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How Old Plants, New Plants and Bitcoin are Reshaping the Alberta Energy Market

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In recent years, Alberta’s electricity market has been buyer’s choice. Prices have been at historic lows, and large energy consumers have seen a difference in their bottom lines. 

With ample energy supply to meet demand, prices trended downward. Many businesses capitalized by shifting more of their power load to variable-rate solutions. As rates fell, so did the monthly energy bill. 

In 2018, however, those same business owners might be getting sticker shock. Why? Alberta’s energy marketplace has transformed dramatically this year. The province has suddenly found itself with both less electricity to go around, and high demand among more energy consumers. 

What’s changing in Alberta markets?

Less Electricity Supply

Like much of North America, Alberta faces the challenge of aging, inefficient energy infrastructure. And upgrading decades-old equipment can be both financially and environmentally challenging. 

In 2018 alone, four coal-fired power plants were taken offline. Together, these plants represent 1,334 megawatts of capacity and 8 percent of the entire Alberta market. With no new plants currently scheduled to go online, Alberta’s energy supply has taken a big hit.  

More Electricity Demand 

At the same time, energy demand is climbing. Load growth over the last decade averages over 1.7 percent, with growth of 3.7 percent year-to-date in 2018. That’s two times the historic provincial growth rate.

What’s causing the boom? 

The oil and gas industry is still rebounding after a detrimental fall of crude oil in 2016 to less than $27 USD per barrel. This crash stalled industrial activity and development in Alberta, throwing them into a recession. With crude trading now between $60-70, activity is starting up again and, in turn, industrial demand is increasing.

Electricity demand is also on the rise due, at least in part, to two new businesses in the region.

You’ve probably heard about Bitcoin. It’s a decentralized form of electronic currency that has become increasingly popular in Alberta and many other locales. If you understand the complex cryptography Bitcoin uses to make transactions (called “blockchain”), then you’ll also understand why Bitcoin’s operations require an immense amount of computing power and, of course, electricity. 

Areas with an abundance of low-cost natural gas, like Alberta, have become popular spots for Bitcoin “mining.” Oil and gas companies are extracting energy and selling it to Bitcoin operators, who use the power to feed the blockchain that supports the cryptocurrency. The more computing power that Bitcoin operators feed into the blockchain, the more Bitcoin they create.

But Bitcoin isn’t the only new energy user taking up a large portion of demand.

Medical and recreational cannabis are both becoming legalized in Canada, and this has spurred development of new energy-intensive production facilities. Some facilities are so large that they would span the length of a couple of dozen football fields. This power-hungry industry seeks locations where they can acquire large quantities of electricity at a competitive cost. 

The Bitcoin and cannabis industries have made a pretty large impact on energy demand. Combined with the impact of recoveries in the oil and gas industries, Alberta’s power load has grown by about three percent over the last two years.

What it means for Alberta businesses

With increased energy demand and less energy supply due to power plant mothballing and retirements, Alberta’s energy marketplace has become more expensive—and volatile. 

For example, the average power pool price in August of 2018 has ranged from a low of around $34/MWh per day, all the way up to nearly $280/MWh per day. On August 9, 2018, they hit their price cap of $999.99/MWh. 

It’s likely that Alberta will continue to experience tight market fundamentals with higher and more volatile prices for the next two to three years. There can be no relief until new generation comes online – and this is not expected until 2020 or later.

Consumers who may have previously saved money by floating most of their energy load on a variable rate are especially vulnerable in today’s more volatile power markets. 

“Large energy consumers should consider taking action to protect their energy budgets in this more uncertain environment,” says Ana Avramovic, Direct Energy Business Development Manager for Alberta. “It may be worth paying a price premium for a fixed rate, which will protect you in the long- and short-term from climbing market prices; or at least consider shifting part of your load by partially and strategically hedging. It’s time to move away from an index mentality and embrace the benefits of a fixed rate.”

With new volatility in the Alberta energy market, consumers should revisit how they use and pay for power. In fact, a strategic energy supplier may be more important now than ever in recent years. 

Direct Energy Business is here to offer innovative energy buying options that can protect your budget – in Alberta’s volatile market and wherever you do business. To view solutions for businesses located in Canada, click the button below and verify your location at the top of the page.  

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Posted: September 20, 2018

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