Canadian Electricity: Insights from Jason Chee-Aloy from Power Advisory
This week on the podcast, our guest is Jason Chee-Aloy, Managing Director at Power Advisory LLC. The firm provides expert consulting services in the electricity sector across Canada and the United States.
A new report from CanREA and Dunsky forecasts a rapid build-out of new electricity generation across the country. With this growth forecast in mind, Jason shares his insights on several major new electricity generation projects shaping Canada’s power landscape — including the planned hydropower dam expansion along the Churchill River by Quebec and Newfoundland and Labrador.
Jason, Jackie, and Peter also discussed the proposed Wind West project in Nova Scotia, where the province estimates its offshore wind potential could exceed 60 GW of capacity, with up to 40 GW of dependable output.
In addition, Jason provides an update on Alberta’s ongoing electricity market redesign — the Alberta Restructured Energy Market (REM) — following the release of the Final Design document from the Alberta Electric System Operator (AESO) in August.
Content referenced in this podcast:
- Canada’s Renewable Energy Outlook 2025 by CanREA and Dunsky
- Wind West Plan by the Nova Scotia Government
- Alberta Electricity System Operator (AESO) Restructure Energy Market Final Design (August 2025)
- Alberta Electricity System Operator “MPA Independent Assessment of the REM Design” (August 2025)
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Episode 301 transcript
Disclosure:
The information and opinions presented in this ARC Energy Ideas podcast are provided for informational purposes only and are subject to the disclaimer link in the show notes.
Announcer:
This is the ARC Energy Ideas podcast, with Peter Tertzakian and Jackie Forrest, exploring trends that influence the energy business.
Jackie Forrest:
Welcome to the ARC Energy Ideas Podcast. I’m Jackie Forrest.
Peter Tertzakian :
And I’m Peter Tertzakian. Welcome back. Well, it’s a little bit of a sad welcome back.
Jackie Forrest:
Yeah, the Jays didn’t win and the Dodgers did, but it was still really exciting to see everyone across the country get excited. And man, they did well this year to get that far.
Peter Tertzakian :
Yeah, they sure did. And they sort of catalyzed the nation, and that’s what we like to see. Although I must admit I’m still an Expos fan.
Jackie Forrest:
Who are those? So onto energy news, we realize that the budget is being released the same day that we’re releasing this podcast, but we did record the podcast prior to the budget. But the good news is we will be looking at what is in the budget on our next podcast. So tune in for that next week.
Peter Tertzakian :
Tune in next week. Yep. Okay. So what do we got here? We’ve got Dunsky report that you want to talk about.
Jackie Forrest:
Yeah. So we wanted to talk about the growing outlooks for electricity growth in Canada. And I wanted to highlight CanREA and Dunsky recently have a report. We will put a link to it in the show note. But they’re looking at really big growth. So just to give you some perspective, Canada’s installed capacity for generating electricity right now is 150 gigawatts, and they are predicting that it will grow by 70 to 100 gigawatts in the next decade. That’s like a 50 to 70% growth compared to today. And wow, that’s a lot of growth.
Peter Tertzakian :
Well, I’d say it’s not only a lot of growth from a percentage perspective, but contextualizing it for our audience is important. And the rough rule of thumb that we can use is that one gigawatt is like one nuclear power plant of size. So if the installed capacity is the equivalent of 150 nuclear power plants, and we’re going to grow by 70 to 100, I mean, this is serious growth.
Jackie Forrest:
It is. And we say it’s raining gigawatts across the country. There’s big procurements in many of the provinces for new power generation. But I went and added up all the nukes that are being planned for Ontario, all the announcements around Quebec, including all the wind they want to build, and BC and Atlantic Canada, and I get about 40 gigawatts, so maybe possible. Oh, and that includes that Churchill Falls, by the way, that really big hydro dam. So we still have projects that we don’t even know about that we’re going to need in the next 10 years. And you know how long it takes to build things in Canada. It takes generally, well, it used to take a long time.
Peter Tertzakian :
Hopefully shorter. Hopefully shorter. Yeah. But you look at that major projects list that, well, the original one that was speculated on or leaked, however you want to think about it, by the Globe and Mail in September, that there’s potentially 32 projects that are going to be in there. Of course, five were announced not long ago, but of the 32 projects that are being speculated, eight, or one quarter of them were electric generation or transmission projects.
Jackie Forrest:
Right. So they are anticipating that we do need a lot of help, and a lot of the ones that have been identified are the really big, more difficult ones.
Peter Tertzakian :
Yeah.
Jackie Forrest:
So I think we need to understand better if this is all possible.
