Alberta had free power for more than a day in August, and seven hours last weekend – how does that happen?

 

EDMONTON – For seven hours on Sept. 21-22, the Alberta Electric System Operator (AESO) reported a pool price of zero dollars per megawatt. This odd behaviour of the market is not a new thing, however. It also happened in August, and happens from time to time.

A weird thing happened the weekend of Aug. 23-25: For 30 hours, most of that in a block on Aug. 24, the price of electrical power in Alberta was zero dollars per megawatt. Essentially, power on the Alberta grid was free for more than a day.

Which brings about a fundamental issue – the problem with no one getting paid is no one is getting paid. How can that be a sustainable economic model? With that in mind, Pipeline Online spoke with the Alberta Electric System Operator’s Ryan Scholefield, manager for load forecasting and market analytics, by Teams meeting on Aug. 28.

Totally different systems

There’s a fundamental difference between the Alberta Electric System Operator (AESO) and Saskatchewan’s SaskPower, in that Alberta is a deregulated electrical market over which AESO essentially rides herd. But with its 155 megawatt intertie to Alberta, SaskPower is a player in that market, both as an importer and exporter of power. Often SaskPower will buy up power to that maximum capacity for part of the day, and sell a similar amount into Alberta another part of the day.

SaskPower, on the other hand, is a vertically integrated, closed market. While Saskatchewan does have many independent power producers, particularly wind and solar, but also cogeneration and natural gas-fired power generation, those generators provide power to the Saskatchewan grid on fixed contracts. The Alberta grid’s price, known as the “pool price,” fluctuates hourly.

And that’s where the conversation begins.

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Zero dollar hours

There are changes recently announced by the Alberta government coming to that province’s grid, and that may impact much of these current conditions, but the discussion focused on what’s happening right now.

“Zero dollar hours aren’t uncommon within our system,” Scholefield said.

“We’re a deregulated market. We basically set up so participants can create their own generation, and then they have the ability to bid in their generation.

“And electricity is an instantaneous commodity, so that you have to balance the demand and supply at the exact same time. So, you can alter your bids throughout the day. You submit them well in advance. In a simplistic fashion, the AESO here takes all the bids that come in in a particular hour. We stack them up from cheapest to most expensive, and then where the demand requirement intersects, that is what sets the price. And so, participants can bid in various things throughout the whole curve, but wherever it intersects is the price that everyone gets. So even if you bid into the lower price, AESO will pay you the pool price.”

When the pool price hits zero, how does that affect the export price that SaskPower pays? Scholefield responded, “They would acquire megawatts from the market at a zero price. You’re accurate there.”

Taking a step back, he said, “Regularly, they have a large contingent of our market bids in at zero, because they want to be running. Some of them have industrial processes. Some people have those arrangements and they want to be running. So, a number of our megawatts are priced in at zero, and then there’s a set of 3000, 4000 in the top that are priced in at positive values. And that’s more reflective of their operations.”

 

That’s not just wind and solar pricing in at zero, but “a significant amount of thermal megawatts are prince in at zero as well, for various reasons,” he said.

An example would be a facility needs to maintain a minimum output for stable generation. “It’s not uncommon to se that first block priced in at zero,” he said.

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August weekend anomaly

Asked what caused the zero pool price Aug. 23-25, Scholefield said, “It’s not unusual to see that. Effectively, there were more offers at zero than demand required in those particular hours.”

The afternoon of Aug. 24, at 1:22 p.m., the pool price was zero and had been since the early morning hours. Other than a small blip, the price would remain at zero until daybreak of Aug. 25. Wind output was at 2,577 megawatts, or 49 per cent capacity, at 1:22 p.m. That was higher than usual. And notably at that time, 12 wind facilities were showing zero output, despite much of southern Alberta showing enough wind for power production, according to Windy.com.

 

Pipeline Online asked what was causing the zero price. Scholefield replied, “There were more $0 offers. It was a combination of both. It’s not uncommon for solar and wind operate at zero, but it’s also almost two-thirds of the megawatts were also offered in thermal units at the time. So, I wouldn’t classify it as a surplus of one or the other. I’d say again, there are reasons that units wish to stay operational.”

As for Sept. 21-22, there was ample wind and low demand. At 2 a.m. on Sunday, Sept. 22, wind was producing 2,085 megawatts, or 39 per cent of nameplate capacity. Demand at the time, being the middle of the night, was low, with load a 8,358 megawatts. Alberta’s usual demand during the day is closer to 10,000 megawatts. Alberta was exporting 910 megawatts to Alberta and 37 to Montana (none to Saskatchewan) at the bargain basement price of zero dollars. Of course, since it was night time, solar was off the board.

And during that period of low demand and zero prices, eight wind farms dropped their output to zero megawatts, despite there being apparent wind available, according to Dispatcho.app, a website which logs the minute-by-minute data provided by AESO. Those wind farms that shut down output included Blue Trail Wind, Bull Creek 1 & 2, Castle Rock Ridge, Garden Plain, McBride Lake, Summerview 1 and Suncor MacGrath.

 

One day does not a revenue stream make

Scholefield emphasized that brief periods of zero price are fundamentally inconsequential when taking into consideration the pricing for much longer periods of time. He said, “Keep in mind, … a single day doesn’t make up the entire revenue stream of your organization. You have a whole year longer term horizon to make back money, and the Alberta price fluctuates. And so, in some instances it drops down below pricing, like we saw on Saturday, and some instances it goes to our price cap, which is a $999.”

And that indeed does happen, and quite frequently. Pipeline Online has reported numerous times over the last two years instances where the pool price has maxed out. In most of those instances this publication has reported, there was a correlation between minimal wind and/or solar output. When wind, especially, flatlines to one per cent capacity, or less, the pool price often spikes to $700 to $999 per megawatt hour.

