Update On Alberta’s Solar PV Electricity Procurement

Alberta is in the middle of procuring 135,000 MWh per annum of solar photovoltaic (Solar PV) electricity. This procurement dedicated to solar should not be confused with the REP Round 1 procurement that is also currently underway in Alberta for 400 MW of renewable electricity. The Solar PV procurement was first announced in October 2016. The procured electricity is to power about half of the more than 1,500 government-owned buildings and sites in Alberta that are currently being powered using non-solar renewable energy contracts that are expiring.

The Solar PV procurement commenced with a Request for Information phase but is now in the final Negotiated Request for Proposal (NRFP) phase. The procurement is being run by Alberta Infrastructure – not by the Alberta Electric System Operator, which is running REP Round 1. It is also different from REP Round 1 in these other ways:

  1. The NRFP consists of a three-step process. The first step involves submissions from project proponents by June 14th, 2017 and Alberta selecting up to 10 shortlisted proponents by the end of August. Then the shortlisted proponents will submit business plans before the end of 2017 for a further culling to five or less proponents. The final step in the process is the submission of non-negotiated price bids by the smaller group of proponents, selection of the winner(s), and finalization of a contract before the end of March 2018. Unlike REP Round 1, there is not yet a mandated form for the deal structure or contract that Alberta is prepared to award for the Solar PV electricity, thus the use of the word “Negotiated” in the procurement process title. Alberta will only determine the form of deal structure and contract after it receives business plans at the end of 2017 and dialogues with the final small group of shortlisted proponents.

  1. There are limits on the size of the solar projects and the number of suppliers who will be awarded contracts. Projects must be 25 MW or greater in the Solar PV procurement versus 5MW or greater in REP Round 1. Additionally, Alberta is only prepared to award contracts to up to three different suppliers in the Solar PV procurement. This is unlike REP Round 1, where Alberta will award contracts to whatever number of suppliers is needed to fill the 400 MW at the lowest prices. Unfortunately, the 25 MW minimum project size poses a problem for smaller distributed connected Solar PV projects. There has been a suggestion that smaller Solar PV projects (<25 MW) might be aggregated by a single proponent in a proposal to achieve the 25 MW threshold, though the terms of the NRFP might make that difficult unless Alberta decides to pursue alternative proposals.

  1. Successful proponents will have a longer period of time to achieve commercial operation. Successful proponents in the Solar PV procurement will have up to 36 months from the awarded contract date to achieve commercial operation, as opposed to less than 24 months (until December 1, 2019) for successful proponents to achieve commercial operation in REP Round 1.

  1. Unlike REP Round 1, Alberta is considering “Aboriginal Equity Content” in assessing the June 14th submissions that it receives to shortlist the proponents. This factor will account for five percent in the scoring of submissions to shortlist them. Unfortunately, the NRFP is not completely clear on this factor, as the use of “equity” suggests ownership but the submission requirements in the NRFP suggest that equity is meant to be broader and include aboriginal “financial, land, construction, maintenance, etc.” involvement. This consideration of aboriginal equity or other involvement is something that we may well see in future REP rounds.

Of course, there are some similarities with REP Round 1, including:

  1. The requirement that the Solar PV electricity be generated in Alberta, separately metered, sold into the Alberta power pool, and be from projects that are either new or expansions of existing Solar PV projects.

  1. The Province’s procuring of Renewable Energy Certificates (RECs) representing the renewable attributes and benefits of the Solar PV electricity that is procured.

Alberta is clearly trying to be flexible in the Solar PV procurement – the whole process document is only about 20 pages long, while the process document for REP Round 1 is over a hundred pages long. However, in taking this flexible approach, Alberta is making Solar PV developers participate in the Solar PV procurement without having the certainty of knowing that they will receive a long-term contract that will let them project finance their projects. In that regard for example, will Alberta, like it did in REP Round 1, remove the wholesale price risk by using an indexed-REC or other similar form of business arrangement? Will the Solar PV electricity be procured long term, for 20 or 25 years?  Unfortunately, reading the answers that Alberta has provided so far to questions raised by participants in the Solar PV procurement does not provide any comfort or certainty in this regard. Rather, they suggest that each deal with a supplier might be unique, which seems nonsensical considering that the NRFP contemplates price bidding by proponents against each other in its final stage.

That all said, Solar PV project developers are very happy to have a renewable procurement in Alberta dedicated to them. It provides them with an alternative to having to compete solely on price against other renewable developers in REP Round 1, a procurement that is being run on a technology neutral basis without a solar carve out. We will continue to follow the Solar PV procurement here at AlbertaPowerMarket.com and will update you if there are any substantive developments in this procurement.

Kent Howie and Michelle Jin

Kent Howie is a Partner in the Electricity Markets Group at the Calgary, Alberta office of the national law firm Borden Ladner Gervais LLP.  Michelle Jin is a law student at the University of Calgary who is summering at Borden Ladner Gervais LLP and contributing to the content here on AlbertaPowerMarket.com.

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