realizing the true value of solar energy in alberta

7/26/2019 Realizing the True Value of Solar Energy in Alberta

1/161From Proven Reserve to Developed Resource: Realizing the True Value of Solar Energy in Alberta

Canadian Solar Industries Association

FROM PROVEN RESERVETO DEVELOPED RESOURCE:

Realizing the True Value

of Solar Energy in Alberta

www.cansia.ca


2/162Canadian Solar Industries Association

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Table of Contents

1. Introduction 1

1.1 Why is Solar Important for the Future of Albertas Electricity Sector? 1

1.2 Why does Albertas Current Policy Need to Change for Solar Electricity? 4

2. What Available Policy Options would be Most Effective for Alberta? 5

2.1 GHG Emissions Policy Options 5

2.1.1 Carbon Pricing, Carbon Offsets and Technology Funds 5

2.1.2 Emissions Intensity Standards 7

2.2 Quota-Based Policy Options 8

2.3 Financial Policy Options 9

2.3.1 Financial Policy for Micro-Generation 9

2.3.2 Financial Policy for Large-Scale 10

3. Conclusion and Recommendations 12

Appendix 1: Establishing the Value of Solar in Alberta 15

#CanSIA

Contact CanSIA


150 Isabella Street, Suite 605

Ottawa, Ontario, Canada, K1S 1V7

Tel (613) 736-9077

Fax (613) 736-8938

www.cansia.ca



FOREWORD

Albertas energy resourc-

es and the human talentrequired to harness themhave largely brought the

province to where it proud-ly stands today a global

energy leader with a diverseresource portfolio including

coal, natural gas, conven-tional oil and oil sands, elec-tricity, petrochemicals and

minerals.

Alberta is also fortunate to

have one of Canadas greatest solar energy resourceswith an amount equivalent to all of the provinces re-

maining conventional established oil reserves (estimat-ed at 1.5 billion barrels) falling upon the province in an

average day. However, this high-value proven reservewith a negligible environmental impact remains largelyuntapped.

In 2008, Albertas Provincial Energy Strategy indicatedthat solar and renewable energy are growing off a very

small base, but their viability is improving and inno-vation is percolating. As such, they have the potential

to become a significant part of the global energy mixthis century, but based on demand here in Alberta and

globally, they cannot entirely replace fossil fuels anytime soon.

The viability and market penetration of Solar Photovol-taics (PV) for electricity generation has changed signifi-

cantly in the five years since 2008:

In the ten years from 2005 to 2015, the average

installed system price in Canada is expected tohave decreased six-fold from $15/W to less than$2.5/W.

A capacity equivalent to 6.5 times Albertas current

total installed electricity generation capacity (85GW) was installed globally during the five years

from 2008 to 2013.

By 2020, it is likely that similar amounts of capacity add-ed in those five years will be added globally on an an-

nual basis.

It is now time to take action so that as we end this de-

cade, solar energy is a meaningful part of Albertas elec-tricity mix reducing GHG emissions; diversifying supply;and maintaining a Social Licence.

In 2013, Alberta became the first Canadian province tocreate a cabinet position focused on renewable energy

development (Associate Minister for Electricity and Re-newable Energy).

With the implementation of the provinces Renewableand Alternative Energy Framework expected later this

year, 2014 will be a year looked back on as a monumen-tally important year in the development of the prov-

inces solar energy sector.

This report presents the results of consultation and re-

search undertaken by CanSIA and supported by thirdparty experts throughout 2013 to identify the available

solar energy policy options that would be most effectiveto enable Albertans to realize a fair value for the solarelectricity they generate while using existing funding

sources for electricity procurement and emissions re-

ductions and integrating within the existing policy andmarket framework.

We as an industry are excited about the role that solar

will play in Albertas electricity sector in the coming fiveyears.

John Gorman

President




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Executive Summary

In 2014, the Government of Alberta is expected to releasethe Renewable and Alternative Energy Framework as

part of its ongoing energy policy development and cli-mate change policy renewal. This comes at a time whenAlberta will need 7,000 megawatts of new power genera-

tion by 2022 (5,000 MW of which is due to the retirementof coal-fuelled power plants).

Increasing the role of solar electricity in the provinceselectricity-mix would address three key issues:

Reducing GHG Emissions: Albertas electricity sectoris a major contributor to emissions in the province

releasing approximately 21% of the provinces totalGHG emissions in 2012.

Diversifying Supply: In 2012, 85% of Albertas

electricity was generated from coal (64%) and naturalgas (21%) and it is expected that natural gas will be

the fastest growing generation source leaving theprovince exposed to the volatility of natural gaspricing; and

Maintaining a Social Licence: There is growing

attention to a need to demonstrate more visibleleadership on improving the environmental

performance of the provinces energy productionand consumption to maintain its position as a global

energy superpower.

Unless Albertas energy policy and market frameworkevolves, solar energy will continue to play a minor rolein the province as under existing conditions investor re-

turn and stability are key barriers to deployment. Feed-InTariffs (FIT) have been an extremely successful policy for

addressing these issues globally, giving rise to 61% of theglobal solar PV market in 2012. Albertas deregulated elec-

tricity market poses challenges to the implementation ofa FIT.

In order for a policy mechanism to maximize its success inAlberta, it should:

Integrate within the existing policy and marketframework.

Enable Albertans to realize a fair value for the solarelectricity they generate; and

Use existing funding sources for electricity

procurement and emissions reductions.

