Energy Ink

Power Cost Hikes

Oil companies face sharp and prolonged increases in power transmission fees, which also hit oil sands green cogeneration power export projects.

December 15, 2015

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While Alberta’s oil companies scanned Paris announcements for carbon clobber, a less-publicized event happened back home that’s hitting them with up to a 30 per cent power bill hike by 2024: the province’s grid upgrade.

Two high voltage DC Calgary-to-Edmonton transmission lines are starting up, costing $3.5 billion – part of a total $13 billion program – and industrial users pick up more than half the tab. The Alberta Electric System Operator (AESO), which plans the transmission network, forecasts transmission costs will soar an eight percent per year average for the next 10 years. For big industrial users transmission fees typically account for 35 per cent of their bills.

Alberta is the fastest-growing jurisdiction for power demand in North America, installing more than 9,000 megawatts (MW) electricity generating capacity since 1998, which is set to double – and someone has to pay for it.

Two more lines will connect central Alberta to Fort McMurray – costing $3 billion. For every $1 billion invested in transmission, large industrial consumers will pay about $1.20 per MW-hour extra for their electricity.

An advantage of the new lines, planned under the previous government, is allowing southern Alberta’s solar and wind farms to transmit power to the north. In January, the current government is expected to unveil a program to encourage renewable energy. If it includes power storage incentives to overcome renewables intermittency problem, the resulting transmission fee hike plus storage combo may get industrial users off the grid.

Some oil sands operators are already ahead of the green curve. To boost efficiency they invest in cogeneration – combined heat and power (CHP) plants that simultaneously produce steam and electricity.

Imperial Oil’s Kearl mining operation’s cogeneration plant slashes 500,000 tons of CO2 it would have produced from purchased power. Not only do these plants create power self-sufficiency but they sell excess electricity to the grid. Imperial Oil will export an average of 150MW of cogeneration power when it starts up a plant by 1Q 2016 in its Cold Lake, Nabiye SAGD project. MEG Energy also sells surplus cogeneration power. More projects will roll in as transmission tariffs bite. Fort Hills Energy – Suncor Energy, Total, and Teck Resources – aims to bring its oil sands mining project’s 170MW plant on stream in 2017.

Cogeneration should boost profits and buy social license. bout 10 percent of the total energy used at Syncrude is produced from waste heat. But ironically, Alberta’s power market will punish oil sands producers for being too green – tariffs also whack those that export to the grid.

Oil firms are waiting for details from both Alberta’s government on its own climate-change framework and Canada’s international commitments from the Paris agreement, to determine the impact on their bottom lines. But the shocks of upgrading the province’s power infrastructure are already being felt.

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3 Responses to “Power Cost Hikes”

  1. John Clark says:

    I expected this kind of hype from power generators. Fact is they can anticipate a 25-35% increase in profits by switching to DC! Here’s why:
    AC uses a smaller diameter line. AC travels inside that line and an immense amount of power is lost though heat and radiation. EMF. iT is an art form keeping the power a flow that is needed. Any over produced power and there is a lot of it, is sent to Ground. Gone no profits.

    DC uses a larger diameter line. DC travels on the outside of the line and does not loose power though heat, friction or EMF. Power generators can define finitely what they should be putting out for no loss to ground while still covering demands comfortably. They only produce what is needed no more immense losses.

    There should be no increases if this Government is worth anything.

  2. John Clark says:

    I think AESO should comment to my post. In a capital system, power lines like nuclear energy has their biggest cost in financing the projects. Not unlike you buying your home.

    Worse case, they can borrow money at less than 2%. The majority of the lines in this province are paid for by taxpayers.

    I think AESO are dipping both sides of the US/Canadian border for a cobbled up excuse for charging a lot more money.

    There are over 1 million meters spinning in this province! That means 20 million a month income for whom? For What? That’s 240 million a year going back to what is basically a city own utility.

    The Conservatives invented indirect taxation when they went to this so called market system. AESO have a bunch of really fine thinkers and doers on their staff, I have the upmost respect for them. But,, who do they work for? Who is strapped for cash and its getting worse. Yes, ask AESO for a comment.

  3. Michelle Stirling says:

    Wait till the early phase-out of coal costs hit the province. Independent expert estimates $11.1 Billion compensation based on Net Book Value; to create equivalent coal capacity 8 x 800 MW natural gas plants must be built at about $1.4 Billion each; if adding more wind and solar there will be more transmission line costs. The lines south to wind farms from Calgary cost $2.2 billion – for this we get only 4% of our power. Good deal? NOPE. Then it also costs about $1 million/ MW to tie wind or solar in to the grid. Add onto that carbon taxes and the fact that natural gas is a market commodity with input prices about double that of coal and you have triple the power prices… Industry consumes about 75% of the power in AB. If more industry bails out of grid and sets up their own power plants (as many German companies did) then a heavier burden on consumers and smaller industry. Denmark runs on about 48% coal – can only put 17% wind on the grid and only because it has access to spill to Norway (hydro) and Sweden (nuke) – but that means all the renewables subsidies spill with it. Crazy idea. Renewables don’t add a thing, don’t address climate change, and become an insurance risk for grid blackouts. Why are we doing this?