Peter Tertzakian :
Well, we do. Because electrification was a broad theme before the whole AI rage and craze. And electrification was largely a theme on the clean energy, climate change, energy transition theme. But now it’s very much driven by data centers and the need for electrification to drive our voracious information needs.
Shall we phone another friend? Our guest this week is Jason Chee-Aloy. He’s the Managing Director of Power Advisory LLC. He is one of our country’s top electricity market experts, based in Toronto, land of the Blue Jays. He’s got 25 years of experience in competitive and regulated electricity markets across the country, and indeed in the United States. Welcome, Jason.
Jason Chee-Aloy:
I’m really pleased to be here. Thank you, Peter. Thank you, Jackie.
Jackie Forrest:
Well, hey, thanks for making some time. I know you’re very busy these days with all these generation projects on the go. But maybe for our audience that aren’t familiar with Power Advisory, you could tell us a little bit about yourself and the firm.
Jason Chee-Aloy:
Sure. Well, we’re an electricity management consulting firm. We’ve been around since 2007. We have over 30 consultants with offices in Toronto and Calgary, and we have a bunch of our consultants located just outside of Boston, with one person in New York City and one person in San Francisco. So think of us as a mixture of energy economists and electrical engineers that do power system planning and financial analysts, but we also understand policy. A lot of us work for regulators and system operators. So we put that all in the soup of advice, and we act for lots of global, continental, and national clients.
Peter Tertzakian :
So Jackie rattled off a whole bunch of growth stats at the beginning of the podcast. What do you think of those numbers, 50 to 70% highers? And what is driving the demand here in Canada? Is it the same thing that’s driving demand in the US?
Jason Chee-Aloy:
Well, they’re definitely daunting. It’s all the same theme. It is increased demand with respect to electrification and all the regular types of influences, like economic growth and population growth. I think of these forecasts as really driven more so by the need to replace infrastructure, retired generation. I think Ontario’s the best example of that. Ontario built three nuclear projects all at the same time, totaling about 13,000 megawatts. That means they have to be retired all at the same time.
And we’re at the point in Ontario of refurbishing two of the sites, Darlington and Bruce. The real example is the Pickering facility that’s scheduled to retire completely by the end of 2026. So I think every forecast is just that. It’s a forecast. I think that the way to look at these things is to really look to some of the utilities and the authorities that are producing the forecasts. So Hydro-Quebec, they’re forecasting a need for lots of power, and same for the Ontario Independent Electricity System Operator, or IESO. So those are Canada’s two biggest electrical economies. And those markets are forecasting a need for a lot of power based on the demand forecast, but also driven by the retirement of generation.
Jackie Forrest:
And how much is hydro part of that? We keep hearing that the hydro assets are not maybe producing as much as they used to. Is that part of it as well?
Jason Chee-Aloy:
It’s part of it. Hydro is a resource that’s great, but it does need to be managed. And for example, Hydro-Quebec does a really good job at that. There’s lots of different types of hydro, run of river, stuff that’s providing constant baseload supply of energy. There’s also hydro that can be stored, and there’s lots of natural storage in Quebec. And there’s hydro that will be used during the peak demand periods within a year.
So you want to make sure that you use the energy when you most need it. But the system is getting more stressed, not just because of increased demand, but the demand patterns are changing. Life, operating a power system is becoming more volatile. More extreme weather, resiliency, balancing the grid, and doing that in real time minute by minute. So as we see all of these factors just kind of coalesce and come together, the reality is we need all of the resources we have. We have to maintain the resources that we have, and have them not retire early. But then incrementally we need to develop more. And that’s where the massive infrastructure build comes in.
Peter Tertzakian :
And that infrastructure build is obviously affected by politics and policy regulation, which we talked about earlier. So when I think about hydro, it’s BC, Manitoba, Quebec, and Newfoundland and Labrador. So going to Quebec and Newfoundland and Labrador, we’ve got a new government in Newfoundland and Labrador. What does that do to the often contentious relationship between Quebec and Newfoundland and Labrador, and the building of the, say, is it four gigawatt expansion of the Churchill Falls Dam?
Jason Chee-Aloy:
I think politics are always involved in electricity. There’s no doubt about that. Because it’s such an input commodity into our livelihoods and to our economy. We always need to consider that, and I’ll speak to that in more commentary in a second. But I also think that things come back to fundamentals. So specifically fundamentals to maintain the grid and fundamentals in terms of what’s a cost-effective source of supply.
