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Alberta market design proposal addresses new technologies

The Alberta Electric System Operator's final comprehensive market design proposal for a three-year-forward capacity market starting in 2021, which was released June 29, contains several provisions addressing new technologies as it guides the AESO grid's transition from mostly coal-fired generation to a mostly zero-emissions fleet.

For example, the final proposal requires that storage assets must demonstrate four hours of continuous discharge at their estimated unforced capacity level to qualify for the capacity auction. The rationale is that since 2012, Alberta's energy emergency alerts have lasted an average of 3 hours and 53 minutes.

The proposal is "a reflection of feedback received and considered over the course of an extensive engagement with stakeholders that has been ongoing since early 2017, following the Government of Alberta's direction to the AESO to design and implement a capacity market for Alberta," a cover letter states.

The AESO has 16,626 MW of generation capacity to supply what has so far been a peak demand of 11,458 MW. Coal-fired generation supplies about 38% of the AESO's demand, followed by cogeneration at 30%, natural gas at 17%, wind at 9%, hydro at 5% and other resources at 3%.

Alberta's provincial government in November 2016 endorsed the establishment of a capacity market to reduce price spikes and market uncertainty as the AESO moves away from coal-fired generation, Energy Minister Margaret McCuaig-Boyd said at that time.

The final proposal provides that the first auction would begin in 2019, and the first obligation year would be from Nov. 1, 2021, to Oct. 31, 2022, with no seasonal auctions. After a transition period to implement the three-year-forward auction, the AESO will conduct two rebalancing auctions 18 months and three months before the obligation period, which are not subject to offer mitigation.

The auction would be for a uniform price across the Alberta capacity region, with a sealed bid and a single-round auction, with up to seven price-quantity pairs.

Old, new resources treated differently

Resources must have a minimum 1 MW asset size, or assets that, when aggregated, total at least 1 MW. Demand response is eligible to become prequalified. Existing assets of at least 1 MW are automatically prequalified, while others must follow prequalification process, requiring a security deposit and achievement of development milestones. All qualified assets have a must-offer requirement.

Resources previously committed in Alberta's Renewable Energy Program procurements are not eligible, because those resources are already being compensated for their capacity.

Regarding market power, the AESO will screen qualified market participants before the auction, and those deemed to have market power will be required to offer at no higher than 80% of the net cost of new entry unless they can demonstrate higher net avoidable costs. Refurbished assets not subject to market power mitigation.

The AESO plans to calculate and assign an unforced capacity value for each prequalified asset, based on five years of historical data including the 250 tightest hours of each year.

The auction's demand curve will be downward-sloping and convex, based on a forward-looking probabilistic resource adequacy model. The demand curve's highest price point will be either 1.75 times net CONE or 0.5 times gross CONE.

The demand curve's maximum quantity will be set at 18% above the minimum acceptable quantity at a price of zero.

Mark Watson is a reporter for S&P Global Platts, which, like S&P Global Market Intelligence, is owned by S&P Global Inc.