The cost of wind power in Alberta

I keep watching Alberta’s electricity system operator’s website for new grid-connected wind farms, beyond the 20 ones that existed in mid-2018. As of today, July 9 2019, at 13:53 eastern time (11:53 Mountain time), that number is unchanged—the total capacity of Alberta grid connected wind is roughly 1,489 megawatts.

The results of Ontario’s first stab at subsidizing green energy were too weak for wind proponents’ taste, and since wind proponents were running the province they wrote the Green Energy Act in order to turn wind’s nonchalant stroll into the province into a stampede.

I noted in December 2017 the result of an auction in Alberta, in which wind generation bid at the lowest price ever in Canada, a weighted average of 3.7 cents per kilowatt-hour. Pro–renewable energy advocates were ecstatic. The Canadian Wind Energy Association on its Alberta page said “Today’s wind energy is the lowest-cost source of new electricity in Canada.” This “factoid” has been retailed and repeated numerous times, including in some broadcast panels on which I participated.

Now, based on that figure, what do you think might be the chances of a stampede of wind power developers into Alberta, like the one that occurred in Ontario following the Green Energy Act of 2009? I’d say they’re low. The GEA-inspired stampede was based on firm rates of 12.5 cents per kWh. It followed a rather nonchalant stroll into Ontario resulting from the so-called Standard Offer of 2006, which guaranteed 11 cents per kWh for wind. The Standard Offer results were too weak for wind proponents’ taste, and since wind proponents were running the province they wrote the GEA in order to turn that nonchalant stroll into a stampede.

So 11 cents produces a nonchalant walk into Ontario, 12.5 cents a stampede, and 3.7 cents produces … what? Alberta has a number of wind projects allegedly in development following the 2017 auction. They’re supposed to come online in 2019, i.e. some time in the next five-plus months. Does 3.7 cents per kWh tell the entire revenue story for these? It doesn’t take advanced economics to understand the Ontario stampede. Wind developers installed more than 3,000 MW in Ontario after 2009 because they were paid handsomely. Today’s prospective wind developers in Alberta, on the other hand, have to parlay 3.7 cents into profits. What profits could they expect? How are the current Alberta farms doing?

Performance of current Alberta wind farms is illustrated in the plots below, which are cumulative distribution (a.k.a. non-exceedance) curves of the minute-by-minute generation of each of Alberta’s 20 wind farms in the period October 24 2018 at roughly seven a.m. MT and June 25 2019 at roughly 8 a.m. MT. The dashed vertical lines are the median output values of each farm over that period. (Explanation in the text following the plots.)

The y-value for any x-value on the curve represents the probability that an output value will not exceed that x-value (hence the name “non-exceedance curve”). So for the farm in the lower right, Wintering Hills, the x-value of 70 gives a y-value of around 0.85, meaning there’s an 8\frac{1}{2} in 10 chance that this farm will produce less than 70 MW at any given time.

The dashed vertical (median) lines are at the output (x-axis) value above or below which there’s a fifty-fifty probability the farm will produce at any given time. Wintering Hills’s median value is 21 MW, and the farm’s capacity is 88 MW. This means that based on that farm’s performance over October 24 2018–June 25 2019, there’s a fifty-fifty chance that at any given time it will produce between 0 and 24 percent (21 \div 88 \approx 24%) of its capacity.

Put another (glass half full) way, there’s a fifty-fifty chance that at any given time Wintering Hills will produce some output value between 21 MW and 88 MW.

The financial implications, based on these stats, are: there’s a fifty-fifty chance that across any given hour Wintering Hills, if it were receiving say the 2017 weighted average price of 3.7 cents per kWh would generate between $0 and $777 in revenue (21 MWh \times $37/MWh = $777). Yes, that also means there are equal odds its revenue would be between $814 and $3,256.

What’s the probability the farm would earn $3,256, i.e., that it will produce 88 MW, at full capacity, for an hour? Well, look at the non-exceedance curve. The y-value at the maximum x-value (88) is close to 1—meaning there’s close to 100 percent probability Wintering Hills will generate less than 88 MW and earn less than $3,256.

But let’s be clear. None of the farms in the plots above is getting paid at the 2017 auction rates. They’re all getting more. And good thing too (for them): just look at their performance.

Let’s say you’re a wind developer. Based on the plots above, how would you feel about a proposal to begin pricing Alberta generator output based on capacity? You go over the non-exceedance curves above… which tell you at a glance that it is pretty much impossible to commit capacity. All you can commit is probability of capacity—but the system operator wants a firm number. Your probability of making good on any commitment is highest at the lowest end of your capacity range—how much money can you make selling at the low end? That is moot, of course: you cannot participate in a capacity market because you cannot commit capacity.

The new political situation in Alberta might be the second nail in the coffin of wind power in Canada. Post–June 7 2018 Ontario was the first.

This ought to spell out the lobbying strategy of wind developers in Alberta right now, and indeed it does. They’re lobbying to ensure they keep getting paid based on the energy they provide.1 And those fifty-fifty probabilities I mentioned above? Those apply to all times during the day—including those times when demand is highest and the market price also is highest. How about that—your farm output has a fifty-fifty chance of producing below the median value, which for every wind farm in the plots above is toward the low end of capacity.