I think the deal between Newfoundland Labrador Hydro and Hydro-Quebec is an outstanding one. Given its history, for $225 billion to be on the line, I think that is pretty fundamental. It’s fundamental to the livelihood of Newfoundlanders and Labradorians in the future. It’s also fundamental because Quebec, as we just described, needs lots of supply. So my point now being, even though with those election results, I do believe that the new conservative party is going to have an independent review of the memorandum of understanding that was executed back in December last year. I think the deal is too good and it’s too important for it not to happen, both from an economic point of view for the Province of Newfoundland and Labrador, but also from the supply need point of view regarding Quebec’s electricity needs.
Jackie Forrest:
And it’s also one of those major, well, it’s rumored to be one of those major projects. And I don’t know why it wouldn’t be because of its size, because of the need of the generation. And the CapEx, I think it’s something like a $30 billion potential project between the transmission and generation. So it’s got to rate up there in terms of projects we need in terms of nation building.
Jason Chee-Aloy:
Yeah, absolutely. I can’t think of a bigger deal in Canada’s history. It’s 9,200 megawatts, 9,300 megawatts. I know the new build in terms of incremental capacity is 3,900 megawatts to go along with the existing supply from Churchill Falls. I’m really excited about it. And that’s why I think that this deal, and why I just claimed that I think this deal will happen, is extremely important for nation building. It’s important for electricity infrastructure build.
And I think it has the potential to show the way and really be the spearhead when it comes to unlocking regional electricity supply. My prediction is that’s going to happen first in Atlantic Canada, then seep into Eastern Canada, and then hopefully Western Canada will see what’s going on with its east cousins, and liberalize the entire region when it comes to electricity supply and transmission build out.
Jackie Forrest:
Okay. Well, you just mentioned you think it’s going to start in Atlantic Canada. So we haven’t talked about this proposed Wind West project on the podcast. And for some of our listeners, it might be new and it’s massive. It actually is massive. Much, much bigger than Churchill Falls. The Nova Scotia government is saying that they have the potential for over 60 gigawatts of capacity in the provinces offshore, with 40 gigawatts described as dependable. Just for context, remember Churchill Falls was like four gigawatts, and we only have a 150 installed capacity in the entire country of all generation types. So this is almost equivalent to a little less than half if it was fully built out. Just describe the scale of this proposed project, including the transmission, and then maybe just talk about this dependable output. We always think of wind as intermittent, and how is it dependable?
Jason Chee-Aloy:
Well, I’ll take that one on first in reverse order. The capacity factor, the ability for the facility or the project to actually produce energy is really, really high. The wind speeds, especially off of Nova Scotia, are world-class. So that means on balance, you can expect the projects to produce energy 80% of the time, which is a lot more effective, a lot more efficient, and a lot more capable than wind onshore. Now wind onshore has its place too. So the reality is how do you harness that? And if you go back to the points that we talked about earlier regarding the massive need of supply, and especially given my points zeroing in on Quebec and Ontario, that is a really, really opportune resource in Atlantic Canada, offshore wind.
And I think the way to look at it is, while numbers like 40 gigawatts and 66 gigawatts have been thrown out, I think those are all aspirational to the point of we’re going to work towards realizing if we can do all of that. In any way, shape or form, I think the most prudent way to look at this, and I think this is what’s going to happen, will be a staged approach to build out its potential. So think about the first two to three gigawatts and having a process to secure the leases, which is about to start on a competitive basis. There’s already a lot of discussion regarding how might the transmission be built and who might build the transmission, whether it be subsea or on land, and ultimately who’s going to buy all that power.
And given what we were talking about earlier, I think it makes sense for Quebec to really take a strong look at that. And as I said also previously, the spearhead being Churchill Falls with the new developments at Gull Island, with the deal with Newfoundland Labrador Hydro and Hydro-Quebec, I think that shows the appetite of Hydro-Quebec and Quebecers to look beyond their province and to maybe purchase electricity in large supply.
So I think that’s the way to look at that, that first stage. And then my last point would be, over time, we’ll have a better sense of the success of Ontario’s nuclear program, and whether some of that Wind West supply might make its way to Ontario. And I think even more excitingly, once when the dust settles, because it inevitably has to, between Canada and the US, the New England states are starving for energy. And that’s because there’s no plans to build nuclear of any sort of scale in New England. They can’t build lots of natural gas fired generation because they can’t build pipelines for various reasons into New England. Their resources aren’t the same as, say, in Canada with the amount of hydro. So they need supply from offshore wind. They’re either going to get it off of their own coasts and/or off of the coasts of Nova Scotia.
Peter Tertzakian :
I always like to, as I said, put things in perspective here. So I’m going to do it again to give people a sense of scale. And the term you use, Jason, aspirational, which is, let’s say it is a 60 gigawatt. So just doing what I love to do, which is the typical back of a napkin calculation. So if one big modern offshore wind turbine is roughly 20 megawatts, five of those make 100 megawatts, 50 make a gigawatt. To get to 60 gigawatts, you need 3,000, which would be like installing one everyday and a half for 10 years or something like that.