Detailing the most appropriate policy mechanisms for Al-berta will require significant stakeholder consultation and

time to ensure that it will be effective. In this report, Can-SIA presents recommendations that target the creation

of near-term building blocks that will begin the processof building awareness, capacity and expertise within theprovince while the actions to affirm the future meaningful

role of solar in Albertas electricity supply are devised:

1. Introduce a Renewable and Alternative Energy

Framework that charts the path for a minimum of

1.5% of Albertas electricity demand to be met by

solar in 2022.

2. Enhance Albertas net-billing by increasing the

price paid for exported solar electricity to reflect

an appropriate market value to enable Albertans

to realize a fair value for the solar electricity they

generate.

3. Introduce a CCEMF funded program that targets

accelerated deployment in the residential and

non-residential sectors with Clean-Energy-

Adders to support the mandate of the CCEMC

while longer term policy solutions are developed.

4. Introduce an Interim Demonstration Pilot Program

for Large-Scale Solar to give rise to 150MW build

capacity and overcome regulatory barriers before

long-term policy is finalized.

If Alberta were to introduce policy that targeted 1.5% of

Albertas electricity demand to be met by solar in 2022,this would lead to solar playing a meaningful role in Alber-

tas electricity sector:

Over 1 GW of solar facilities;

1.25 TWh of solar electricity annually;

625,000 tonnes of GHG emissions displaced annually.

A deployment rate of 235.3 Watts per capita.

Over 24,000 direct and 9,500 indirect jobs;

Over $3.2 billion of private sector investment in Project

Construction and Installation ($1.8 local spending).

CanSIA is committed to being an effective partner andstakeholder for the Government of Alberta as the process

to introduce and implement the Renewable and Alterna-tive Energy Framework develops in 2014.



1. Introduction

In 2014, the Government of Alberta is expected to release the Renewable and Alternative Energy Framework as partof its ongoing energy policy development and climate change policy renewal.

This policy framework could lay the groundwork for the provinces first renewable energy policy and would give riseto measures aimed at enabling greater participation from solar and other renewable energy sources in the provinces

electricity-mix. This framework comes at a time when great change is beginning in Albertas electricity sector.

1.1 Why is Solar Important for the Future of Albertas Electricity Sector?

Figure 1. Projected GHG Emissions

Change in Canada, 2005-2012

Alberta will need 7,000 megawatts of new power gen-eration by 2022 (5,000 MW of which is due to the retire-

ment of coal-fuelled power plants)1. Over the next fortyyears, it is forecast that Alberta will need to double its

electricity generation capacity (to 26 GW by 2050 from13 GW in 2013)2 to meet a 100% increase in demand,during a time when 85% of the provinces existing coal-

fired generation will be retired.

Ensuring that the Renewable and Alternative EnergyFramework gives rise to a meaningful policy for solarelectricity will be important to enable Alberta to tackle

several important issues affecting the provinces elec-tricity sector today including:

Reducing GHG Emissions;

Diversifying Supply; and

Maintaining a Social Licence.

Reducing GHG Emissions: Recent projections from

Environment Canada indicate that Alberta is not ontrack to reach the emissions reduction targets calledfor in the provinces Climate Change Strategy (50 Mt be-

neath the business as usual by 2050).

Albertas electricity sector is a major contributor to emis-

sions in the province releasing approximately 21% of theprovinces total GHG emissions in 2012 (48 Mt of CO2).With 2012 emission levels approximately equivalent to

those of the provinces oil sands operations, Albertaselectricity system is responsible for more than half of all

the GHG emissions from Canadas electricity sector.

Albertas Climate Change Strategy set out a target for

the province to reduce its emissions by 14% comparedto 2005 levels, by the year 2050. This strategy anticipat-

ed approximately 70% of the reductions would come

1 Alberta Electricity System Operator (2013).2 Independent Power Producers Society of Alberta (IPPSA) (2013)

from Carbon Capture and Storage (CCS), and the prov-

ince set aside $2 billion to stimulate early CCS invest-ment in Alberta. However, two of the four CCS projectswere cancelled in 2012, both of which were within the

electricity sector.

Despite the Federal regulations that will phase out coal

over the next 5 decades, the Independent Power Pro-ducers Society of Alberta (IPPSA) forecast that the sec-

tors emissions will increase by 10% from 2005 levels by2050; a significant gap compared to the governmentstarget of a 14% decrease.

As such, without a renewed effort to reduce emissionsfrom electricity generation, the sector will make it more

difficult for Alberta to meet its own emissions reductionstargets. Increasing the contribution of solar electricity

to Albertas electricity-mix to a meaningful level coulddramatically reduce GHG emissions as has been demon-

strated successfully in jurisdictions around the world.



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Diversifying Supply: Ensuring a diversity of supply is criticalfor energy security, (the uninterrupted availability of energy

sources at an affordable price) as it can stabilize prices, pro-vide price certainty and protect against market volatility.

In 2012, 85% of Albertas electricity was generated from coal

(64%) and natural gas (21%) and the Alberta Electric SystemOperator (AESO) expects that natural gas will be the fastest

growing generation source over the next 20 years as agingcoal assets are retired.3

As Albertas electricity market becomes increasingly relianton natural gas, natural gas will set the electricity markets

marginal price more frequently.

Exposure to continental and increasingly global natural gas

markets can make natural gas prices extremely volatile. 4

The price (AECO C benchmark) for gas delivered within the

province of Alberta is forecast to rise to just under $4.00 perGJ by October 2017, and near $5.00 per GJ by late 2018, clos-

er to the 1998-2012 average price of $5.07 per GJ.

