A new Alberta energy narrative: decarbonize hydrocarbon production, invest in renewable energy, electrify the Alberta economy
This has been a busy few weeks for non-oil and gas energy news: the UCP government is exploring small nuclear reactors, a bank contracted enough wind electricity for all its offices in the province, and Tesla will soon power a huge wind and battery combination for TransAlta. The story behind these stories is that Premier Jason Kenney desperately needs to flip the switch on a new energy narrative for Alberta.
The UCP won the election on the back of a strident pro-hydrocarbon narrative. Pipelines, jobs, and the economy was Kenney’s mantra. At every stop, in every speech, he drove home the idea that a UCP government would singlehandedly return the Alberta oil and gas sector to its former glory.
That didn’t happen, of course. In fact, UCP energy policies are awful by almost any objective measure. Even before COVID-19 battered the Canadian economy there were 14,000 fewer Alberta oil and gas workers than before Kenney occupied the big desk in the Legislature.
More importantly, the energy transition has accelerated faster than anyone expected, driven rather unexpectedly by the financial sector. Investors worry about climate risk, but they’re also flocking into new energy technologies where returns are much higher than hydrocarbons. As a conservative, Kenney should know that money talks.
Wasn’t it conservative icon Ralph Klein who said that leadership is finding a parade and getting out in front of it? Kenney needs to decide if he’s the grand marshall leading the floats or the guy shovelling elephant poop bringing up the rear.
There are small signs Kenney and his team are getting the message. For instance “we are setting an unprecedented path toward a new, innovative and diversified energy future,” the government said in the energy sector of its Recovery Plan. “We recognize that new sustainable forms of energy will drive investment moving forward.”
For example, BluEarth Renewables’ 39-megawatt solar farm about to be built southwest of Medicine Hat. The Royal Bank of Canada has contracted for the majority of the power produced by the $70 million project.
“This agreement…will help support our clients and communities in the areas where we live and work with the low-carbon transition, while accelerating clean economic growth” Scott Foster, global head of corporate real estate for RBC said in a release. “We are excited to be taking a leadership position in this sector and continue our support of environment-focused innovation.”
But the signs are small and infrequent. That needs to change.
Out with the old energy narrative, in with the new
The primary problem with Kenney’s existing energy narrative is that it views new energy technologies as “diversification,” that tired old Western Canadian idea that provinces should rely on more than just natural resource extraction. Diversification has been around for decades and it needs to be put out of its misery: “…it’s just one of those words we throw around, but we don’t know what it means or what the actual goals are,” economist Trevor Tombe told Macleans last year.
What’s really going on is the emergence of a new global economy powered by electricity; the International Energy Agency’s “the future is electric” scenario imagines a world in which 65 per cent of the world’s primary energy is supplied by electricity. While that level of electrification is unlikely 20 years from now, this is the direction human societies are headed, which is why electrification of the Alberta economy – not simply bolting on another sector or two – should be the goal.
3 core ideas for Kenney’s new energy narrative
One, hydrocarbons aren’t going away, but they will be consumed differently. For example, bitumen becomes feedstock for materials like carbon fibre instead of fuels and natural gas is turned into hydrogen with the carbon emissions sequestered underground in old oil and gas reservoirs.
And Alberta oil and gas has to do better than “aspire” to net-zero by 2050. Those are table stakes. If Alberta wants to lead, decarbonization has to be at the top of the industry and the government’s agenda.
Two, Alberta should better leverage its de-regulated – or re-regulated, as some would have it – electrical system. A few weeks ago, I was interviewing Prof. Joshua Rhodes of the University of Texas at Austin about evolving North American electrical utility business models. “I’m a big fan of the way that Alberta did it [independent system, multiple utilities, retail competition]” he said. “They broke up the utility into different arms and then have the different arms do what they do best.”
His point is that Alberta can now easily, efficiently, and cost-effectively plug new low-cost wind [$28 per megawatt-hour, according to Lazard] and solar [$32 per MWh] into the Alberta power grid. Ontario is the only other province with a similar system.
Cheap, clean electricity is becoming a huge competitive advantage. Want to attract investment? Forget hacking taxes. Promote the hell out of Alberta’s huge wind and solar resources – the best in Canada – paired with the province’s electrical system.
Three, electrify the Alberta economy. This may be counter-intuitive to Alberta oil and gas boosters, but clean electricity is the key to the long-term competitiveness of the province’s hydrocarbon resources.
Take the big oil sands companies. Suncor, for example, talks about being both “cost and carbon-competitive” to survive past 2050. Electrifying upstream (production), midstream (distribution), and downstream (processing) as much as possible could achieve that goal.
A good argument can be made that Premier Kenney and the Alberta oil and gas industry have the worst energy narratives on the planet. They pick the wrong fights, then lose every time (cf. calling Norwegians “hypocrites” for divesting from the oil sands). They complain about being picked on (environmentalists, Europe, Ottawa…it’s a long list) and somehow think portraying Alberta as a victim looks good to international investors. And they regularly talk down the industry (for example, how horrible Canada’s regulatory regime is), then wonder why the smart money invests elsewhere.
Read the room, fellas.
The world isn’t changing, it has already changed. And the 2020s promises to be the Great Age of Disruption as new energy technologies hit the inflection point on the adoption curve. By 2030, the global energy landscape is going to look very different.
Alberta needs to change with the times and that change needs to start with how the Premier and the industry talk about energy.