Analysis: Coal plants' share of AESO generation continues slide, as gas' share surges

Coal-fired generation continued to decrease its share of the Alberta Electric System Operator's supply in 2019, largely being replaced by natural gas generation, a trend that is likely to continue over the next few years, industry observers said Friday.

Gas-fired generation overtook coal-fired generation in 2018, with gas plants producing almost 55% of average daily generation that year, compared with about 44.4% in 2017, while coal plants produced about 35.1% of average daily generation in 2018, down from more than 45% in 2017.

The trend continued in 2019, with gas plants producing 56.4% of average daily generation, while coal plants produced 33.5%.

The former provincial government, under the left-leaning New Democratic Party, had legislated the phase out of all coal-fired generation by 2030, said AESO spokeswoman Tara De Weerd.

"As a result, the province's coal generation companies are making decisions to retire or convert to natural gas facilities," De Weerd said in an email Friday. "We will continue to see the steady decline of coal generation to 2030."

GAS, POWER PRICES

Morris Greenberg, S&P Global Platts Analytics managing director of North American Power, said coal-fired generators decided to convert capacity to natural gas partly because of expected increases in carbon costs under Canadian federal law and because of declining natural gas costs in the area.

At the TCPL Alberta AECO-C price point, spot gas prices averaged $1.676/MMBtu in 2019, up from $1.449/MMBtu in 2018, but well below 2015's $2.555/MMBtu, for example.

Meanwhile, real-time on-peak locational marginal prices in AESO have climbed over the past few years, averaging $64.74/MWh in 2019, up from $59.31/MWh in 2018 and a recent low of $19.65/MMBtu in 2016.

"While the current [United Conservative Party] government initially rolled back the carbon tax, recent legislation will move it back up to C$30/tonne and retain the emissions target rate (above which the tax must be paid) for the power sector," Greenberg said in an email Friday. "As a result, the decline in coal generation will continue with a corresponding rise in gas."

Tim Weis, executive director for electricity at the University of Alberta's Centre for Applied Business Research in Energy and the Environment, said another coal plant "came off line at the beginning of 2020 ... and the carbon price will continue to favor gas in the dispatch as the other plants reach the end of their lives."

SHIFTING WINDS

In US markets, decreases in coal-fired generation have often coincided with increases in renewable penetration, but wind generation's share in AESO fell the past few years from its peak of 5.6% in 2016 to 5.5% in 2017, 5% in 2018 and 4.9% in 2019.

But Weis said, "Wind's share will definitely grow in the near term."

"Wind's share has been stagnant... over the past few years," Weis said in an email Friday. "But the Renewable Energy Program's 1,500 MW+ of contracted wind will start coming on line in the coming few years, and the low prices of wind have also recently drawn bilateral interest in further development."

The UCP terminated Renewable Energy Program auctions for new supply, said Platts Analytics' Greenberg, "but the contracts awarded under the first three rounds will be honored."

"These projects were expected to begin to come on-line late last year," Greenberg said. "As of December, only Capitol Power's Whitla project was in operation with the other two projects awarded (to EDP and ENEL) under REP round one in late 2017 seeing permitting delays. These appear to have been resolved at least for ENEL, and their projects should be online this year. In addition, there have been a couple of merchant wind projects announced (Berkshire Hathaway and Suncor) with online dates in the 2022-23 period. So we will likely still see rapid growth in wind generation over the next few years."

The added wind generation may not help in certain circumstances. As reported by S&P Global Market Intelligence, AESO declared a power emergency Thursday as a blast of a "cold dome" centered over the province causing temperatures in Edmonton, the capital, to fall to negative 33 degrees Fahrenheit overnight, which caused ramp-up problems for coal and gas plants at the same time as very little wind was blowing to power turbines, producing no power for most of the day.

Reserves fell dangerously low, and real-time prices surged toward C$1,000/MWh.