If this forecast comes to pass, the price of natural gas in Al-

berta will have increased by approximately 243% in just overfive years.

It is certain that natural gas will continue to play a significantrole in Albertas electricity sector, however steps to mitigatethe potential for price volatility should be integral to energy

policy that adequately addresses energy security.

Solar electricity is not exposed to fuel price volatility andlong-term solar pricing is competitive with natural gas. Thediversification of Albertas electricity supply with stable

priced solar electricity would bring significant benefits to Albertas electricity sector.

Maintaining Social Licence: There is growing attention to a need to demonstrate more visible leader-

ship on improving the environmental performance of the provinces energy production and consump-tion to maintain its position as a global energy superpower.

Social Licence is the degree to which activities meet the expectations of local communities, the widersociety and various constituent groups.

It has been our objective to continue to make progress on environmental enhancement for two reasons.One, because we have a responsibility as global citizens and two because we need to have the Social Licence

to continue to develop our resourcesHon. Joe Oliver, Canadas Minister of Natural Resources (CBC,September 2013).

3 AESO (2012) 2012 Long-term Outlook4 2012 saw the lowest natural gas prices in over a decade. During the summer of 2012 (May to September) the average

Intra-Alberta gas price was $2.06 per GJ and as of April 2013 it had risen by 41% (to $3.52).

Figure 2. GHG Emissions from Electricity

Generation in Canada (2011)

Figure 3. Electricity Generation by Fuel Type in 2012



Public opinion is the barometer for Social Licence andtime-and-time-again in Canada, solar energy is shown

to have broader social acceptance than any other en-ergy source.

Canadians feel that reducing fossil fuel reliance

(66%), creating more clean energy jobs (74%) andreducing carbon pollution (67%) are top or high pri-

orities Harris Decima (July, 2012)

83% of Canadians strongly or somewhat agree with

setting aside a portion of our oil wealth to help usprepare for a clean & renewable future Harris

Decima (July, 2012)

92-97% strongly or somewhat support solar to pro-

duce electricity (with only 3-5% opposing) In-novative Research Group, Inc. (2011, 2012) & IpsosReid (2008, 2009, 2010).

1.2 Why does Albertas Current Policy Need to

Change for Solar Electricity?

Under the current Electricity and GHG market and poli-cy structure, the adoption of solar in Alberta will contin-ue to grow steadily but slowly leading to solar playing a

very minor role in the province and a missed opportuni-ty to diversify the provinces electricity supply at a time

when significant new generation assets will be built.

The key market and policy barriers that need to be over-come to accelerate the rate of deployment in Albertaare i) investor return and ii) investor stability.

Investor Return: At present in Alberta, solar electricity

typically realizes less than the market rate for the elec-tricity at the time that it is generated nor does it realizevalue for its distribution efficiency and its price certain-

ty (see Appendix 1). In addition, it does not realize val-ue for GHG emissions displacement (see Section 2.1.1).

Investor Stability: Households, small-businesses andinstitutional investors all require a minimum level of fi-

nancial predictability so that they can assess whetheran investment meets their criteria. The volatility and

unpredictability of Albertas electricity market and thecurrent policy and market design serves as a significantbarrier to investment in solar energy.

Globally, Feed-In Tariffs (FIT) have been the policy thathas most successfully accelerated the deployment of

solar globally as they can be designed to address bothinvestor return and investor stability in a very target-

ed way. FIT programs were responsible for 61% of theglobal solar PV market in 2012 .5

It is unclear whether and how a FIT could be integrat-ed within the provinces deregulated market. There aremany other policy options that could achieve equiva-

lent results to a FIT if designed and implemented effec-tively. For a policy option to have the best probability

of success in Alberta, it should:

Integrate within the existing policy and market

framework.

Enable Albertans to realize a fair value for the solarelectricity they generate; and

Use existing funding sources for electricity

procurement and emissions reductions.

What are the available policy options that would bemost effective for Alberta? The following section exam-

ines the existing policy and market framework for so-lar energy in Alberta and identifies ways in which they

could be improved to increase the role of solar energyin the province.

5 IEA PVPS (2013) Trends in Photovoltaic Applications



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2. What Available Policy Options

would be Most Effective for Alberta?

A diverse set of policy options are possible for Alber-

tas electricity sector, with a wealth of experience injurisdictions around the world to inform their design

and implementation. The suitability of each of theseoptions to Albertas unique market, policy and political

landscape vary and their introduction presents uniqueopportunities and constraints.

Significant policy conversations have taken place inAlberta around clean electricity development. In these

assessments, there exist a number of broad function-al groups of policy options available to Alberta, whichcould function independently or in combination:

A. GHG Emissions-Based Policy Options.

B. Quota-Based Policy Options.

C. Financial-Based Policy Options.

2.1 GHG Emissions Policy Options

GHG Emissions-based policy options for the electric-ity sector are typically designed to reduce the overall

emissions intensity (i.e. greening-the-grid). They mostcommonly set a unit price on emissions to incentivize

emitters to take measures to avoid or minimize their fi-nancial exposure to emitting (i.e. Carbon Pricing) and/

or impose a mandated limit on emissions with penalties

for non-compliance (i.e. Emissions-Intensity Standards).Both mechanisms can create a secondary market for

emissions displacement where emissions displacementcan be achieved indirectly (i.e. Carbon Offsets or Tech-

nology Funds).

