On November 24, 2016 the Government of Alberta reached settlement agreements with the PPA Buyers of the Sundance A, Sundance B, Sundance C, and Sheerness PPAs. As a result of these settlement agreements, the Balancing Pool has assumed the role and responsibilities of PPA Buyer under the PPAs in accordance with the Electric Utilities Act.
On July 4, 2017 the Balancing Pool initiated a consultation process with representatives of consumers regarding the reasonableness of terminating the Sundance A, Sundance B and Sundance C PPAs.
As part of that process, the Balancing Pool released the following package to consumers: PPA Termination Customer Information Package.
The Balancing Pool conducted one face-to-face meeting with consumers and requested written feedback from consumer representatives. That feedback is contained in the following report: Balancing Pool Report.
On September 15, 2017, the Balancing Pool provided formal notice of termination for the Sundance B and C PPAs to TransAlta. The news release pertaining to this notice was made public on September 18, 2017: News Release Sundance Terminations.
The following information is provided by the Balancing Pool to answer the most frequently asked questions regarding the Sundance PPA terminations.
Sundance PPA Termination Questions and Answers
Q: Why are the Sundance PPAs being terminated?
A: The Sundance PPAs are losing significant sums of money in Alberta’s wholesale electricity market given low market prices and high PPA related costs. Financial analysis suggests the Balancing Pool could mitigate its PPA losses by $475 to $518 million by terminating the Sundance PPAs. Mitigating these losses is consistent with the Balancing Pool’s mandate to manage its generation assets in a commercial manner.
Furthermore, it is the Balancing Pool’s view that having offer control in the hands private market participants is more conducive to supporting a sustainable FEOC market than having the Balancing Pool continue to offer the related generation into the wholesale market.
Q: Why was the Sundance A PPA not included in the notice of termination given to TransAlta?
The Electric Utilities Act requires the Balancing Pool give the Owner of a PPA six months’ notice of termination. As such, the termination of the Sundance B and C PPAs will be effective March 31, 2018. The Sundance A PPA was not included in the notice to TransAlta because the PPA expires at the end of 2017.
Q: What will be the impact on electricity prices?
Electricity prices are the outcome of the competitive forces governing Alberta’s wholesale electricity market and, as such, are subject to uncertainty. The Balancing Pool hired an independent firm to generate market price forecasts as part of the termination analysis and these forecasts suggested prices may increase modestly by $2 to $4 per MWh following the terminations, with prices remaining far below historical averages and below the cost of building new generation in the market.
Q: What will the Balancing Pool do with the remaining PPAs?
The Balancing Pool will continue to evaluate the relative merits of terminating, holding, or selling further PPAs as circumstances and market conditions evolve. Should the Balancing Pool determine further PPA terminations are warranted, another consultation processes would be initiated in the future.
Q: Will the units underlying the PPAs be shut down?
When a PPA expires or is terminated, the underlying units may continue to operate in the power market. Following the effective date of the Sundance PPA terminations, the underlying units would be subject to the same market forces as any other merchant generating facility and the decision of whether or not to continue to run the units will rest entirely with the owner.
Q: Are the PPA terminations related to or affected by the province’s plan to phase-out coal fired generation?
The PPA terminations are unrelated to the coal phase-out and the Balancing Pool has no role in the phase-out. The last of the PPAs expire at the end of 2020 while the coal phase-out does not take effect until 2030.