How Alberta’s electricity generation market works
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. Once the total demand for power is met, the market pays all suppliers the price of the highest dispatched offers.
Economic withholding
During periods of relatively high demand, suppliers may choose to offer some or all of their electricity at a very high price to recover fixed investment costs. This offer strategy results in higher pool prices and is referred to as economic withholding.
If the AESO is unable to balance supply and demand with lower-priced offers from other suppliers, progressively higher-priced electricity will be dispatched and increase the pool price for that hour. Alternatively, if the AESO is able to meet electricity demand from lower priced sources, then higher priced energy will not be dispatched, and suppliers will not be paid for it.
As of July 1, 2024, the Government of Alberta has enacted two temporary regulations to limit this strategy.
The Market Power Mitigation Regulation limits the offer price for large natural gas generators if total monthly revenues exceed a predetermined threshold.
The Supply Cushion Regulation gives the AESO the ability to direct some slow starting natural gas generating units online ahead of an anticipated need.
Both regulations are scheduled to expire and will be replaced by long-term permanent measures in November 2027.
The electricity generation market is competitive, requiring suppliers to offer prices based on reasonable projections of supply and demand factors. If the Market Surveillance Administrator (MSA) believes that suppliers are acting in a manner that does not promote a fair, efficient, open, and competitive market, it will launch an investigation that may result in fines.
Suppliers must price their offers to the power pool at a level that is sufficient 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.