Albertas target to reduce provincial emissions by 50 Mt

beneath the business as usual by 2050 and the SpecifiedGas Emitters Regulation (SGER) combines the Emissions

Intensity Standards, Carbon Pricing, Carbon Offsets andTechnology Funds policy options, by requiring that ma-jor GHG emitters (facilities with emissions of more than

100,000 tonnes of per year):

Reduce their emissions intensity by 12 % (fromtheir 2003-2005 baseline emissions intensity); or

Purchase Carbon Offsets to displace their level ofnon-compliant emissions; or

Make a Technology Fund payment of $15/tonne to

displace their level of non-compliant emissions.

However, under the current program design, SGER hasnot been effective as a policy to displace emissions in

the electricity sector with solar electricity.

2.1.1 Carbon Pricing, Carbon Offsets andTechnology Funds

Global experience has shown that Carbon Pricing andCarbon Offsets can be effective in achieving emis-

sions displacement in the electricity sector from solarelectricity when combined with other complimentary

mechanisms. However, significant growth in Solar PVhas not been achieved in any jurisdiction with thesepolicy mechanisms alone.

In Alberta, there are currently several factors that re-duce the effectiveness of SGER in achieving emissions

displacement in the electricity sector from solar elec-

tricity including the Price of Carbon and the Utility ofCarbon Offsets.

Price of Carbon: Albertas current Carbon Pricing

equates to an offset value of approximately 1 /kWh forsolar electricity.6 This level of financial incentive would

support the business case for directly or indirectly dis-placing emissions with solar electricity but would not

create the business case in the absence of other sup-portive policy.

Utility of Carbon Offsets: The Quantifying Protocolfor small-scale systems requires that offset projects(individual systems) are aggregated. The transaction

costs and labour required to create agreements withsystem owners, to monitor and verify offsets and to

contract an offset buyer significantly out-weighs thefinancial return for doing so. 7 As a result, it is imprac-

tical for small-scale PV to secure revenue for the GHGthat it offsets. For large-scale solar, long term CarbonOffsets contracts are both few and of a low credit qual-

ity. The credit quality is low as the market value for off-set credits is unstable and as they are only guaranteed

offset revenue for eight years (with the possibility ofa five-year extension).8 As a result, if long-term offset

6 0.975 to 1.05 /kWh for 0.65 to 0.7 kgCO2e/kWh for up to $15per tonne for small- and large-scale respectively.

7 For example, if Albertas ~700 systems solar PV (3 MW) wasaggregated today to generate offset credits, it would lead to amaximum revenue stream of approximately $40,000 per year.

8 Alberta Environment and Sustainable Resource Development,Technical Guidance for Offset Project Developers: Version 4.0,February 2013, 18-19. http://environment.alberta.ca/02297.html



contracts of good credit quality were more abundant,financeable projects would proceed regardless of the fi-

nancial incentive of offsets. Thus, offsets are unlikely toenable additional projects even though additionality

is an important precept of credible and effective offsetpolicy systems.

In Alberta, even if SGER was altered significantly (e.g.double the carbon pricing, emissions covered and con-

tract term with provide a financial guarantee for theoffset credits), it would not be expected to be effectiveas a solar electricity policy option without additional

supportive measures.

Emitters have paid $400M since SGER commenced in

2007, including $86M in 2012 alone, (to the ClimateChange and Emissions Management Fund) for invest-

ment in a variety of projects that offer transformative

solutions and reduce greenhouse gases. Contributionsto renewable energy projects to date have amountedto $98M including two for solar electricity with a con-tribution of $16.83 M to displace over 160,000 tonnes.

The use of Technology Fund monies to support solarelectricity demonstration or deployment programs

would be an effective means to reduce GHG emissionsand to enable Albertans to realize a fair value for the

solar electricity they generate; use existing fundingsources for electricity procurement and emissions re-

ductions; and integrate within the existing policy andmarket framework.

2.1.2 Emissions Intensity Standards

Albertas existing Emissions Intensity Standard targetsthe emissions of the provinces largest emitters but as

compliance may be achieved through the displace-ment of emissions from outside of the electricity sec-tor, the policy does not necessarily directly reduce the

emissions intensity of the provinces electricity sectorby design.

The introduction of an Emissions Intensity Standardspecifically for Albertas electricity sector is an available

policy option that could target the significant emissions

of Albertas electricity sector and accelerate the deploy-ment of solar electricity in the province. An example ofan Emissions Intensity Standard policy option that hasbeen designed in Alberta by stakeholders from indus-

try, academia and the not-for-profit sector is the CleanElectricity Standard (CES).

The CES involves a provincially mandated maximumGHG emissions intensity threshold for the electrici-

ty-mix supplied by retailers. The threshold declinesover time at a pre-defined rate to ensure that long-termtargeted GHG emissions reduction goals are met while

providing investors assurance and the ability for long-term decision-making as they take steps to decrease

the emissions intensity of their portfolio.

Compliance with the CES could be achieved both di-

rectly and indirectly as was the case with Carbon Pric-ing, Carbon Offsets and Technology Funds. Retailers

that need to reduce their products emissions-intensi-ty, could procure cleaner electricity either through the

pool or through bilateral power purchase agreements.9

CES allows government policy to send a clear market sig-

nal to realize its emissions goals, and it allows the mar-ket to decide which mix of technologies to implement

including renewable energy, high-efficiency natural gas,cogeneration, CCS, etc. while creating the framework toestablish power purchase agreements between electric-

ity retailers and clean energy developers.

