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The Trouble with Renewables

Could the rise of solar and wind power be an “existential threat” to large-scale utilities?

Jan 2, 2014

by Max Fawcett

Renewables like wind and solar have been touted in many circles as the future of electrical generation, and if Enmax’s Home Solar (formerly Generate Choice) program is any indication, they will play an increasingly large role in Alberta’s grid. In addition to the more than 1,000 MW of wind that has been installed in Alberta, 500 kilowatts of solar capacity has been added by Enmax since its program started in 2011. And it’s no wonder: the cost of solar and the price of electricity (either in the form of contracts with electricity retailers or the regulated rate option) are moving in different directions, which means it may not be long before solar reaches so-called “grid parity,” or breakeven pricing with coal and natural gas. “It’s getting close,” Gray says. “It’s getting to the point where going off-grid looks nicer.”

Nicer for consumers, at least. As utilities in Germany have learned, because they both come in and roll off so strongly, renewable energy can wreak havoc on their bottom lines, as it renders traditional pricing models – and the profits that come with them – obsolete. Michael Liebreich, the CEO of Bloomberg New Energy Finance, has described renewables as an “existential threat” to Germany’s beleaguered utilities, which have had to contend with zero and even sub-zero prices for wholesale electricity (in essence, they had to pay the grid to take their power) because of the surge of renewable capacity in that country. Alberta’s utilities are faring better, but that doesn’t mean they aren’t challenged by the effects that wind power can have on their margins. “What the [Market Surveillance Administrator’s] paper doesn’t tell you is that our market clears at $0, too,” says Evan Bahry of the Independent Power Producers Society of Alberta says. “Last year, we had 38 hours of $0 in one quarter.”

That might sound like good news for consumers, but it’s a problem – maybe a big one – for a government that’s committed to a free and open market for electricity. It needs to attract new investment in power generation facilities, and that investment is unlikely to come – or, at least, come in the volume required – if there’s a force out there that impairs their ability to earn a reasonable return.

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Still, those utilities (and the government) can breathe easy for the time being. Even if Enmax’s program exceeds its most ambitious expectations, Alberta is still a long way from having a market where solar can push down the price of wholesale power the way it has in Germany. “Alberta’s a growing economy, and for the foreseeable future we will need bulk connected generation to meet demand,” Bahry says. “The penetration level of distributed generation – solar or small-scale gas – is not at the scale of what we need. We need about 700 MW of new generation a year [for the retirement of existing coal plants and to meet demand growth], and that really can’t be met through kilowatt-scale solar installations.”

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