The True Cost of Wind and Solar Electricity in Alberta

Introduction

Nowadays, we are often told that wind and solar are the cheapest forms of electricity generation. We also hear statements like, “This 80 MW solar project will produce over 195 000 megawatt-hours of renewable energy to the grid, or enough energy to power more than 18 000 Canadian homes for a year.” But these statements ignore the fact that wind and solar generators cannot meet consumers’ electricity needs when the wind is not blowing or the sun is not shining. Advocates argue that renewable generation can be backed up with battery energy storage systems (“BESS”) that store energy when renewable generation is high and release energy when that generation is low.
However, while batteries can reasonably manage the intermittency and non-dispatchability of wind and solar generation over periods lasting up to a few hours, they cannot economically manage the months-long seasonal variations in wind, sun, and cloud. At today’s prices, the batteries needed to ensure a reliable supply of electricity from wind and solar generators in Alberta would cost almost two trillion dollars.

Since expenditures in the billions and even trillions of dollars are too often trivialized by governments and policy advocates, let’s put that amount in perspective. Two trillion dollars is almost six times Alberta’s 2019 GDP of $353 billion. For you to earn two trillion dollars, you would have to earn a million dollars a day for 5476 years. Spending this astronomical sum on electricity infrastructure would raise the price of electricity to nearly $5/kWh, almost a hundred times greater than the average 2011-2020 wholesale market price of 5 ¢/kWh. For the aforementioned Canadian homes, whose consumption works out to be 10 800 kWh per year, the electricity bill would be $51 thousand per year, an amount far beyond the ability of most Albertans to pay.

The news media has recently reported that Alberta is a great place to invest in renewable generation, in part because of the province’s competitive electricity market. That market has served Alberta very well for more than two decades, but its current attractiveness to wind and solar generators could prove catastrophic for consumers. That’s because, under the existing market rules, generators are not held accountable for any costs their intermittency and nondispatchability impose—including (but not limited to) the cost of backup generation. The rules worked well when virtually all generators were dispatchable, but without some adjustments to account for the fundamental differences between dispatchable and nondispatchable units, consumers could be on the hook for ever-increasing indirect subsidies to wind and solar. A few well-designed rule changes would allow the market to continue to provide an efficient and effective mechanism for determining Alberta’s optimal electricity supply mix going forward.

Returning briefly to the subject of large numbers, it can be difficult to grasp the scale of energy use in Alberta, Canada, and the world as a whole. It can also be difficult to grasp the amount of land and other resources that would be required to power the world with wind, solar, and batteries. The appendix contains a few definitions and examples to help readers understand these points and some of the technical terms used in this document.

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