Beatrice Lang
Alberta's electricity prices have been notoriously high and unpredictable in recent years, with the Regulated Rate Option (RRO) hitting an all-time high in 2023. The reasons for this volatility are multi-faceted, but key factors include the province's reliance on natural gas as a primary energy source, market changes, supply issues, and extreme weather events. The transition to renewable energy sources, such as solar power, is also playing a role in the fluctuating prices. The government has attempted to mitigate these price surges with measures such as capping electricity prices and providing loans to utility companies, but the future of Alberta's electricity rates remains uncertain.
| Characteristics | Values |
|---|---|
| Electricity prices in 2023 | Hit all-time highs |
| Electricity prices in 2024 | Stabilized |
| Electricity prices in 2025 | Forecasted to remain low |
| Regulated rate option (RRO) in 2023 | 29-33 cents per kWh |
| Regulated rate option (RRO) in 2024 | 11-13 times higher than natural gas prices |
| Regulated rate option (RRO) in August 2023 | 32 cents per kilowatt hour |
| Average fixed rate in August 2023 | 12 cents per kilowatt hour |
| Default electricity rate in 2025 | Replaced by the "rate of last resort" |
| Rate of last resort | 12 cents per kilowatt hour |
| Carbon tax impact | 0.3 cents per kWh |
| Electricity price cap under the Affordability Action Plan | 13.5 cents per kWh |
| Alberta's electricity prices surged by | 119.9% from January 2023 to January 2024 |
| Primary electricity generation source | Natural gas |
| Average floating rate in September 2024 | 5.251¢/kWh |
| Fixed rate average in September 2024 | 9.273¢/kWh |
| Regulated rate in 2023 | ¢19.8/kWh |
| Average fixed-rate plan in 2023 | ¢10.37/kWh |
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What You'll Learn
Alberta's electricity 'rate of last resort'
Alberta's electricity rates have been historically volatile, with prices fluctuating unpredictably. In response to this instability, the province introduced the "rate of last resort", effective from January 1, 2025, to provide some predictability for consumers. This rate of last resort replaces the previous default electricity rate, which was called the Regulated Rate Option (RRO) or the regulated rate.
The rate of last resort is intended to protect consumers from volatile electricity pricing and provide stability. It is set at a stable price of around 12 cents per kilowatt-hour for two years, ending on December 31, 2026. While this rate is higher than the current fixed rates available to Albertans, it offers predictability and shields consumers from sudden price spikes.
The previous default rate, the RRO, was often misleadingly associated with stability due to its name. However, in 2023, the RRO hit record highs, with prices surging to 29-33 cents per kWh. This surge was influenced by various factors, including delays in new power plant construction, increased electricity demand due to extreme weather, and the transition from coal to natural gas as the primary energy source.
The shift to the rate of last resort aims to protect vulnerable consumers from these unpredictable price spikes. While the government encourages Albertans to explore alternative electricity options with better rates, they have also been urged to intervene and assist those who cannot get off default rates due to financial constraints or poor credit.
Overall, the rate of last resort is a response to Alberta's volatile electricity pricing history, aiming to provide stability and predictability for consumers, especially those vulnerable to sudden price spikes.
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Carbon tax impact
The carbon tax has had a notable impact on electricity prices in Alberta, although it is considered a minor effect compared to other factors. The carbon tax adds approximately 0.3 cents per kWh to electricity bills. The current carbon levy price is $65 per tonne of CO2, and this cost is passed on to consumers as energy companies seek to offset losses. The carbon tax is applied at the point of carbon emission, which means electricity generators pay this tax as they are the main emitters of CO2. As the carbon tax price increases, so will the production costs for power plants, which will likely be passed on to consumers.
The carbon tax is a government policy designed to incentivize the transition to renewable energy sources, which are generally cheaper and more sustainable in the long run. Alberta is committed to this transition, aiming for net zero by 2050. While the carbon tax has a small impact on electricity prices now, it is projected to increase to $170 per tonne of CO2 by 2030, which will likely have a more significant impact on electricity prices in the future.
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Natural gas price surge
Alberta's electricity prices are high due to a surge in natural gas prices. This surge is caused by a combination of factors, including:
Geopolitical Events
The Russian invasion of Ukraine significantly impacted natural gas prices globally, and Alberta was no exception. As natural gas is Alberta's primary source of electricity generation, this contributed to the overall increase in electricity prices.
Increased Air Conditioning Use
Rising temperatures have led to more residents installing air conditioners. This has increased electricity demand during hot weather, particularly in 2021 when temperatures reached 40°C. The increased demand has put a strain on the electricity grid, leading to higher prices.
Carbon Tax
The carbon tax has added approximately 0.3 cents per kWh to electricity prices. While this impact is relatively minor, it contributes to the overall cost increase. The carbon tax is applied at the point of carbon emission, and electricity generators bear the cost as they are the main emitters of CO2. The increased carbon tax will lead to higher production costs for power plants, who will likely pass these costs on to consumers.
