The Alberta market has seen a strong investment in wind and solar over the last five years, with over 7.5 GW of wind and solar installed at the end of 2024. The pace and magnitude of the investment is significant, considering Alberta’s peak load is ~12.3 GW. Rapid renewable adoption has put stress on the current market design. Alberta currently has a real-time energy only market with a $1000/MWh price cap, combined with a single zone price supported by an unconstrained transmission policy. Alberta’s changing supply mix and evolving market dynamics have caused the need for electricity market reforms to ensure a safe, affordable, and reliable system. In response to the rapid changes, in 2024 the Government of Alberta (GoA) requested that the Alberta Electric System Operator (AESO) propose a high-level design for a Restructured Energy Market (REM). To tackle the issues described above, the AESO’s proposal focused on four key elements:
- A market power mitigation framework to prevent excess returns over the course of a year.
- A financial day-ahead market combined with a day-ahead commitment (DAC) product.
- Additional reserve products to help with system ramping.
- Increasing the price cap above $1,000/megawatt-hour (MWh) during supply scarcity to support long-term investment and ensure fixed cost recovery, combined with administrative scarcity pricing.
E3 was commissioned by the Alberta Electric System Operator (AESO) to perform an independent quantitative assessment of the AESO proposed Restructured Energy Market (REM) design. E3 was asked to provide expert modeling, views, and opinions on the anticipated prices, dispatch, market efficiency, and revenue streams of all elements of the proposed design. E3 also forecasted the long-term build and ability of the market design to achieve the AESO core market design pillars of affordability, reliability, decarbonization by 2050, and reasonable implementation under the proposed market design.
The study found that the proposed REM design may result in an incremental 900 MW of combined cycle gas turbine with carbon capture and storage (CCS) above the status quo, facilitated through additional reserve products, the increased price cap, scarcity pricing, and the novel day-ahead commitment market. The study also found that, to obtain improved reliability, overall system costs were likely to increase to facilitate the corresponding investment. Another key finding was that market returns under the proposed REM design are supportive of investment to 2035. However, after 2035, the expiry of Canada’s renewable investment tax credit (ITC) has a strong impact on the returns of CCS, wind, solar, and storage impacting the ability to meet decarbonization goals. The study has been released with a public data set and detailed report that highlights many of the REM design impacts to all asset classes, which can be found in full here.
As a part of the market design process, the AESO held a series of stakeholder consultation “sprints” from September – December 2024. E3 presented the results of the report in Sprint 5 in November.
Download the full study.
This report was prepared by Stuart Mueller, Grant Freudenthaler, Arne Olson, Zachary Ming, Hugh Somerset, Clement Messeri, and Will Beattie.