Given the distributed nature of small-scale solar, aggre-

gation would be required for it to contribute in a mean-ingful way to the policy goals of an Emissions IntensityStandard.

Large-Scale Solar is a predictable and reliable ze-ro-emissions electricity generator and as such, an

9 Retailers include competitive and regulated-rate retailers (whosell to final consumers), self-retailers (mostly industrial consum-ers and municipal utilities who purchase electricity wholesale),and rural electrification associations.

0

500

900

2012 2014 2016 2018 2020 2022 2024

Emissions intensitylevel

"X"

Start date

(kg/MWh)

Figure 4 Hypothetical emission target decline in a CES



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Emissions Intensity Standard could give rise to newlong-term PPAs for Large-Scale Solar. Program design

would need to ensure a balance in the costs-to-com-pliance to achieve meaningful levels of large-scale de-

ployment. Such measures could be the institution of asolar-carve-out where a mandated level of reductionswould be required from solar electricity or through

SGER Carbon Equivalency factors for solar electricitythat benefits emissions displaced from solar electricity

over other sources.

An Emissions Intensity Standard such as the Clean Elec-

tricity Standard would broadcast Albertas targeted ac-tion on reducing the emissions of its electricity sector.

Its made-for-Alberta design and its unique design inglobal terms would ensure significant global attention.

2.2 Quota-Based Policy Options

Quota-based mechanisms are best known as Renew-able Portfolio Standards (RPS). RPS mandate that a pro-

portion of a jurisdictions electricity supply is providedby renewable electricity sources. Electricity suppliersare thus required to ensure that their supply-mix com-

plies with the mandate or risk penalties for non-compli-ance. The two most important factors for an RPS to be

successful are: i) setting targets that are attainable andsufficient to drive significant uptake and ii) compliance

mechanisms to ensure that the policy achieves results.

RPS policies currently exist in 76 countries, states and

provinces around the world including three Canadianprovinces (40% by 2020 in both Nova Scotia and New

Brunswick and 93% in British Columbia) and are also

present in the majority of US states, including stateswith deregulated markets such as Texas (see Appendix).

Solar Carve-Outs specifically mandating a given pro-portion the RPS derive from solar energy are common

features of RPS policies around the world, including 15U.S. states (denoted with solar graphics below).

A Renewable Portfolio Standard for Alberta could re-quire that a minimum of 20% of the electricity pro-

duced in the province, or provided by all retailers besourced from renewable energy by 2020. Producers orretailers would then need to take steps to ensure that

their mix meets this requirement by procuring renew-able energy. It would be left to them to reach the mini-

mum through private-sector exchange, creating a mar-ket for renewable energy. A likely result would be the

creation of long-term bilateral PPAs in order to securecompliance. With PPA opportunities thus incented, theprice certainty required for financing renewable energy

projects would be available.

An achievable Solar Carve-Out in Alberta could require

that 1.5% of electricity in Alberta be derived from solarby 2022.

2.3 Financial Policy Options

There are numerous types of financial mechanismsincluding Capital Subsidies, Grants, and Rebates,

Credit Enhancements (e.g. Loan Guarantees, Interestrate buy-downs), Levelized Electricity Pricing, Perfor-

mance-Based Incentives, Public Investment and Fi-nancing, Public/System Benefit Funds, Tax Incentives

and Credits, Tradable Certificates that could assist solarenergy producers participate in the market.

Each mechanism centrally involves direct financialsupport to eligible projects. These can target projectsupfront capital investment or be tied to actual produc-

tion, recent examples in Alberta include the $2 billionallocation for carbon capture and storage pilot projects

and the 17-60 $/MWh biomass electricity productionincentive.

Alberta has a wholesale, energy-only electricity mar-

ket managed by the Alberta Electric System Operator(AESO). Any person or company in Alberta is permittedto generate solar electricity and feed it into the electric-ity transmission or distribution systems as either i) Mi-

cro-Generation or ii) Transmission- or Distribution-Con-nected Generation.

Renewable Portfolio Standard Policies..www.dsireusa.org / March 2013.

29 states,+Washington DC and 2

territories,haveRenewable Portfolio

Standards(8 states and 2 territories have

renewable portfolio goals).

Figure 5 The adoption of Renewable Portfolio Standards by

U.S. states (source: DSIRE)



2.3.1 Financial Policy for Micro-Generation

The existing policy in Alberta for micro-generation iscommonly known as net-billing 10. In net-billing, solar

electricity is generated on-site and primarily supplieson-site demands. When generation exceeds demandat any given time, the surplus electricity is exported to

the distribution system.

Net-billed systems in Alberta benefit from simplified

and streamlined grid-interconnection approval pro-cesses and paperwork, eliminated meter purchase and

installation costs, meter data management costs andelectricity market participation costs for the generating

unit owner.

Net-billing with solar realizes a value of typically 12 /kWh11 on average for the electricity generated in two

ways in Alberta today:

Self-Consumption:Off-setting retail expense anddelivery charges.

Export:Receiving credit when generation exceedsdemand.

10 To qualify for net-billing in Alberta, the solar PV system musthave a rated generating capacity less than 150 kW, be intendedto meet all or a portion of the customers annual electricityneeds and be located on or next to the customers site. The

system is metered with a bi-directional (also called a cumulative)meter that measures and records both imported and exportedelectricity separately.