Transition from Coal
Alberta is in the process of phasing out coal-fired electricity generation, with plans to completely phase out coal by mid-2024. As a result, natural gas has become the primary source of electricity generation, increasing the demand and price of natural gas. In 2022, marketable gas production grew by 7%, and the AECO-C natural gas price rose by 51%.
Higher Inflation
Alberta's electricity prices surged by 119.9% from January 2023 to January 2024, 11.1% above the national average. This rapid increase has outpaced the overall inflation rate and contributed to the high electricity prices in the province.
While there are no quick fixes to the natural gas price surge, Alberta is taking steps towards a more sustainable energy future. The province aims for a 30% renewable energy contribution by 2030 and a net-zero electricity system by 2035. In the short term, consumers can explore options like solar power to counter the impact of rising electricity costs.
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Fixed vs floating rates
Alberta's electricity rates have been notoriously high and unpredictable in the past few years. The province has been slow to introduce new forms of electricity generation, causing a drop in supply and resulting in higher prices. The transition from coal to natural gas, wind, and solar as the primary energy source has also impacted the electricity market. The price of natural gas is volatile and susceptible to geopolitical events, such as the Russian invasion of Ukraine. Additionally, the carbon tax, aimed at incentivizing the transition to renewable energy sources, has increased the cost of fossil fuel-based energy.
Given the unpredictable nature of Alberta's electricity market, consumers are often faced with a choice between fixed and floating rates. Fixed rates offer cost certainty and protect consumers from sudden market changes, making budgeting easier. They are especially beneficial during times of price spikes or increasing prices. However, fixed rates might sometimes be higher than floating rates, and consumers might miss out on taking advantage of lower rates when the market fluctuates.
Floating rates, on the other hand, can offer the lowest possible rates when prices are low. However, consumers are also exposed to price spikes and can face surprisingly high energy bills. Floating rates are generally cheaper than fixed-rate options, but they come with the risk of unpredictable expenses.
In 2024, Alberta introduced a "rate of last resort," a stable price for two years, to provide some predictability in response to volatile prices. This rate is higher than what is typically available through fixed rates, and consumers are encouraged to explore other options to find the best rate.
When deciding between fixed and floating rates, consumers should consider their risk tolerance and budget preferences. Fixed rates provide stability and peace of mind, while floating rates offer the potential for lower costs but come with the risk of unexpected price spikes. Additionally, consumers should look at historical prices and forecasts rather than solely focusing on the cheapest rates at the time of signing a contract.
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Transition to renewable energy
Alberta's power system is undergoing a significant transition, moving away from coal-fired electricity and towards natural gas, wind, and solar generation. The province has completed its coal-to-gas transition, with the last coal-fired generator converting to gas in June 2024. This shift is driven by the provincial government's target of achieving net-zero carbon emissions by 2050, which aligns with Canada's broader commitment to net-zero emissions by the same year.
The transition to renewable energy in Alberta is gaining momentum, with remarkable growth in wind and solar energy generation. In 2022, Western Canada accounted for 98% of Canada's total growth in wind and solar, with Alberta contributing 1,391 MW of installed capacity. The Alberta Electric System Operator (AESO) predicts that renewables will make up 30% of the energy supply in the 2024-2026 period. This growth is supported by the province's competitive electricity market, attracting over $4 billion in private investment in renewable generation and energy storage projects since 2019.
However, there are challenges to the transition. Recent policies, such as the seven-month pause on renewable energy development in 2023, have been seen as hindrances. Additionally, proposed restrictions on renewable energy development could potentially prohibit development on 36-39% of the province's land, heavily focused on the prairie region, which is favoured for its abundant sun and wind resources. These restrictions, if implemented, could significantly slow down Alberta's transition to renewable energy and hinder its progress towards net-zero emissions.
Despite these challenges, Alberta is committed to its transition to renewable energy. The shift away from fossil fuels is crucial, as the oil and gas production sector is the largest emitter in the province, responsible for 59% of Alberta's carbon emissions. By reducing fossil fuel production and embracing renewable alternatives, Alberta can effectively decarbonize its energy system, mitigate the impacts of climate change, and improve the health and well-being of its residents.
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Frequently asked questions
A combination of factors, including extreme weather events, market changes, supply issues, and the carbon tax, have contributed to the surge in electricity prices in Alberta.
The carbon tax adds to the production costs of power plants, which then pass on the costs to consumers. The carbon tax is intended to incentivize a transition to renewable energy sources, which are generally cheaper and more sustainable.
The shift from coal-fired electricity generation to natural gas and renewable sources has impacted the electricity market in Alberta. The demand for natural gas has surged, causing an increase in prices. Renewable generation has helped stabilize the energy market by providing additional supply to the Alberta electrical grid.
Consumers in Alberta can consider switching to a fixed-rate plan to protect themselves from price fluctuations and sudden market changes. Embracing renewable energy, such as solar power, can also help to counter rising electricity costs driven by gas price increases.
