Recap of the AESO webinar

ZE recently held a webinar on the Alberta Electric System Operator (AESO) as part of its complimentary series on ISO markets. I was a member of the team of analysts who participated in the hour-long presentation.

During the webinar, we covered a number of different topics relating to the AESO market. More specifically, we discussed some of the factors affecting the electricity market in Alberta.

The Alberta Electricity Market is the first de-regulated electricity market in North America. Following the passing of the 1996 Electric Utilities Act and the formation of the Power Pool, Alberta became the first of many jurisdictions to liberalize their organized power market.

By 2003, the AESO market truly began to take shape, after a merger of the Power Pool and the Transmission Administrator. Similar to California, AESO became an almost isolated market with many of the effects of pricing caused from internal factors.

AESO operates on the basis of Pool Price instead of Nodal Prices.  Hence, there are no locational prices and electricity is priced equally throughout the market. The interconnections that exist are with Saskatchewan and British Columbia, in addition to the almost completed 300 MW Montana-Alberta Tie-Line. AESO is not interconnected with other organized electricity markets.

During the presentation, we looked at the generation stack in AESO, which identified Coal and Natural Gas as the major sources of electricity generation in Alberta.

The coal generation plants are all located close to the coal mines, which eliminates the need for transportation of coal. In many cases, the companies that own these mines also own power plants consuming this coal. However, more and more there is a shift towards generation using abundant natural gas with the introduction of “Reduction of Carbon Dioxide Emissions from Coal-Fired Generation of Electricity” regulations.

We analyzed the system demand, which affects AESO Pool Prices. There was an inconsistency between the price and demand for electricity. ZEMA, in Figure 1, shows how Prices vary at High Load Hours (HLH) and Low Load Hours (LLH).

Figure 1: AESO Pool Price at HLH and LLH vs. System Demand

When the AESO Pool Prices and Gas Prices are plotted together using ZEMA, less correlation is observed as shown in Figure 2. This means that the electricity prices do not follow the same trends as natural gas prices.

Figure 2: Correlation between Natural Gas (NIT) and Electricity Prices in AESO

Transmission between Alberta and British Columbia is approximately 500 MW while between Alberta and Saskatchewan is approximately 150 MW. The graph created by ZEMA in Figure 3 indicates the demand in AESO market has a direct relation with the import from British Columbia. More demand in the market leads to higher imports from the western province. British Columbia in-turn has imports from the generation facilities south of US-Canada Border.

Figure 3 Correlation between AESO demand and imports from British Columbia

Variation in AESO Pool Prices exists because of the factors highlighted above, present with various arbitrage opportunities. For instance, ZEMA demonstrates arbitrage opportunities between AESO Pool Price and California Oregon Border Price (Figure 4.)

Figure 4: AESO Pool Price vs. California Oregon Border Price

There is a big push in the AESO market towards more renewable sources of energy in an attempt to decrease carbon emissions. With 1000 MW in generation capacity, wind generation is a factor to take into consideration. Our final graph, Figure 5, shows that there is 24 MW of wind generation on an average over the last two years.

Figure 5: AESO Wind Generation vs. Wind Speed

In summary, there are a number of factors affecting the Pool Prices from generation stack, system demand, import and export of gas and electricity to government regulations despite the fact that the Pool Price aims to simplify the AESO electricity market. ZEMA provides access to data that helps measure dependencies on these factors to make sound, economically feasible, and strategic decisions in timely manner.

In the New Year, we have another webinar coming up that will focus on ERCOT and data required for effective trading and analysis in the market. This webinar will take place on January 23, 2013 and we invite all of the readers to register here: https://www3.gotomeeting.com/register/340236286

ZE continues to offer webinars which address recent market topics and demonstrate how ZEMA’s analytical capabilities can add value for traders and market participants. Join us to learn more about markets and ZEMA at webinars@ze.com

If you have any questions or would like to propose a topic that you want us to discuss, feel free to contact me directly at ryan.arian@ze.com