11 When offsetting 8.5 /kWh retail , 6 /kWh delivery charge,consuming 60% and exporting 40%.

Figure 6 Typical Values Realized by

Small-Scale Solar in Alberta

For solar micro-generators and as with any generatorin an energy-only market, the fixed costs of a capital in-

vestment needs to be recovered in order to attract newinvestment.

The level of value currently realized by small-scale so-lar is less than its market value (In 2013 solar was 68%

higher than the average pool price, see Appendix 1) anddoes not provide the predictable return that is required

to accelerate the deployment of Solar PV in Alberta andfor this reason is not effective for solar electricity.

The Electric Utilities Act already allows Alberta Energyto provide for a micro-generation carve-out and toestablish the compensation mechanism available for

micro-generators. Alberta Energy currently sets thecompensation for excess electricity exported to the dis-

tribution system by small micro-generation systems at

the retailers retail rate generally, the price at which thecustomer pays for electricity from their own retailer. Re-tailers recover this cost via a power pool tariff.

Leveraging this mechanism and the Technology Fundto address the issues of investor return and stabilityfor solar would be an excellent option that: integrates

in the existing policy and market framework; enablesAlbertans to realize a fair value for the solar electricity

they generate; and uses existing funding sources forelectricity procurement and emissions reductions.

2.3.2 Financial Policy for Large-Scale

The volatile nature of Albertas market system hasposed a serious barrier to new electricity generation of

any type, due to lack of even moderate levels of pricecertainty and, concomitantly, high risk in future reve-

nue over the life of generation assets.

Volatility has been the one common status for the elec-

tricity market since its initiation in the early 2000s. Com-bined with recently low natural gas prices, this volatilityand uncertainty about future electricity prices under-

mines investor confidence and makes it difficult to at-tract balance-sheet, equity, or debt financing.

A Morrison Park Advisors report developed for the Mar-

ket Surveillance Administrator (MSA) that intervieweddebt providers found: All debt providers stated that theywould not provide project debt to new generation proj-

ects relying exclusively for revenues on the energy-on-ly market. The result is that even where a generation



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source or proposed project can, according to best pro-jections, prove profitable over the life of the project, risk

undermines these investments in the Alberta market.

A variety of renewable energy development sector

participants and electricity system commentators andexperts have acknowledged a correlated solution to

the price uncertainty problem: the need for long-termcontracts for power. According to the MSA, Long term

power sales are rare in the Alberta electricity marketand as a consequence do not offer an opportunity tomitigate risk and [o]ther electricity jurisdictions are

more attractive to some types of investors because ofthe existence of long term contracts.12 The Morrison

Park Advisors report found that if projects have firmlong-term contracts with credit-worthy counterparties,

then they would consider providing debt coincidentwith the length of the contract term. 13

Equity providers mirrored the concerns of debt pro-viders.14 In short, without long-term power purchaseagreements (PPAs) with credit-worthy customers, it is

extremely difficult to secure long-term financing fornew generation builds.

This also points to the key solution necessary: provid-ing or fostering long-term PPAs. With PPAs, this prob-

lem of price uncertainty is overcome for PPA recipients.Prospective developers can then take their contract to

the bank, so to speak, and financing opportunities willbecome available at lower cost.

Long Term PPAs for solar electricity can be fosteredthrough a variety of mechanisms whether it be throughemissions-based policy options (e.g. Clean Electricity

Standards), quota-based policy options (e.g RenewablePortfolio Standards) or otherwise. Financial-based pol-

icy for large-scale should target the creation of long-term PPAs.

12 Ibid.13 Morrison Park Advisors, Investor Perspectives on the Attrac-

tiveness of Albertas Electricity Generation Market prepared forMarket Surveillance Administrator (2012), 13. http://albertamsa.ca/uploads/pdf/Archive/2012/Investor Perspectives Report to

MSA - 17 Augus.pdf14 Ibid., 14.

3. Conclusion and Recommendations

The time is right for Alberta to introduce new policy forsolar electricity to address the key issues of reducing

GHG emissions; diversifying supply; and maintaining aSocial Licence in the provinces electricity sector.

The policy should enable Albertans to realize a fair valuefor the solar electricity they generate, use existing fund-

ing sources for electricity procurement and emissionsreductions and integrate within the existing policy andmarket framework. The policy should also be designed

to address the issues of investor return and stability.

Detailing the most appropriate policy mechanisms for

Alberta will require significant stakeholder consultationand time to ensure that it will be effective. CanSIA pres-

ents the following recommendations that target the

creation of near-term building blocks that will beginthe process of building awareness, capacity and exper-tise within the province while the actions to affirm thefuture meaningful role of solar in Albertas electricity

supply are devised.



CanSIA recommends that in 2014, the Government of Alberta:

1. Introduce a Renewable and Alternative Energy Framework that charts the path for a minimum

of 1.5% of Albertas electricity demand to be met by solar in 2022.

Unless Alberta plots a clear path forward and begins to take action now a significant opportunity will be

lost to reduce GHG emissions, diversify supply and maintain a social licence in Albertas electricity sector.

The implementation of a Renewable and Alternative Energy Framework that sets clear targets and

evolves the provinces market structure to enable solar to supply a minimum of 1.5% of Albertas electrici-ty demand by 2022 would ensure that solar will play a meaningful role in the provinces electricity sector.