And I’ve seen these things off the coast of Scotland. I’ve taken a boat out to them. It was very exciting. And just the supply chain, including upgraded ports that are required to handle these massive blades and stems and things is just huge. So I agree with you. Let’s start off small at three gigawatts, which would be even 150 of these things, which is still pretty big. How are people thinking about the whole supply chain of building these things out at such a rapid pace, which even aspirationally seems unrealistic frankly?
Jason Chee-Aloy:
Yeah. And I think it really comes down to how you define pace. And one person’s rapid is one person’s slow. So I think the way to look at this is roughly two to three gigawatts every 10 years. To me, that is the right pace to which you can deploy the supply chain, establish the supply chain, and actually bring the energy to market, and have the transmission also be built lock in step with that time. And you’re learning as you’re going along.
So I think there’s a couple of important points. Number one, assuming a province like Quebec, which I think they will be interested in such supply, that’s a play that should be explored right now. Assuming that can get done, you’re now looking beyond the next 10 years. So the first one being 2025 to today, to in service by 2035. Three gigawatts. Arguably supplying Quebec. Now look at the next three to five gigawatts from 2035 to 2045. And that’s right when we’re going to have a better sense of whether all this nuclear is going to be built in Ontario. There’s about 14,000 megawatts or 14 gigs planned. 2035 to 2045, sure to God, hopefully the dust will settle between Canada and the US. And the supply need is still the same. It’s probably even going to grow even more in New England. By then, it might make a lot of sense to rehash what we looked at before. There was an old Atlantic Link Project connecting Atlantic Canada to New England. And then we can start to think about CMC HVDC transmission cable that way.
And my second point now is, if we go with that cadence, we’re allowing supply chain to be developed, but we’re allowing the supply chain to continue to support development of these projects. If we can see 20, 30, 40 years of consistent development, you’re minimizing the boom bust with respect to all the supply chain needed in Atlantic Canada to actually help support develop these projects. That may not be rapid. I think, but in the world of building big infrastructure, that might be somewhat rapid, but I think that’s the way to look at this whole project is over the course of at least 30 years to get it off the ground for all 15 to 20 megawatts.
Jackie Forrest:
Except that, if I go back to that Dunsky report, we need something like 70 to 100 in 10 years. So this is just going to be a small drop in the bucket towards that.
Jason Chee-Aloy:
Well, I think that’s where we need the all and everything approach. I do believe that we’re going to work really hard to maintain our existing generation fleets. And I think that’s why we’re refurbishing nuclear in Ontario. There’s a bunch of other projects around the country that I believe will be referbed. I think we’re going to see new nuclear. I think we’re going to see new hydro. I think we’re going to see onshore wind, offshore wind. I think we’re going to see more gas fired generation. I think we’re going to see a lot of distributed energy resources all over Canada. I think it’s going to be all hands on deck, and this is just going to be part of it.
Jackie Forrest:
Okay. Well, let’s come to the cost because each of those generation types that you just listed off have a different price. And this Wind West idea has been criticized because people view it as expensive. So the Nova Scotia government, and we’ll put a link to this in the show notes, they put out a strategy document around the project. And they estimate the cost of delivering electricity, when you consider transmission and everything, would be $170 per megawatt hour, including the government subsidies. It’d be more if you didn’t have the investment tax credit. They’re also taking advantage of low interest financing from the Canadian Infrastructure Bank. This seems pretty high compared to onshore wind. I think onshore wind would be way less than half of that. So why should we go ahead and develop this when it’s so expensive?
Jason Chee-Aloy:
It’s because we need everything again. And now let’s unpack the timelines that I just went through. Okay. If you’re not going to commercialize, or you can’t commercialize the first stage of offshore wind until roughly about 2035, we have supply problems and needs now across the country, led by our two biggest electrical provinces, Ontario and Quebec. So both Ontario and Quebec as the example, right now are in the process of procuring some of those resources you just mentioned, Jackie, onshore wind. I’ll add to that, solar, gas fired generation, just to name a few.
Assuming a bunch of that is procured and it’s developed over the next four to seven years, and there’s continual procurement of that. By the time you get to 2035, you still need more. So what I think is going to happen is, if you will, all of the low hanging fruit in terms of onland projects that can be done at the most cost-effective prices, wind, solar, gas fired generation, even others, like I said, DERs, you still need more.
