How Alberta’s Electricity Generation Market Works
In Alberta’s competitive, energy-only market design, electricity suppliers submit offers into the energy market (also known as the power pool) every hour. The Alberta Electric System Operator (AESO), which manages the power pool, dispatches the suppliers’ electricity starting with the lowest-priced offers and selecting progressively higher priced energy until the supply for that hour meets Alberta’s demand.
Because suppliers are only paid when the energy they produce is actually dispatched, they forecast competitive prices for their electricity before offering it into the power pool. Once the total demand for power is met, the market pays all suppliers the price of the highest dispatched offers.
Video: How the Alberta Electricity Market Works
At times, some suppliers may hold back all or part of their electricity supply from their various power plants by offering it into the market at a high price (up to a maximum of $0.999/kWh) with the goal of increasing the pool price. This offer strategy is called economic withholding.
If the AESO in unable to meet the supply-and-demand balance with lower-priced offers from other suppliers, progressively higher-priced electricity will be dispatched and increase the pool price for that hour.
Suppliers may use the economic withholding strategy to try increase the pool price and increase their profit. However, if the AESO can meet electricity demand from lower priced sources, then higher priced energy will not be dispatched and suppliers will not be paid for it. The electricity generation market is competitive so suppliers need to offer prices based on reasonable projections of supply and demand factors. If the Alberta Utilities Commission (AUC) believe that suppliers are colluding to raise costs and their profits, it will launch an investigation that may result in fines.
As their main source of revenue, suppliers need to price their offers to the power pool to recover all of their costs, including both variable operating costs (such as fuel and labour) and the fixed capital investment made to develop power plants.