The Framework should focus on the implementation of policy that addresses the issues of investor finan-cial return and stability for all applications from distributed- to utility-scale including the introductionof a provincial renewable energy policy such as a Renewable Portfolio Standard or a Clean Electricity

Standard.

2. Enhance Albertas net-billing by increasing the price paid for exported solar electricity to

reflect an appropriate market value to enable Albertans to realize a fair value for the solar

electricity they generate.

Albertas net-billing program (i.e. Micro Generation Regulation) enables Albertans to generate theirown solar electricity and receive credit for any power they send into the electrical grid. Increasing the

rate received for exported electricity to a level that reflects its true value and guaranteeing its presence fora fixed-period of time (i.e. enhanced net-billing) would improve investor return and stability and lead

to increased levels of deployment.15 A minimum payment 15 /kWh would be appropriate in the currentmarket (see Appendix 1) and a minimum term of fifteen years would provide the required investor stabil-

ity. The rate received could be structured either as a fixed payment (e.g. a total of 15 /kWh for every unitexported) or as a fixed adder to the retail rate (e.g. a fixed 12.5 /kWh adder received in combinationwith the prevailing retail rate). This mechanism would continue to be funded by the Balancing Pool.

3. Introduce a CCEMF funded program that targets accelerated deployment in the residential

and non-residential sectors with Clean-Energy-Adders to support the mandate of the CCEMC

while longer term policy solutions are developed.

A. Residential: Provide a 10 /kWh top-up on all solar electricity exported by residential micro-gen-

erators for a fixed term of fifteen years to accelerate the deployment of solar in the residential sector.The Clean-Energy-Adder is a simple approach which compliments the existing micro-generation

program. The funding for this mechanism would amount to a total of $500k to $1 million per MWdeployed (equivalent to $47,000 per year per MW for fifteen years).

B. Non-Residential: Provide a 15 /kWh top-up on all solar electricity generated by non-residen-tial micro-generators for a fixed term of fifteen years to accelerate the deployment of solar in the

non-residential sector. This mechanism possesses many of the benefits of a Feed-In Tariff programbut avoids many of the potential issues that could arise from introducing one in Albertas deregulat-ed market. The funding for this mechanism would amount to a total of approximately $2.8 million

per MW deployed (equivalent to $187.5k per year for fifteen years per MW of non-residential solar

deployed).

15 Residential micro-generators would benefit most from this mechanism as non-residential micro-generation systems typically donot export significant amounts of electricity.



|www.cansia.ca

4. Introduce an Interim Demonstration Pilot Program for Large-Scale Solar to give rise to

150MW build capacity and overcome regulatory barriers before long-term policy is finalized.

The implementation of a large-scale solar demonstration pilot program that would give rise to theconstruction of 150 MW of large-scale solar facilities in the three years 2015 to 2017 would enable

the provinces electricity sector, regulatory agencies and bodies to build capacity and expertise inhow solar facilities can be integrated in the province while a longer term provincial renewable energy

strategy is devised and introduced.

As with enhanced net-billing, a Demonstration Pilot Program could be funded by CCEMF funding

and existing market mechanisms bolstered by the addition of measures which could include a PowerPurchase Agreement, Capital Grants or several other mechanisms. A similar approach was taken for

the CCS funding that has been allocated as stated on Alberta Energys website: Albertas investmentin CCS will also help make carbon capture and storage technologies more accessible. Both fundedCCS projects are required to share technical information and lessons learned. This will help future

CCS projects from around the world benefit from the lessons learned in Alberta.

Alberta Infrastructure manages Albertas government-owned infrastructure.16 The ministry has a

number of environmental initiatives to reduce the climate change impacts of its buildings and oper-

ations, including installing solar PV systems on government buildings, such as the Alberta LegislatureBuilding.17 Already, all of the grid electricity used in government buildings comes from green sourc-es, using EcoLogo certified renewable power from Alberta wind farms. 18

Once the provincial learning process is complete following development, commissioning and earlyoperations of this large-scale solar fleet, the implementation of longer term policy could commence

giving rise to further large-scale solar development in 2018 and beyond.

If Alberta were to introduce policy that targeted 1.5% of Albertas electricity demand to be met by solar in2022, this would lead to solar playing a meaningful role in Albertas electricity sector:

Over 1 GW of solar facilities;

1.25 TWh of solar electricity annually; 625,000 tonnes of GHG emissions displaced annually. 19

A deployment rate of 235.3 Watts per capita.

Over 24,000 direct and 9,500 indirect jobs;

Over $3.2 billion of private sector investment in Project Construction and Installation ($1.8 localspending).20

CanSIA is committed to being an effective partner and stakeholder for the Government of Alberta as theprocess to introduce and implement the Renewable and Alternative Energy Framework develops in 2014.

16 Alberta Infrastructure, Our Ministry. http://www.infrastructure.alberta.ca/593.htm17 Alberta Infrastructure, Environmental Initiatives. http://www.infrastructure.alberta.ca/501.htm18 Ibid.19 Assumes a grid electricity emissions intensity of 0.5 tonnes per MWh in 2022.20 Based on analysis with the National Research Laboratorys (NREL) Jobs and Economic Development Impact Model

(PV10.17.11), 2 GW would create 16,489 Project Development and Onsite Labor, 14,864 Supply Chain and 12,307 Induced jobswith 500 MW utility-scale, 150 MW residential and 350 MW residential-scale.