So the point is once when you’ve saturated all the low-hanging fruit, given all the restrictions with respect to siting, permits and approvals, grid connection, all of that, you’re automatically into the next level up in terms of cost. So I think the right way to look at offshore wind is on par with what’s the cost of nuclear, both conventional and small modular reactor, SMR. What’s the cost of green field, large-scale hydro. Especially looking at that in provinces like Quebec. For example, the Grande Baleine project. And how much would that cost?
If I really relate it back to what I said earlier about the nation building, Newfoundland Labrador Hydro and Hydro-Quebec, I believe the biggest reason why that MOU was executed was Hydro-Quebec’s desire to develop Gull Island. Why? It was the best next project they can get their hands on rather than to develop their own inside of Quebec. And part of it is because of cost.
So to recap, the way to look at offshore wind, if $170 a megawatt hour is correct, we need to look at it versus what’s the cost of SMRs, and conventional nuclear in Ontario, and what’s the cost of doing utility scale, big transmission connected hydro in Quebec? And for me, that’s all in the same price level.
Jackie Forrest:
Right. Yeah. And the independent electricity system operator in Ontario actually estimated just those SMRs were about 150 per megawatt hour. So it is in the range, and that’s assuming they don’t go up in cost from their initial estimate, and nuclear tends to do that.
Peter Tertzakian :
Yeah. But I think there’s too much emphasis on cost today. As Jason’s pointed out here, this is the long game we’re playing. I mean, do you think China is looking at the cost today in their multi-decade plan? No. They’re strategically building. And further to the podcasts we’ve had in the past, I mean, this goes beyond just pure profit and loss type calculations. These are projects that are long-term in the national interest. So I actually bristle a little bit at people who just exclusively focus on near-term costs, and say, “Oh my God. No, that’s way too expensive.” You got to look at the big picture, contextualizing not only in time, long-term, but also across all dimensions of energy. As Jason pointed out, it’s all of the above. I mean, I certainly subscribe to that.
Jackie Forrest:
Hey. And on budget day, big deficits from Peter.
Peter Tertzakian :
Well, I mean, again, put it in perspective of you’re going to spend $10 billion today, but maybe it’s amortized over 40 years in terms of the payback or longer. I mean, the hydro dams, some of them that have been built in Ontario are over 100 years old, and they’re still producing.
Jason Chee-Aloy:
Absolutely. We’re just living in an opportune time right now, right? Bill C-5, Major Projects Office. I think we all know Dawn Farrell, Prime Minister Carney, Minister Hodgson, Michael Sabia, I mean, these aren’t typical civil servants. They’re not typical politicians. We have a bunch of people in power that could really affect change and help infrastructure be built, and play that bigger game, play that longer game to the benefit of Canadians.
Jackie Forrest:
Okay. Well, hey, I just quickly want to touch on talking about Bill C-5. The major project list that did come out so far, the one in September, actually described this project differently. It had its five projects, and then it had some additional strategies that it wanted to advance. And one was called Wind West Atlantic Energy. And it was much a larger scale. It talked about not only the potential for offshore wind in Nova Scotia, but across Atlantic Canada, connecting renewables, emission-free energy to Eastern Atlantic Canada. I mean, I got the thinking it was more like the Atlantic loop, which was such a large project because it was talked about for a decade, but it was such a broad scope that nobody could agree on it and it just didn’t happen. Is there a danger with the feds coming in here and making it a broader scope that it becomes harder to achieve?
Jason Chee-Aloy:
I don’t think there’s a danger. I think it actually helps simply because the way electricity is governed and regulated in Canada, it’s largely a provincial matter. We’re not talking about provincial matters right now. We’re talking about matters of national interest. And we’re talking about servicing sink markets that are huge like Ontario and Quebec from source markets that are outside of those provinces that are existing in Atlantic Canada.
So the feds automatically have jurisdiction over transmission, and that’s the elixir. That’s the thing that really needs to be talked about is how are we building the transmission? And that’s where the feds can really come in. And I think that’s why the Atlantic Loop kind of failed because I think at the time it was a process where the utilities were really trying to work together. I think they put their best foot forward. But at the end of the day, what I think is needed is a single arbiter. And that’s, to me, the federal government.
Peter Tertzakian :
I’ve got to ask this question because it’s important. I think you’ve somewhat answered it already when it comes to the East Coast opportunity, the East Coast electricity infrastructure development, whether it’s onshore or offshore hydro, whatever. But the Trump administration is decidedly anti-wind. And so what are the implications of that? And especially anti-offshore wind on the East Coast. So what are the implications of that for us?
