The Alberta electricity market : an analysis and price forecast

The electric power industry in Alberta is undergoing major regulatory changes. The industry will have completed the move from regulated to competitive markets by the beginning of 2001, creating new risks for industry participants. This study was undertaken to develop a long-term price forecast for the Alberta electricity market. With open competition, market forces will drive the wholesale market. The first part of this report presents a historical review of the power industry in Alberta and provides an understanding of the basic economics of power markets. The second part is more analytical, examining the supply and demand issues of electricity. Historic peak demands were illustrated and a peak demand outlook was presented. The supply of electricity to Alberta was also examined in terms of the resources that provide the existing capacity, imports and proposed electric power projects. A confidential survey of independent power projects was conducted and the results were used to examine in detail any new and proposed projects. It was concluded that market prices in the next few years will depend on excess energy, new capacity additions, and the behaviour of market participants. Over the long term, prices in Alberta will fluctuate as the power market progresses through the different stages of the business cycle. Excess generating capacity relative to demand will lower prices, while tight capacity relative to demand will increase prices. On average, it is expected that prices will reflect the all-in costs of new incremental generating capacity. Wholesale prices will probably range between $40 and $50/MWh if gas-fired capacity remains the choice for new power generating facilities. 11 refs., 36 tabs., 44 figs