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Why the time is right for Alberta to lead in non-utility procurement of renewable energy

Re-post: Pembina Institute March 2, 2018 – Perfect Timing for Renewables 

 

Perfect Timing for Renewables 

By Sara Hastings-SimonSaeed Kaddoura, Mark Porter, Alexander Klonick

As climate action and the commitment to hit our targets gains ground in Canada, including the federal government’s commitment to phase out coal, companies required to meet carbon and environmental obligations have realistic options worth considering. Renewable energy prices are dropping – making it easier to purchase renewable energy to meet customer demands or carbon compliance while maintaining profits.

 

Looking beyond Canada for examples of procurement 

There is a growing trend in the United States for corporations and institutions to purchase renewable energy directly from developers to meet sustainability targets. This is called “non-utility procurement”. It means energy is bought by providers who are outside traditional utility companies. In most cases these companies are not switching their power provider. Instead, they continue to get their electricity from their utility company. To buy renewable energy they also enter into contracts with renewable energy developers to enable renewable projects to be built and then the companies purchase the resulting environmental attributes. This works through a renewable attributes tracking system. Renewable energy projects generate “Environmental Attributes (EAs)”, reflecting the environmental benefits of producing renewable electricity (e.g. reduction in carbon dioxide (CO2) or other pollutants), or tracking how renewable the form of electricity is. It is through this mechanism that companies can purchase renewables. 

The most common process used in other places has been the Virtual Power Purchase Agreement (VPPA). It’s where the project (or a third party) retains ownership and sells the electricity at the market price and the buyer receives the EAs from the project. The buyer pays a fixed unit price to the developer and receives the floating market price the electricity is sold. From the project’s perspective, the buyer is setting the price the project receives for its electricity. If the market price is lower than the fixed contract price, the buyer makes up the difference. But if the market price is higher, the buyer collects the difference. For a buyer to claim they are using electricity from renewable sources, they must retire the procured EAs (as opposed to selling them back into the market for profit).

 

Bringing the practice to Canada

The Pembina Institute, along with the Rocky Mountain Institute and Calgary Economic Development with support from Bullfrog Power, EDF EN Canada and Greengate Power have explored the opportunity for this U.S. trend to expand into Canada with Alberta as a hub for local and national non-utility buyer’s EA requirements. Preliminary interviews with buyers and sellers across many sectors have shown interest for international and Canadian companies with Canadian load to meet their demands via renewable energy through non-utility procurement, given the right conditions.

Alberta is the perfect place to start as it has a deregulated market which provides buyers the flexibility to enter into contracts directly with generators. On top of that, the 30 per cent renewable energy target Alberta has set for 2030, along with the thousands of megawatts of renewable energy projects planned (and in development) create the ideal scenario for the success of non-utility procurement in Canada based in Alberta. Furthermore, the carbon compliance requirements in the Alberta market could enhance the market’s ability to provide an alternative motivation for renewable energy procurement.

The first results of this work have been released today — an Alberta market primer entitled Plugging In. The primer is meant to educate interested buyers and sellers who may have different levels of understanding on non-utility procurement and the fundamentals of the Alberta electricity market. Pembina Institute, Calgary Economic Development and Rocky Mountain Institute will host a webinar on March 7 to outline the potential opportunities of non-utility procurement of renewable energy in Canada.

Going forward, the Pembina Institute, Rocky Mountain Institute and Calgary Economic Development will continue to work on creating a community that facilitates Canada’s transition into a low carbon economy.


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