Jason Chee-Aloy:
Oh, I think it’s a massive potential win for us. And we’re seeing this right now. Our firm has been very active with offshore wind in the US, and that market is crawling to a screeching halt. And what’s happened is some companies have let go some people that are very highly specialized. And then now they’re starting to say, well, wait a second. The federal government, along with the government of Nova Scotia, have established a regulator. And the regulator recently said, “We are going to start the pre-qualification process to competitively select developers with respect to offshore leases.” So those companies are all engaged right now in better understanding that process and the opportunity for offshore wind in Nova Scotia. So to me, we’re getting a list that way.
Jackie Forrest:
Right. Well, that’s good news because those folks and that capital, we’re going to need a lot of external capital, I think, to build. You didn’t get to that, Peter, how to raise the capital for a project of that scale, like 60 billion, even if it’s over decades. Okay. Well, we’re going to learn more. We’ll look to this pre-qualification process and any news that comes out of it as that comes out.
But I wanted to, since we had you on the podcast, talk about Alberta, I wanted to remind everyone, in March, we had an episode and it was titled A Costly Mistake, Alberta’s Electricity Market Redesign. And at that time, we had a lot of negative feedback from all sorts of stakeholders, all types of generation, saying that the proposed changes to Alberta’s power markets were going to make Alberta’s electricity system more expensive and less reliable.
And since then, the Alberta Electricity System Operator, the AESO, announced that they are going to rework the design and they pushed the timelines out. And in August, they actually released what they’re calling their final design. And I will put a link to that in the show notes. Okay. I’ve had a look at this final design, as I’m sure you have, Jason. And while it has many changes, I can’t say it’s any more simple. In fact, I think it’s way more complex than the first design. I’m not going to get too wonkish on this, but just to give people an idea of some of the terms in this document, we are going to have LMP, or local marginal pricing, ALP, or Alberta load pricing, higher price caps. The day ahead market is gone, but now we’re having a day ahead operating reserve. It has multi-interval optimization, nodal dispatching, ramping products. Wow, it’s really hard for me to, even as someone who’s kind of lives this stuff, to understand what this all means.
Peter Tertzakian :
Just a sec. I got to put this in Google Translate to try to figure out what the hell it all means.
Jackie Forrest:
Yeah. So what’s the general feeling about this design? Is it improved? And most importantly, will it enable independent power producers to come to this province and invest in new generation?
Jason Chee-Aloy:
Well, unfortunately, there’s just two different answers to that. I mean, the answer is, yeah, the design has improved, but it’s improved because it’s more consistent with the designs of the markets that are well established in the US. For example, California and Texas and mid-continent, all the way over to New York and New England, to name a few. It’s consistent where Ontario just went with its redesigned market renewal program.
But to your second question, the design for me, I don’t think it really matters a whole lot regarding what is the level of comfort in terms of investing in Alberta infrastructure for electricity. Certainly investors and developers will be more comfortable in the sense that, oh, the design is similar to what I know in the US and Ontario. But there are still factors that drive uncertainty in Alberta that I think will result in more changes to the Alberta market to build generation, as an example.
Jackie Forrest:
Yeah, there’s still enough unknowns that it creates uncertainty. And uncertainty is the word that investors don’t like.
Peter Tertzakian :
But is it any greater uncertainty than anywhere else? I mean, Jason, where is it better in North America?
Jason Chee-Aloy:
There are a lot of places better because there is more managed and less change. In Alberta, the situation is the wholesale market rules are changing, just as Jackie rhymed off the alphabet soup, and we’re going to figure out if Google Translator can actually decode all of that. But there’s also changes regarding transmission policy through the transmission regulation allowing for congestion on the system, which then can lead to curtailment of energy production from generators that are located within constrained or congested parts of the system. The government and system operator are purporting to charge some generators, for example, renewables with certain elements of the market that they want to bring in to serve customers. It’s the confluence and the combination of all of that that is not to-
Peter Tertzakian :
Yeah. Well, I must say, I don’t follow this really closely, certainly not the details, but just to play the devil’s advocate that, all right, the redesign was necessary. It’s going to come to a close presumably. There’ll likely be modifications and so on. But once the proverbial dust settles and people understand it, do you feel it’s going to be any worse than other jurisdictions that have complicated rules and regulations to build say more renewable capacity or more natural gas fired generation, what have you? I’ll just stick to the Western world, has just got all sorts of jurisdictional policy and regulatory complications. Are we going to be any worse here in Alberta than any of the others?
Jason Chee-Aloy:
I don’t think you’ll be any worse if there is a return to contracting for new resources and generation. I think that’s the biggest difference. Because the history in Alberta is there’s been a lot of merchant development for gas fired generation based on the stability of the market and the revenues in the market. While the changes that the Alberta System Operator are planning to make are consistent with the US markets, as I just mentioned, there’s been no experience with locational marginal pricing in Alberta. There’s been no experience with transmission congestion. So I think that, for timely investment, either the government’s going to have to step up and contract, or we’re going to have to unlock the buy side, C&I customers and whatnot, or ask utilities to contract. And every market does that, even ones that have the same design as Alberta. I think that’s kind of where Alberta’s heading to.
