Smith is smothering Alberta’s response to energy system disruption

Premier Danielle Smith thinks global energy transition should slow down to accommodate Alberta

Premier Danielle Smith’s Monday press conference demonstrated once and for all that the 7-month moratorium on renewables has nothing to do with land use or solar panel reclamation and everything to do with a dangerously flawed view of the future of energy.

Tuesday’s hot news story was about reporters’ persistent quizzing of Smith about the suspicious timing of regulator support letters for the “pause” on wind and solar projects. The letters were written by the Alberta Utilities Commission (AUC) and the Alberta Electricity System Operator (AESO). Below, you can watch my conversation with former journalist, and now widely read blogger, David Climenhaga, about what her answers revealed about the controversy.

But Smith’s comments about why Alberta refuses to cooperate with Ottawa’s clean electricity regulations and the net-zero by 2035 requirement is the more interesting story.

Let’s start with Smith’s bottom line problem with renewable energy: An affordable and reliable electricity system “will be accomplished by ensuring an appropriate amount of high efficiency natural gas base load is added to the grid while incentivizing carbon capture utilization in storage, abated natural gas generation, small modular reactors, hydrogen generation, and a sustainable amount of wind, solar, and other renewables to drive down electricity costs.”

This is the fundamental issue in play: Smith and the UCP think that renewables should play a minor role in Alberta’s power grid, but their rate of growth (1 gigawatt in 2022, twice as much planned for 2023) suggests they could be a much bigger player in the very near future. That makes them a threat in the Premier’s eyes.

Wind and solar asset reclamation and agricultural land use, the issues used to justify the moratorium in the first place, are secondary. Legitimate, certainly in the eyes of the UCP’s rural political base, but more a pretence because the provincial government has little direct authority over the the power grid, in large part thanks to the deregulated wholesale market introduced by a previous Conservative premier, Ralph Klein.

AESO says net-zero by 2035 is feasible

The irony here is that only last year AESO published a report about pathways to a net-zero power grid by 2035. I interviewed Miranda Keating-Erickson, the system operator’s VP, markets about the study, which examined three generation scenarios: mostly natural gas with carbon capture and storage, mostly renewables and storage, and a hybrid of the two approaches.

Keating makes clear that Alberta’s climate – long cold winters with variable weather – will require some abated natural gas generation on the grid. And some “wild card” generation technologies touted by Smith, such as small modular reactors and hydrogen, weren’t considered because they won’t be ready by 2035. The best approach, says Keating, is to let the province’s deregulated wholesale electricity market, the only one in Canada, determine which are the best technologies to reach net-zero.

“If we leverage the market forces of all of the different players competing with each other, that will get us to a place where we can do this in a more affordable way than by trying to pick today what the right technologies are going to be in 2035,” she said.

Speaking of affordable, Smith claimed Monday that net-zero by 2035 would cost Alberta “at least $200 billion and maybe as much as $400 billion of mandated investments in new generation and transmission capacity.” 

Only $44 billion to $52 billion will be needed, according to the AESO study, and 90 per cent of the cost will be for new generation, which will be paid for by the private sector. “That’s the potential to be attracting a lot of investment into Alberta as that all happens,” said Keating. Investments like the $25 billion of wind, solar, and storage projects already under development that are now in jeopardy.

And when Smith claims that a net-zero grid by 2035 would create “massive immediate increases to power bills for every Albertan making life more expensive for families and businesses,” she neglects to mention that 87 per cent of Alberta’s power is consumed by industry and large commercial customers. The federal government estimates that clean energy generation could lower costs on average 12 per cent by the middle of the next decade. Consumers might further benefit from lower transmission fees, which are a growing portion of their power bills, by making full use of the two 500 kilovolt transmission lines, completed in 2012, whose capacity is only half utilized, according to energy economist David Gray (see interview below).

There are several caveats to the estimate, Keating warns. The study didn’t consider the cost of upgrading distribution systems or the impact of cost inflation, which blew out oil sands construction budgets during the pre-2014 building boom. The additional costs would be a small percentage of the AESO’s estimates, certainly not enough to affect the report’s conclusions that net-zero by 2035 is not only feasible but potentially an economic shot in the arm for the province.

Not quite the Doomsday Scenario painted by Smith.

One thing the AESO report makes clear is that the Premier and her government would have plenty of policy and regulatory work ahead of them to make net-zero by 2035 possible.

“It has to start at the policy level,” said Keating. “No matter what scenario or pathway that we’re on, having policy clarity and getting the regulatory frameworks in place, and doing that as quickly as possible given the timeframe we’re working with. Where you have have unknowns and policy gaps and regulatory gaps, then everyone’s sort of paralyzed and can’t move forward.”

Why won’t Smith “move forward” with net-zero by 2035?

In Alberta renewables moratorium out of synch with American push for more wind, solar, I argued that US grid planners and operators are also worried about moving too quickly, but for very different reasons than Alberta. South of the border, utilities are retiring thermal (coal, gas) power plants faster than renewables can be built while demand is ramping up as the US begins electrifying its economy. 

