan Wilson, Regional Director, Prairies, of the Canadian Wind Energy Association (CanWEA) speaks during a second day plenary session at the association’s annual conference and exhibition in Calgary, Alta. on Wednesday, Nov. 2 2016. Bryan Passifiume/CanWEA