Jackie Forrest:
Okay. And I do want to bring up another document, which I will put a link to in the show notes. In August, the Alberta Electricity System Operator released a report, and they had this report written by a consultant that interviewed capital providers anonymously, asking them whether they thought the Alberta power market was investible with all these changes.
And I would say, my reading of the document, I didn’t get a feeling that there was going to be a ton of investment going into it. Here’s some quotes. “The perception of Alberta being a stable jurisdiction has been undermined due to the sheer pace and volume of changes. Concerns about changes that hurt existing projects.” Some of the things you talked about, Jason, like localized pricing and congestion. “They have made things that were viewed as investment grade no longer look that way.” So i.e., higher cost of capital, if you can get it at all.
There was one comment that caught my attention in the report, and it was about the potential for contracting for natural gas generation and batteries. And it said, “Several institutions noted that this new design could open the door to investments in these technologies, provided they were accompanied by appropriately structured long-term contracts.” That caught my eye because, in the past, people just came to Alberta. Government didn’t have to pay, taxpayers didn’t have to pay. The independent power producers took the risk and built projects like batteries or natural gas generation. And this is basically implying if you want those built, someone’s going to have to be backing them, whether it be the government maybe, maybe it will be these data centers. I don’t know. But that’s a total change from what we had before.
Jason Chee-Aloy:
Yeah. And that’s what I’m saying. I think it’s just going to be an implication of everything going on in Alberta. I think that’s just inevitable because I just think that there’s so much by way of moving parts and uncertainty right now. If you want something built in a timely manner, you’re going to have to backstop it.
Jackie Forrest:
Okay. So we’re back to a crown corp almost, like we have in the rest of the country, where the taxpayer has to back some of these generation projects. We haven’t had that for a long time in Alberta.
Peter Tertzakian :
Or you can think of it again in the spirit of the long term. The state has to seed a new paradigm of infrastructure development. And further to, again, our recent podcasts on understanding the nature of the shifting economic paradigm of the world where state capitalism is back, in other words, the alignment of state and vital and critical industries, of which energy is one, that we have to think differently.
We can’t analyze these kind of things and projects from yesterday’s lens. We have to analyze them from a go forward perspective. Whether it’s from the perspective of economic coercion and warfare, or whether from the perspective of data warfare, and the outright war that’s going on for AI supremacy, which is effectively an energy play. We just have to think differently. We cannot be thinking and analyzing things with yesterday’s spreadsheets. It’s over.
Jackie Forrest:
Yeah. I mean, I get what you’re saying, but hey, before this redesign, we had a system where the taxpayer… We have lots of things that we need government to spend money on. We didn’t have to spend money in Alberta on power because we had a market that had enough certainty that investors would come here and build projects, and now we’ve redesigned everything, and now it looks like crown corp’s going to have…
Peter Tertzakian :
As you know, I’m loathed to opine on things I don’t know much about. And the nuances of the electricity market is one of those things. I mean, I understand electricity and energy systems and all that. But the actual market is complicated. My point is, I don’t know what the new nuances are, but if you’re analyzing those nuances with yesterday’s spreadsheets, you’re doing it the wrong way. That’s it. You got to think differently.
Jason Chee-Aloy:
I think there’s two things I’d add to that. It’s pretty clear that policies are very, very specific for all kind of reasons these days. And in Alberta, it’s no different. So if the Alberta government’s serious about luring all the data centers, there is no way the market before the changes, and I’m arguing the market after the changes, would be able to keep up with that electricity supply need to feed the data centers, to allow the data centers to come to Alberta. So some intervention was needed anyways. So I think that’s the first thing by way of policy.
The second thing is, by way of broader policy around the country now, and I can make an argument around the continent, I can make an argument around the globe, every government’s doing something like that. And last I checked, there’s a lot of places bigger than Alberta, and they’re doing even more of that. So if Alberta wants to get on with it and keep up with everybody, it’s going to have to change by way of how it’s luring that capital or keeping that capital within the province. I think when I look at the homegrown companies that typically supply most of the generation, and I look at what they’re doing, not in Alberta, but outside of Alberta, I think that starts to give a clue of what they’re probably saying to Alberta government in terms of what needs to happen.
