Brian Zinchuk is editor and owner of Pipeline Online
Wind turbines near Pincher Creek, Alberta, on Dec. 1, 2023. Twenty-five days later, there was so much wind, power prices went to zero. Photo by Brian Zinchuk
On Dec. 26, the Alberta Electric System Operator (AESO) reported a pool price of $0 per megawatt-hour for six hours. The Alberta electrical market is an open market, administered by the AESO, with private companies providing power. This is in sharp contrast to Saskatchewan, where SaskPower is a closed market. While Saskatchewan does have independent power producers which sell power to SaskPower via power purchase agreements (including most wind power and some gas-fired power), it does not have an open market in the same manner Alberta does. Therefore, Saskatchewan does not have the wild price fluctuations seen in the Alberta market, from zero to $999.99 per megawatt-hour, depending on the current state of the market.
The zeroing-out of the AESO pool price was an anomaly, and Pipeline Online inquired about this on Dec. 27. On Jan. 10, the AESO sent a fulsome response by email. Here is that entire response, verbatim:
Pipeline Online: Can you confirm that for several hours on Dec.25-26 the pool price went down to zero?
AESO: Yes, this happened.
Pipeline Online: What causes this to happen?
AESO: Basically, there is more generation offered at $0/MWh than is required to meet Alberta system demand plus exports. In this instance, a combination of high wind generation output (wind is offered at zero), a significant volume of thermal generating assets being online (these assets have to offer in a block of generation at $0/MWh to ensure generator facility stability or to meet steam requirements if they are cogeneration) combined with modest demand (moderate weather and holiday season) resulted in a supply surplus.
Pipeline Online: To me, it appears to be a direct correlation to surplus wind power generation. Is that correct?
AESO: As per question 2, high wind generation was one of the contributing factors to the supply surplus event.
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Pipeline Online: Does this mean when the pool price falls to zero, that is the amount paid to all operators, including coal, natural gas and hydro, no matter their operating cost?
AESO: Generating assets receive the hourly price as revenues based on the volume they were producing for that given hour. So in the instance of a $0/MWh, generating assets that were producing electricity at $0/MWh received $0/MWh regardless of their operating cost.
Pipeline Online: If so, how are any operations sustainable at zero pricing point?
AESO: Operators consider many revenue streams when determining the sustainability of their assets. These may include pool price revenues over a period of time, selling additional products to the AESO (i.e., the Operating Reserve market), contracting financially or physically on a forward basis with other participants and meeting their own demand requirements.
Pipeline Online: Understanding there are tens of thousands of megawatts of wind and solar projects in the works, what will happen if several thousand more megawatts of wind power are added, and surplus wind isn’t a thousand extra megawatts, but three thousand, five thousand, or more?
AESO: The Alberta Market works on a real-time supply/demand balance (including imports and exports). Significant additions of assets that offer at $0/MW will increase the potential for increased supply surplus hours. The Alberta generation fleet over the next two years will experience a significant addition of wind, solar and firm thermal generation as per our most recent November 2023 Long-term Adequacy Assessment: https://www.aeso.ca/market/market-and-system-reporting/long-term-adequacy-metrics/
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Pipeline Online: Conversely, when wind power generation falls to near zero, I’ve noted that the pool price often spikes to $900, even the maximum of $999.99 per megawatt hour. Again, is that paid to everyone? Where does this money come from?
AESO: The Alberta pool price is only paid to units that are dispatched and providing electricity. Conversely, loads that are consuming the electricity are responsible for paying the Alberta pool price. To get a true sense of how much electricity costs, one must consider average price over time, not just in any single hour.
Pipeline Online: Was there this level of variability several years ago when there was ample coal-fired power, and little wind generation on the Alberta grid?
AESO: Price volatility can result from many factors including supply and demand fundamentals and competitive market behavior. Notionally, with increased generation offered at $0/MWh, other generators may require other hours to recover longer duration return expectations, consequently increasing price volatility. There have been periods like this in the past. For example, the average pool price in 2000 was $133, which is $219 when adjusted for inflation to 2023 dollars (for a point of reference, 2022 was $167, when adjusted for inflation). In 2008, the pool price was $90 ($125 in 2023 dollars). In comparison, the 2023 average pool price was $133.
Pipeline Online: How does solar figure into all of this?
AESO: It will have a similar impact to the system, as wind generation is typically offered into the market at $0/MWh. Directionally, greater volumes of solar in Alberta leads to an increase in generating assets offered at $0/MWh.
Pipeline Online: Are these some of the issues being looked at during the pause on renewables ordered by the Albert government? And are there any developments on that front?
AESO: For questions pertaining to the AUC inquiry, it would be best to have a conversation with the AUC.
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