Appendix 1: Establishing the Value of Solar in Alberta

Solar PV can provide a wide range of benefits to the electricity system. At the local level, solar reduces energy lossesand defers distribution and transmission network investment driven by capacity needs. The distribution and trans-

mission power systems can also benefit from grid support services provided by solar PV generators through voltagecontrol, frequency regulation and fast reaction to energy imbalance.

Much research has been undertaken to understand and support the value of solar PV generation ranging from contri-butions of national agencies such as the National Renewable Energy Laboratory (NREL) and the Electricity InnovationLab, to regulators and prominent analysis from universities. The results of this research are summarized in the follow-

ing unique benefits that solar PV provides to power systems and society as a whole.

1. Avoided Energy from Marginal Cost Generators:

Solar PV generation can offset the marginal cost

of generation required to otherwise generate,transmit, distribute, maintain and manage risk for

centralized facilities in the electricity system.

2. Reduction of Energy Losses: The ability of solarPV generation to be located at any load eliminateslosses that would otherwise occur from off-site

generation to serve that load.

3. Deferring Transmission and Distribution

Capacity Requirements: Installation of solar PVgeneration can meet local and regional system

demand and defer investments in transmission anddistribution infrastructure that would have beenotherwise required to service that demand.

4. Reactive Power Supply and Voltage Control: Asan inverter based generation technology, solar PV

generation can provide reactive power support tomeet real-time power system needs for voltage

stability and control. Large solar PV systems canprovide 100% reactive power support for voltage

control issues.

5. Frequency Regulation Support: The fast reaction

of solar PV generation through inverter controlcan provide real-time response to frequencyimbalances from the differences in actual and

scheduled generation and can also provideautomatic response to frequency deviations.

Other jurisdictions14 have demonstrated solarPV systems can combine Regulation Services and

Frequency Response Services as a single service tolocal power systems.

6. Energy Imbalance Reaction: As more variable

generation enters the power system, the ability toramp down quickly is as important as the abilityto ramp up quickly to meet changes in supply

and demand balances. Solar PV power electroniccontrol capability to react quickly allows it to ramp

down or ramp back up to meet changing energyimbalances within the power system in real time.

This ability should help to resolve issues raised

by distributors and transmitters with respect tobackfeed on current distribution and transmission

equipment.

7. Fuel Price Risk Reduction: Since solar PV energy

production has a fixed, known zero input fuel cost

it is a natural hedge to changes in fuel prices forother forms of generation, in particular natural gas.

8. Reducing Security and Reliability Risks: Research

has shown that the installation of distributedsolar PV resources can decreased the impact ofblackouts due to a reduction of transmission and

distribution system congestion. This can improvesecurity of supply for many customers and improve

restoration of service to customers lost to a majoroutage event through islanding and voltage

support services.

In Alberta, solar electricity typically realizes value in two ways through net-billing: i) Self-Consumption (i.e. consum-ing the electricity they generate thereby avoiding expenditure) and ii) Export (i.e. receiving payment for electricitygenerated when it exceeds the on-site demand).

In 2013, this value was typically 14.5 /kWh for self-consumption (including delivery charges) and 8.5 /kWh for ex-ported electricity. As a result, systems that consumed all of the electricity generated would realize an average of 14.5

/kWh whereas systems that consumed half of generation and exported half would realize 11.5 /kWh.


16/16

Canadian Solar Industries Association www cansia ca

A value of 11.5 to 14.5 /kWh does not reflect the true value of solar as it fails to recognize the value of solar including itsi) Time of Generation ii) Location of Generation iii) Price Certainty and iv) Low Environmental Impact.

Figure 8 Typical Values Realized for Solar Electricity in Alberta 23

Time of Generation: The pool price during

the times that solar electricity is generating isconsistently higher that the average pool price inAlberta. In 2013, it was 68% higher (and an average

of 44% between 2010 and 2012). A Solar PV systemreceiving Albertas hourly pool prices would have

received approximately 13.5 /kWh (with south-facing modules at a 45 degree tilt).

Location of Generation: Unlike centralized

generation assets, solar can be on-site or near to

loads. As a result, distribution losses are minimized.Albertas distribution system has an efficiency of

~96%. Therefore, solar electricity that is exportedand not subject to distribution losses has a 4%

distribution efficiency benefit over centralizedgeneration assets, or 0.5 /kWh.

Price Certainty: While it is difficult to calculate

the exact value of fixed price electricity as a fuel-hedge against volatile sources, there are examplesincluding a study in New Jersey & Pennsylvania that

found the value of the hedge to be 3.6 /kWh.

Low Environmental Impact: A price on Carbonof $30 equates approximately to an offset value of

approximately 2 /kWh for solar electricity. Thisvalue is currently not being realized by solar. In

addition to GHG emissions, there are also other

emissions impacts that result in significant costs tosociety through human health and environmental

degradation (e.g. NOx, SOx, Particulate Matter,Mercury, etc). Health impacts from coal powers non-

climate air pollution alone from electricity generationin Alberta has been estimated to cost around $840

million. This represents a cost of 1.1 /kWh.

Thus, electricity solar electricity exported from net-billed systems should realize a minimum value of:

Value of Solar /kWh

Time of Generation 13.5

Location of Generation 0.5

Price Certainty 3.6

Low Environmental Impact 3.1

Minimum Total Value 20.7

23 0.975 to 1.05 /kWh for 0.65 to 0.7 kgCO2e/kWh for up to $15 per tonne forsmall- and large-scale respectively.

realizing the true value of solar energy in alberta

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