City Hall Watch: Electric shock

The electric price surge observed for the past few months could give Calgarians insight into the cost of inaction on climate issues.

On February 9th, 2022, the administration presented its Industry Update on Electricity, Natural Gas, and Telecommunications to the City Council. One of the items covered is the evolution of the price of electricity provided by ENMAX. According to the report, its current level, 15.88 cents per kilowatt-hour (¢/kWh) is the highest price ever recorded since the Regulated Rate Option (RRO) was restructured by the provincial government in 2006. Compared to the price in the beginning of the pandemic (6.57 ¢/kWh in March 2020), this represents an increase of more than 140%. The RRO is a baseline price for gas and electricity for regulated retailers (ENMAX for Calgary). It is set by the Alberta Utilities Commission, an agency independent from the government, which adjusts it on a monthly basis.

[Image source: Industry Update on Electricity, Natural Gas, and Telecommunications, 2022]

The report mentions several reasons that could explain this surge: increased demand, generator outages (many overlapping as coal-fired units are being converted to using natural gas as its fuel source), a more aggressive price for carbon, firmer natural gas price, higher generator offer prices and extreme weather (polar vortex, prolonged heat wave in the summer and unseasonable cold in Alberta in December). Some of the elements in this list should raise our attention if we want to ensure that the transition to a decarbonised economy is done as smoothly as possible.

First, the demand for electricity is not likely to decrease within the next few decades, as the cheapest and most efficient pathway to a low-carbon economy is currently the electrification in the industrial, residential, and commercial sectors, also known as “electrify everything”. It consists of repowering fossil fuel powered activities (such as driving or home heating) with electricity while at the same time transitioning to 100% carbon free electricity. Currently, projections show an increase in electricity demand in Canada by 44% between 2021 and 2050, with half of this increase due to electrification. If we want to reach this target, we have to try to tackle it as early as possible as unpredictable events can severely affect the transition speed.

The influence of unpredictable events is well illustrated by the second item on the list: the outages overlapping with conversion of generator from coal to natural gas as their power source. In 2020, it was announced that the last coal-fired power plant in Alberta would be converted to natural gas by 2023. In fact, according to the Alberta Electric System Operator’s real time reporting, only one coal plant (with three generators) is remaining and will be off coal in 2023. This is ahead of the original target set to 2030, and while natural gas is still a carbon-intensive power source, it is still a progress as natural gas is more efficient and creates less GHG emissions than coal. However, clean technologies, like many other sectors, are facing supply chain issues which drive prices up and affect current projects schedules. As we realise how unprepared the world was for a global event such as a pandemic, this example shows that if Calgary wants to succeed in its transition to a low-carbon economy, it must address it quickly and be prepared with alternative solutions to reach its GHG reduction objectives without causing severe price surges.

But even after the conversion, external factors could still affect electricity prices. In this case, it will increase the influence of natural gas prices over electricity rates. It is currently stable as production levels returned to the pre-pandemic situation, but it might become a less attractive solution as carbon price increases, markets transition and geopolitical events disrupt supply chains. As of today, the price is currently set to 50 dollars per tonne of GHG emissions calculated in carbon dioxide equivalent ($/t CO2e), it will reach $170/t CO2e by 2030 and could increase up to $300/t CO2e by 2050. We also have to factor in the cost of carbon capture, which would have to be 100% efficient and ignore the effects of upstream methane emissions to allow those plants to keep working in a decarbonised economy. On the other side, the cost of renewable energy such as solar and wind power, two sources that would be viable in Alberta, keeps decreasing and is currently cheaper than operating existing fossil power plants.

Finally, the end of the provincial electricity price cap back in May 31st, 2021 also played a role in the increase, but this deregulation issue is not linked to GHG emissions.

All the elements listed above concurred to make matters worse: power availability was lower due to the conversion of the plants, the supply chain issues extended the duration of the problem while the outages lowered the power availability even more; and all of this happened in the context of increasing demand for electricity. The report also pointed out the role of extreme climatic events in the increased demand, which we now know are made more serious because of climate change. This, more than any of the other elements listed, shows the importance of starting the transition sooner rather than later. Otherwise, this could lead to a vicious circle of more frequent extreme events that would drive up energy demand, increasing the GHG emissions that would then strengthen the force of those extreme events and so on.

A frequent problem with climate change questions is that it appears as a vague threat that will occur over an entire lifetime. The electricity rate surge is a concrete example and its consequences can be felt immediately. All Calgarians can see how inaction would end up being more costly than investments. And if you are wondering what you could do at your own level, tell yourself that by holding our representatives accountable, we can all ensure that Calgary does its share and keeps its promise to reach a net-zero target by 2050.