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Alberta’s emergency grid alert underscores vital role diverse energy mix plays in Canada

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From the Canadian Energy Centre

By Cody Ciona

After a major cold spell affected the capacity of Alberta’s power grid to provide electricity, experts weigh in on the need for multiple sources of energy

The crucial need for Canada to have a flexible and diverse energy grid was given a practical demonstration this past weekend as frigid winter temperatures in Alberta prompted a grid emergency.

With temperatures in some places dropping to almost –50C with the wind chill, provincial officials issued an emergency alert asking Albertans to immediately reduce electricity usage, with the grid approaching maximum capacity during peak hours.

With wind and solar assets unable to contribute power and the unexpected shutdown of two natural gas plants, Albertans faced the possibility of rolling blackouts in dangerously cold conditions.

A day after the emergency, the Alberta Electric System Operator (AESO) thanked Albertans who responded quickly to reduce the demand load.

“This is an example of why we need to ensure that we have sufficient dispatchable, dependable generation available to us as a province to meet what is always our most challenging time, which is those cold, dark winter nights,” Michael Law, CEO of AESO, told the Calgary Herald.

The prospect of failure in the worst possible circumstances prompted energy analysts to highlight the critical need for a diverse and flexible energy grid.

“You could have had 50,000 megawatts, all the solar farms and wind farms in the world located in Alberta, and it still wouldn’t have come anywhere close to closing that gap,” University of Alberta economics professor Andrew Leach told CBC News.

Wind and solar can be major contributors to the grid when conditions allow, but when the sun goes down and the wind stops, base load power sources like natural gas reliably protect the system.

Leach said system operators need to plan for supply to manage adverse weather conditions to ensure the reliability of the grid.

“Whether it’s natural gas, nuclear, import capacity, battery storage, etc., geothermal, there’s nobody that’s arguing against that.”

With policymakers pushing for more electrification, University of Alberta industrial engineering professor Tim Weis said Alberta isn’t alone in the need for resilient and stable power supply.

“I think we need to wrestle with that and realize that we are moving into a world where there’s going to be more electrical demands on the system,” he told Global News.

“We are moving into a new world. We’re not the only ones facing some of these challenges. I think we’re a little bit behind responding in terms of dispatchable demand and allowing consumers the opportunity to automatically respond to some of these things.”

As the federal government aims to decarbonize Canada’s electricity generation by 2035 with sweeping regulations, flexibility for some jurisdictions is a key factor that needs to be addressed, said University of Calgary associate professor of economics Blake Shaffer.

“I do think that this shows us that no amount of renewables would push us to have solved that winter peak on Saturday,” he told CTV Calgary.

“And that means flexibility to have a gas fleet, for example, that is capable of being there for a few hours for a few days, maybe a few weeks a year. And we need the technical and economic setup to make that worth their while to be there,” Shaffer said.

“We saw this cold weather coming, everybody was preparing for it. The wind forecast was out a week ago we saw there was going to be no wind. Thankfully, the gas thermal fleet performed amazingly well.”

Natural gas generation was able to backstop the reduction in renewable power, said ARC Energy Research Institute executive director Jackie Forrest.

“The system delivered during the deep freeze this past weekend… so reliably that no one even noticed… I have long argued that gaseous fuels are needed in the mix for energy transition and the need to become cleaner; this is why,” said Forrest on X, formerly known as Twitter.

According to Forrest’s colleague, energy economist Peter Tertzakian, Alberta’s oil sands industry also plays a big role in power generation in the province with the prominence of natural gas-powered cogeneration facilities.

“The power that’s generated in this province during this cold spell, about 40 per cent of it comes from cogeneration. The bulk of which comes from the oil sands and all their big generators which have surplus electricity that they feed into the grid,” said Tertzakian on ARC Energy Institute’s latest podcast.

“I think it’s important to understand that any policies that affect oil sands also affect the electricity grid.”

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Alberta

Alberta extracting more value from oil and gas resources: ATB

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From the Canadian Energy Centre

By Will Gibson

Investment in ‘value-added’ projects more than doubled to $4 billion in 2024

In the 1930s, economist Harold Innis coined the term “hewers of wood and drawers of water” to describe Canada’s reliance on harvesting natural resources and exporting them elsewhere to be refined into consumer products.

Almost a century later, ATB Financial chief economist Mark Parsons has highlighted a marked shift in that trend in Alberta’s energy industry, with more and more projects that upgrade raw hydrocarbons into finished products.

ATB estimates that investment in projects that generate so-called “value-added” products like refined petroleum, hydrogen, petrochemicals and biofuels more than doubled to reach $4 billion in 2024.

Alberta is extracting more value from its natural resources,” Parsons said.

“It makes the provincial economy somewhat more resilient to boom and bust energy price cycles. It creates more construction and operating jobs in Alberta. It also provides a local market for Alberta’s energy and agriculture feedstock.”

The shift has occurred as Alberta’s economy adjusts to lower levels of investment in oil and gas extraction.