Jackie Forrest:
Okay. Yeah. So change is needed. And of course, there were concerns around all this intermittent renewables and needing some changes to support that. While you touched on AI data centers, Jason, so we have, I think, about 16 gigawatts, I lose track because it keeps going up, of potential projects in the queue for AI data centers here in Alberta, a market that peaks at 12 gigawatts, so this is huge. The province has announced earlier this summer that there’ll be a limit of 1.2 gigawatts by 2028 if you’re trying to use grid power. If you want to build your own power, then that’s fine. What do you think’s realistic? Do you think Alberta could see a lot more demand come from AI data centers?
Jason Chee-Aloy:
And I do. If I lean in on what I just said, I think Alberta has a good culture of developing infrastructure fairly fast, albeit in the electricity market space on a merchant basis based on market fundamentals. But I think the capability to actually develop is there because I think the supply is there.
And one thing I’ve noticed is a lot of those off-takers for power, the early data centers, say microscalers like Microsoft, Google, Amazon, they were all about we want renewable. Okay. Now they’re saying we want clean. Now they’re saying we just need reliable power. And I’ll optimize that globally in terms of the electrons and the emissions. So that triangulates to me, if Alberta really wants to move fast and build a bunch of gas fired gen, combined with wind and whatever else to meet that need, I think it can. Because you’ve got the history and the culture there. And it’s been typically easier to build things in Alberta relative to a lot of other places in Canada.
So I actually think that one’s doable. But I think it’s only doable unless the government is clearer in terms of how the investments will be made and putting the market changes in its right focus, putting the changes on transmission and congestion in its right focus. And being fair, being fair to everybody. Because I know there are some issues right now with the wind generators particularly. They seem that they’re going to be financially harmed with all these changes.
Jackie Forrest:
Okay. Well, and we’re coming to the end of our time, so I do want to ask you that question. There’s concerns with this redesign that renewable generators that already exist who came to this province, I think billions and billions of new investment in these projects, that the rules have changed so significantly that these assets are going to get a very low return, if any return at all, and that there should be grandfathering for these projects. Some keeping the rules the same so that they can get a return on that investment. What’s the situation there? Do you think Alberta should be doing something for existing projects differently than new projects?
Jason Chee-Aloy:
I think Alberta government needs to be very proactive here and do something. This is truly death by 1,000 cuts, but here’s the thing. The blood that’s going to be let by the 1,000 cuts is the same quantity as the one big cut when the Alberta government decided to shut the coal fired generation. Albeit, I know it was a different government, meaning the NDP did that, but to me, this time the conservatives are doing this.
So the reality is how much money was negotiated to prematurely shut the coal fired gen? It’s the same thing happening here, except it’s just not one big cut. So I think we need to look at the investment in the same way, renewables and coal. And I think we have to ask ourselves, does Alberta need supply? I think the answer’s yes. Does Alberta need more supply faster than what it’s already planning for, given things like policies to lure data centers and things like that? Then the answer is yes. So I think the faster we look at all this and the faster the 1,000 cuts gets dealt with, the better for the investment climate in Alberta.
Jackie Forrest:
Yeah. And just to clarify, the 1,000 cuts is not only the change in the design, but renewables have other burdens like ancillary service charges. They’re going to be charged because they’re intermittent, congestion charges. They’re not going to be able to get all their power out. Reclamation bonds, recycling charges. Like the list goes on and on. And as you say, it adds up to be something that makes the business not tenable.
Jason Chee-Aloy:
That’s right. And when you look at those issues, all of those different cuts that create the big financial harm, there’s a bunch of those that are very specific to what Alberta’s purporting to do that are inconsistent to what other jurisdictions have done by way of how do they charge this? What do they do about that? So it does seem like there is a lot of direction pointed at making it difficult for renewables.
Peter Tertzakian :
Well, we’ll see where all these cuts lead to. And in the spirit of summarizing the podcast, that it’s more than just about financial returns and sort of the minutia of trading and markets. This is a big deal. And we need to be thinking in the long term, as we discussed. Because it’s not just, the data centers is more than just a commercial opportunity, it also has to do with sovereignty over where the data resides, which is a big deal now. We want your cat videos here in Canada, not some server somewhere around the world where we don’t know where it is. Okay, I’m just kind of joking. But certainly critical information such as our financial information and our health information, we want it here. So to do that, we need the data centers. And to do that, we need to get on with incentivizing energy investment to be able to power it all. Thank you, Jason Chee-Aloy, managing director of Power Advisory LLC. Maybe after another year goes by, we’ll have you back.
Jason Chee-Aloy:
Thank you so much. And I would really love to come back and compare notes.
Jackie Forrest:
Thanks, Jason, and thanks to our listeners. If you enjoyed this podcast, please rate us on the app that you listen to, and tell someone else about us.
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