Alberta wind proponents tout the 3.7 cent auction price (and the similarly low prices in the two subsequent auctions) as if it will produce a stampede into Alberta like the GEA-inspired one in Ontario. Almost like wind developers simply can’t wait to set up in a jurisdiction where their output fetches the lowest price and there’s a fifty-fifty chance that at any given time their equipment will be producing output at the low end of its capacity.

I wouldn’t be surprised if what we see from the new United Conservative Party government is a cold wind from Alberta. The new government already cancelled the fourth wind auction. The wind industry’s press releases are bravely positive—but if the industry is not successful on the capacity market issue there won’t be any new wind in the province. As it is they’re praying for output outliers in the high end of their capacity. Statistically, they’ll get them only very infrequently.

The new political situation in Alberta might be the second nail in the coffin of wind power in Canada. Post–June 7 2018 Ontario was the first.

Could it be that Albertans are waking up to the dismal performance and dismal economics of wind?

  1. This is not to endorse the proposed capacity market in Alberta. I’m simply pointing out why wind developers need for it to not happen.

5 comments for “The cost of wind power in Alberta

  1. Meredith Angwin
    July 9, 2019 at 15:46

    In New England, wind developers routinely bid in to the auctions at zero cents or even lower. Negative bidding. This lowers the price on the grid for everyone else, but the wind developers are counting on the Production Tax Credit (about 2 cents per kWh) and the sale of RECs (Renewable Energy Credits) to keep them going.

    So far, the wind farms have kept going, but the only new developments are going offshore. Several of states require their utilities to buy a great deak of offshore wind. https://www.wbur.org/earthwhile/2019/05/31/more-offshore-wind-power-massachusetts

    Like many things in the U.S. renewable business, it’s not easy to see how much wind is actually costing the customer.

    • July 10, 2019 at 13:35

      thanks Meredith. It’s this stuff that makes me doubt wind will expand to anywhere close to the level hyped by its supporters. Yes it’s not easy to track money flows but they’re all dependent on political support that could be taken away as easily as it was given.

      • July 11, 2019 at 20:19

        There are two elements to this:  LCOE and feasible penetration.

        LCOE in Alberta might be low enough to support a 3.7¢ price, so long as curtailment doesn’t cut into revenue.  But how do you avoid curtailment when nameplate power bumps up against minimum load minus the minimum throttle setting of the “must run” plants?

        The max feasible penetration of wind power depends on the existence of sufficient storage or dump loads to soak up generation above that level.  I’ve long been saying that cheap storage is key, and we may have a wildcard dealt in this game.  Highview Power has announced a LAES (Liquid Air Energy Storage) scheme with an efficiency on the order of 75%.  I have looked at their technology, and it’s clever; it stores both heat of compression and cold from expansion, and the efficiency of existing turbomachinery suggests to me that they can deliver.  The real shock is the pricetag:  $140/MWh for a 200 MW/2 GWh system.  Yes, that’s $0.14/kWh.  I’m not sure if that’s a typo either.  I suspect it’s actually $1400/MWh, because I can’t see their baseline 2 GWh system costing only $280,000.

        Regardless, even at $1400/MWh this is a game-changer.  With a LAES system and a backup generator, wind-farm operators could make firm capacity bids with much lower emissions than anything but hydro and nuclear.  What to do?

        What I suggest is for nuclear to fight fire with fire.  The nuclear operators should make plans to expand and use LAES to meet peak loads, charging it with off-peak generation.  Daily cycling is a better fit for LAES than the much longer feast/famine cycles typical of wind.

        • July 12, 2019 at 10:10

          Assuming it is a typo, even at $1.40 per kWh it would be among the greatest gamechangers in the history of games. Blows Li-ion right out of the water.

          On LCOE—which components of that (tax credits, carbon credits, curtailment rules, etc.), granted by governments seeking votes, put that figure to where 3.7 cents becomes profitable? My argument is that whatever those are, they’re unwarranted.

          Your suggestion re nuclear—interesting. Again, the economics and reliability of the source that “charges” the “batteries” ought to trump popularity. As things stand today, no guarantee that they will. But let’s remember that ramming 4,400 MW of wind into Ontario led to the electoral annihilation of the government that did it. Alberta would need roughly that amount to reach its thirty-by-thirty goal — i.e. a threefold expansion of its current wind fleet.

  2. Andrew Jaremko
    July 11, 2019 at 16:01

    Thanks Steve for this post. I’ve missed seeing new ones. As an Albertan, I’m most interested in this, and finding out more of what’s going on out here.

    I find the non-exceedance curves deceptive – the median looks like it’s in the wrong place. There must be a rationale for them – do you know why they’re plotted that way?

    I like the capacity market. I’ve always thought that ESOs should be the ones to set the rules for selling electricity: they’re the ones in charge of keeping the lights on.

    And thanks Meredith for more on what happens when ‘isms’ (and lobbyists) get legislators to make the rules.

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