Market Design for the 21st Century: Recommendations for Alberta’s Power Market

Abstract

Alberta’s electricity system is in transition. From a system dominated by coal generation less than a decade ago, Alberta’s electricity is now largely supplied by natural gas generation with an increasing share of variable wind and solar energy. Falling clean technology costs, federal clean electricity regulations and a rising carbon price will further shift Alberta’s supply mix away from unabated fossil fuels into one more reliant on a mix of renewables and new technologies, such as carbon-captured natural gas, small modular nuclear reactors and hydrogen generation. In this report, we consider future market designs fit for purpose for this changing electricity mix. We assess market design options based on the criteria of reliability, affordability, investor confidence and complexity. At the heart of the matter is the question of which approach is best able to deliver reliable and low emission supply at low cost to Alberta consumers. Importantly, we consider market designs suitable for the changing nature of 21st century grids with more variability on the supply side and more flexibility on the demand side. If the grid of the past involved forecasting demand and dispatching supply, increasingly grids of the future will flip this upside down by forecasting supply and dispatching demand. Alberta’s market design needs to both reflect and enable this new reality.