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Scholefield said, “We have a bit of volatility, kind of going back and forth.

“So, when it comes to supply surplus, … what we would call supply surplus, is that we have more megawatts at zero offered than we have demand in the province. So a couple things can happen. A., we would curtail imports, first. And then secondarily, we would exercise the export would be included within that. So it’s true, Saskatchewan, BC or Montana, would be able to export at zero wholesale price during that those periods.”

Reliability

He said there was no concern about grid reliability during the weekend in question, and there was sufficient thermal generation offered at zero to keep the system stable, and to accommodate the zero dollar offers from renewables as well.

There’s a rule in place, for when zero dollar offers are excessive, that rule, called 202.5, which provides a process for ordering how they deal with these situations. “So if we have $0 in excess of demand, which could include export requirements, then we do a pro rata approach to bringing down. Everyone would take a haircut to get us in balance.”

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Zero really means zero

Asked when the price is zero, does that mean no one is getting paid for power at that time? Scholefield replied, “It means the AESO isn’t paying generation for those megawatts. Another counter side to that is that that also means consumers are not paying; consumers that are exposed to the wholesale price are also not paying for that number.”

Pipeline Online asked, “How can any generator maintain operations where when they get essentially a full day of zero payment, despite their ongoing operating costs and fuel costs for that day? How is that in any way a sustainable model?”

Scholefield said, “Well, again, I think they’re a long-term thinker. So (for) some assets, sometimes these periods are short, and there’s significant cost to shutting down operations. So, it might be more optimal for them to run through a period of low pricing, in order to be available to access the higher prices they move along.

“I think you don’t take a day-view of this. These are 365 day plants. There’s sufficient opportunity, or there has been sufficient for them, to make up revenue in other hours. It is a business decision. They do have the ability to shut off, if they had offered the megawatts at positive price.

“If they offer the megawatts at a positive price, then they wouldn’t be dispatched, and they could turn off. It’s an internal business decision, and that’s not subject to the ASEO to determine. We live in a deregulated market, and businesses decide for themselves what their best strategy is.”

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Other revenue when the price is zero

Are there some generators getting paid in some other manner during these periods, such as carbon credits, tax credits or some other form of remuneration? Scholefield said, “Within our deregulated structure, it does allow bilateral contracts, and we do observe some of that.

“I think I kind of alluded to some examples where there are some industrial processes that require the heat, and value the heat probably a little more than the power, and they see power as a byproduct. Cogen is one example.”

He continued, “There are carbon prices, like carbon credits, that can be achieved. So even by producing a megawatt, they still technically receive the tier credit, and that can be monetized as well.

“So there can be, within the deregulator framework, (companies) can create bilateral contracts. There’s also a forward market, where any participant can hedge their power production forward. They kind of accept a price, a positive price, for the next X amount of time they’re willing to sign up for, and then they would settle that outside the market.

“So, from the AESO perspective, in those zero dollar hours, we wouldn’t pay any money. But that’s not to say that participants wouldn’t receive money from an arrangement they may have outside.”

One of the proposed changes to the Alberta grid is day-ahead pricing. While Scholefield declined to comment in detail on the changes, he did note that other jurisdictions that do have day-ahead constructs do observe zero dollar hours, and they still have a real-time market. California is an example.

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Why were 12 wind farms not producing?

Getting back to Aug. 24, those 12 wind facilities down included one major brand new facility is still in commissioning. As for the others, asked if there was economic withholding going on, if they were ordered to shut down by the AESO, or they chose to shut down, Scholefield replied, “Economic withholding is against our market structures, and that’s not allowed, and wouldn’t be part of this.

 

“I did have one of my analysts take a look at this, and it does appear that you’re right. There were a number of facilities that were out. More than one were out for maintenance, and a couple under commissioning standards. But actually, taking a look at potential wind, for a pocket in the south that the wind honestly just died, so the wind resource just wasn’t there for a particular pocket.”

He said there was definitely sufficient wind in other areas of the province.

How much is too much?

In the last 30 months, both wind and solar generating capacity in Alberta has doubled, to the point now where the theoretical nameplate capacity of wind generation alone in Alberta is now just about equal to the current maximum generating capacity of the entire Saskatchewan grid. When wind output is high, and it sometimes is, and demand is low, is it getting to be too much for the AESO to handle?

“We didn’t classify it as too much to handle. And the sheer amount that we have, do we encounter problems? Nothing that the operators haven’t been able to handle up until this point.

“So I’d say that again, we have rules and regulations in place that to handle hypothetical situations, but we’re currently not encountered too much. The significant ramps, and the long term thoughts around flexible generation, to support the integration is a concern, and that’s partially what’s motivating, I think, the market structure. But I would say, up to this point, there’s no threat, and reliability is not at risk.”

He concluded, “Zero dollar prices aren’t new to Alberta. And they’re a chosen part of our system. But beyond that, the AESO has reliability above all else, and that’s the primary value we hold dear.”

Pipeline Online provides the in-depth coverage on energy issues in this province that no other media comes close to. It does NOT receive federal journalism subsidies, and it will NOT allow the federal government to limit its freedom of speech, as it is now moving to regulate podcasts. With recent action from Facebook to block news links, it’s important to follow Pipeline Online in other manners. The easiest is to check each morning at PipelineOnline.ca, with the top story posted at 7 a.m. Monday to Friday, and additional coverage throughout the day and weekend. But you can also follow on LinkedIn and Twitter. You can follow editor Brian Zinchuk online at LinkedIn as well (you’ll see more stories that way). You can subscribe to a weekly newsletter. And if you wish to advertise and support this journalism, call 306-461-5599.

 

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