While overall “upstream” capital spending has been rising since 2022 — and oil production has never been higher — investment last year of about $35 billion is still dramatically less than the $63 billion spent in 2014.

Parsons pointed to Dow’s $11 billion Path2Zero project as the largest value-added project moving ahead in Alberta.

​​The project, which has support from the municipal, provincial and federal governments, will increase Dow’s production of polyethylene, the world’s most widely used plastic.

By capturing and storing carbon dioxide emissions and generating hydrogen on-site, the complex will be the world’s first ethylene cracker with net zero emissions from operations.

Other major value-added examples include Air Products’ $1.6 billion net zero hydrogen complex, and the associated $720 million renewable diesel facility owned by Imperial Oil. Both projects are slated for startup this year.

Parsons sees the shift to higher value products as positive for the province and Canada moving forward.

“Downstream energy industries tend to have relatively high levels of labour productivity and wages,” he said.

“A big part of Canada’s productivity problem is lagging business investment. These downstream investments, which build off existing resource strengths, provide one pathway to improving the country’s productivity performance.”

Heather Exner-Pirot, the Macdonald-Laurier Institute’s director of energy, natural resources and environment, sees opportunities for Canada to attract additional investment in this area.

“We are able to benefit from the mistakes of other regions. In Germany, their business model for creating value-added products such as petrochemicals relies on cheap feedstock and power, and they’ve lost that due to a combination of geopolitics and policy decisions,” she said.

“Canada and Alberta, in particular, have the opportunity to attract investment because they have stable and reliable feedstock with decades, if not centuries, of supply shielded from geopolitics.”

Exner-Pirot is also bullish about the increased market for low-carbon products.

“With our advantages, Canada should be doing more to attract companies and manufacturers that will produce more value-added products,” she said.

Like oil and gas extraction, value-added investments can help companies develop new technologies that can themselves be exported, said Shannon Joseph, chair of Energy for a Secure Future, an Ottawa-based coalition of Canadian business and community leaders.

“This investment creates new jobs and spinoffs because these plants require services and inputs. Investments such as Dow’s Path2Zero have a lot of multipliers. Success begets success,” Joseph said.

“Investment in innovation creates a foundation for long-term diversification of the economy.”

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Alberta

Alberta government must restrain spending in upcoming budget to avoid red ink

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From the Fraser Institute

By Tegan Hill and Milagros Palacios

Whether due to U.S. tariffs or lower-than-expected oil prices, the Smith government has repeatedly warned Albertans that despite a $4.6 billion projected budget surplus in 2024/25, Alberta could soon be in the red. To help avoid this fate, the Smith government must restrain spending in its upcoming 2025 budget.

These are not simply numbers on a page; budget deficits have real consequences for Albertans. For one, deficits fuel debt accumulation. And just as Albertans must pay interest on their own mortgages or car loans, taxpayers must pay interest on government debt. Each dollar spent paying interest is a dollar diverted from programs such as health care and education, or potential tax relief. This fiscal year, provincial government debt interest costs will reach a projected $650 per Albertan.

And while many risk factors are out of the government’s direct control, the government can control its own spending.

In its 2023 budget, the Smith government committed to keep the rate of spending growth to below the rate of inflation and population growth. This was an important step forward after decades of successive governments substantially increasing spending during good times—when resource revenues (including oil and gas royalties) were relatively high (as they are today)—but failing to rein in spending when resource revenue inevitably declined.

But here’s the problem. Even if the Smith government sticks to this commitment, it may still fall into deficit. Why? Because this government has spent significantly more than it originally planned in its 2022 mid-year plan (the Smith government’s first fiscal update). In other words, the government’s “restraint” is starting from a significantly higher base level of spending. For example, this fiscal year it will spend $8.2 billion more than it originally planned in its 2022 mid-year plan. And inflation and population growth only account for $3.1 billion of this additional spending. In other words, $5.1 billion of this new spending is unrelated to offsetting higher prices or Alberta’s growing population.

Because of this higher spending and reliance on volatile resource revenue, red ink looms.

Indeed, while the Smith government projects budget surpluses over the next three fiscal years, fuelled by historically high resource revenue, if resource revenue was at its average of the last two decades, this year’s $4.6 billion projected budget surplus would turn into a $5.8 billion deficit. And projected budget surpluses in 2025/26 and 2026/27 would flip to budget deficits. To be clear, this is not a far-fetched scenario—resource revenue plummeted by nearly 70 per cent in 2015/16.

In contrast, if resource revenue fell to its average (again, based on the last two decades) but the Smith government held to its original 2022 spending plan, Alberta would still have a balanced budget in 2026/27.

Bottom line; had the Smith government not substantially increased spending over the last two years, Alberta’s spending levels today would align with more stable ongoing levels of revenue, which would put Alberta on more stable fiscal footing in the years to come.

Premier Smith has warned Albertans a budget deficit may be on the way. To mitigate the risk of red ink moving forward, the Smith government should show real spending restraint in its 2025 budget.

Tegan Hill

Director, Alberta Policy, Fraser Institute

Milagros Palacios

Director, Addington Centre for Measurement, Fraser Institute
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