Perfect Timing for Renewables
Why the time is right for Alberta to lead in nonutility procurement of renewable energy
As climate action and the commitment to hit our targets gains ground in Canada, including the federal government’s commitment to phase out coal, companies required to meet carbon and environmental obligations have realistic options worth considering. Renewable energy prices are dropping—making it easier to purchase renewable energy to meet customer demands or carbon compliance while maintaining profits.
Looking Beyond Canada for Examples of Procurement
There is a growing trend in the United States for corporations and institutions to purchase renewable energy directly from developers to meet sustainability targets. This is called “nonutility procurement.” It means energy is bought by providers who are outside traditional utility companies. In most cases, these companies are not switching their power provider. Instead, they continue to get their electricity from their utility company. To buy renewable energy, they also enter into contracts with renewable energy developers to enable renewable projects to be built, and then the companies purchase the resulting environmental attributes. This works through a renewable attributes tracking system. Renewable energy projects generate environmental attributes (EAs), reflecting the environmental benefits of producing renewable electricity (e.g., reduction in carbon dioxide or other pollutants), or tracking how renewable the form of electricity is. It is through this mechanism that companies can purchase renewables.
The most common process used in other places has been the virtual power purchase agreement (VPPA), in which the project (or a third party) retains ownership and sells the electricity at the market price and the buyer receives the EAs from the project. The buyer pays a fixed unit price to the developer and receives the floating market price at which the electricity is sold. From the project’s perspective, the buyer is setting the price the project receives for its electricity. If the market price is lower than the fixed contract price, the buyer makes up the difference. But if the market price is higher, the buyer collects the difference. For buyers to claim they are using electricity from renewable sources, they must retire the procured EAs (as opposed to selling them back into the market for profit).
Bringing the Practice to Canada
The Pembina Institute, along with Rocky Mountain Institute and Calgary Economic Development with support from Bullfrog Power, EDF EN Canada, and Greengate Power, have explored the opportunity for this U.S. trend to expand into Canada, with Alberta as a hub for local and national nonutility buyer’s EA requirements. Preliminary interviews with buyers and sellers across many sectors have shown interest for international and Canadian companies with Canadian load to meet their demands via renewable energy through nonutility procurement, given the right conditions.
Alberta is the perfect place to start as it has a deregulated market that provides buyers the flexibility to enter into contracts directly with generators. On top of that, the 30 percent renewable energy target Alberta has set for 2030, along with the thousands of megawatts of renewable energy projects planned (and in development), creates the ideal scenario for the success of nonutility procurement in Canada based in Alberta. Furthermore, the carbon compliance requirements in the Alberta market could enhance the market’s ability to provide an alternative motivation for renewable energy procurement.
According to Calgary Economic Development, “Alberta has long excelled at attracting investment from around the world into our energy sector. This timely research is key to ensuring Alberta remains a competitive, attractive market for renewable energy development and to positioning Alberta as the Canadian hub for the renewable energy marketplace. Calgary Economic Development is proud to partner with industry to accelerate the education and adoption of corporate renewable energy procurement across the country.”
Representatives from EDF Renewable Energy Canada add, “EDF EN Canada is eager to leverage our corporate procurement expertise from the United States with EDF Renewable Energy and bring these experiences to Alberta. We recognize that the Alberta market has all the right ingredients to grow a sustainable and affordable nonutility procurement market. We look forward to partnering with the Pembina Institute, Rocky Mountain Institute and Calgary Economic Development to foster a community of corporate leadership in Alberta and support Canada’s transition to a low-carbon economy.”
The first results of this work were released last week—an Alberta market primer entitled Plugging In. The primer is meant to educate interested buyers and sellers who may have different levels of understanding on nonutility procurement and the fundamentals of the Alberta electricity market. Pembina Institute, Calgary Economic Development, and Rocky Mountain Institute will host a webinar on March 7 to outline the potential opportunities of nonutility procurement of renewable energy in Canada.
Going forward, the Pembina Institute, Rocky Mountain Institute, and Calgary Economic Development will continue to work on creating a community that facilitates Canada’s transition into a low-carbon economy.
This blog post was originally posted on www.pembina.org