Where Alberta argues that the new technology isn’t ready, the Americans argue that they can’t get enough of it in a timely fashion. Where Alberta tries to slow down the pace of change to preserve the power sector status quo, the Americans say they need time to build the infrastructure and institutions to accommodate disruption.

I’ve interviewed dozens of US power sector executives, both for Energi Media and as a member of the journalists panel during US Energy Association press monthly briefings. The contrast between Alberta and the Americans couldn’t be more stark. Osmand Tsang, head of utility sales for Hitachi Energy, discusses those differences in the interview below.

The Alberta power sector is tentative, reflecting the traditional conservative utility culture of prioritizing reliability, low prices, and gradual, cautious change. This isn’t necessarily a bad thing. The power grid is often referred to as the world’s biggest machine and the consequences of breaking it – outages, high prices – can be disastrous.

Nevertheless, the industry is buffeted by disruptive change as new technologies transform power grids around the world. Wind, solar, and battery storage are just a few of them. Others include microgrids, virtual power plants, demand response, new transmission technologies, artificial intelligence and machine learning, energy as a service, and innovative market design.

The 125-year old hub-and-spoke utility model with huge centralized power plants is on the way out, to be replaced with flatter, more decentralized business models. Consumers are becoming “prosumers,” generating and storing power, then releasing it into the grid when most needed and most profitable. Big industrial and commercial customers are discovering that they can “self-generate” with solar and dramatically reduce their energy costs, perhaps even disconnecting entirely from the grid.

The US power sector has mostly embraced change. Not uniformly and not all utilities and regulators are moving at the same pace, but generally the need to modernize the aging American grid is recognized and accepted. The global economy is electrifying while switching to clean power and the Americans have no intention of being left behind by China and Europe.

Not so much in Alberta.

In this August 3 thread (tweets 12 to 17) I discussed a 2021 Alberta Utilities Commission report detailing worries among provincial utilities and other stakeholders that large customers would begin to defect from the grid, leaving remaining players with ever larger bills to make up the difference. This would be enormously disruptive for the power sector. 

Smith’s renewables moratorium essentially chills self-generation plans. How convenient for utilities.

There are a few forward-looking thinkers in the province. Listen to my August 14 Energi Talks podcast with Gray, who explains how Alberta could redesign provincial electricity markets, make better use of the under-utilized high-voltage transmission lines, build east-west electricity markets with other Western Canadian provinces, adopt renewables at an even greater pace, with the ultimate goal of becoming a clean energy exporting powerhouse.

Gray’s vision and the US strategy stand in sharp contrast to Alberta’s timid response to power sector disruption and, frankly, to the global energy transition in general.

Smith is smothering Alberta’s response to energy system disruption

The Premier is a symbol of Alberta’s deep reluctance to change with the times. Never mind her refusal to even talk about the climate crisis. The other impending disruption is increasing demand caused by electrification of transportation (electric vehicles), buildings (heat pumps), and industrial processes. 

“Ottawa’s own forecast expects electricity demand to double between now and 2050 as it is now,” Smith told reporters. “Canada’s electricity grid, including Alberta’s, can’t handle the increased load that is coming, and the draft regulations will severely threaten the reliability of our power grid even more, leading to potential blackouts that would be devastating.”

This is nonsense. Utilities across the country are already planning for increased clean generation. One could argue that with a power grid that is already 84 per cent emissions-free thanks to hydropower and nuclear, Canada could afford to start later than the US and other trading partners.

The Premier is parroting the concerns of the Alberta utilities incumbents, the companies worried about losing their large industrial and commercial customers to self-generation.

“Based on the conversations we have had with our power generators, we believe [a net-zero grid] can be done by 2050, but not by 2035,” she said. “And any plan must recognize that we can only cut emissions as fast as technology and infrastructure and people’s pocketbooks will allow.”

Which explains Smith’s apocalyptic language about the consequences of moving too quickly: “Ottawa’s strategy seems to be to placate the environmental extremists while throwing regular Canadians under the bus. That’s wrong. It’s unacceptable morally and financially, and Alberta’s government will not go along with it.”

Smith’s narrative is inaccurate and inflammatory, but within Alberta it serves its purpose: to deflect attention from her government’s real strategy, which is to shield power sector incumbents from disruptive change. She performs the same service for the oil and gas sector, as I point out in Unethical Oil Part 2: Alberta’s orphan well crisis.

Reporters grilling the Premier about the government possibly rigging support from provincial arms-length agencies for questionable policies serves to undermine her narrative. That’s a good thing and Alberta needs much more of it, as Climenhaga argues during the podcast interview.

We journalists need to continue chipping away at the narrative that the energy transition has to slow down to accommodate Alberta. Alberta exceptionalism is a quaint holdover from the 20th century that needs to flushed as soon as possible. The truth is that Alberta has to speed up to adapt to a rapidly transforming global energy system before it’s too late.