The City of Medicine Hat is interested in purchasing a solar farm. (Photo: Stangot | Dreamstime.com)

By Eli J. Ridder

Alberta electricity rule changes may add $100M to Medicine Hat solar park project, firm says

Dec 13, 2024 | 8:33 AM

An energy consulting firm says recent changes to Alberta’s electricity market regulations could cost the City of Medicine Hat an extra $100 million if it builds a proposed solar project due to a provincial fee targeting electricity congestion.

The city is applying to purchase the rights to a 325-megawatt, 1,600-acre Saamis Solar Park project from privately owned DP Energy.

The province currently charges a generator unit owner contribution charge to secure transmission capacity. That bill was capped and is refundable over 10 years.

According to the consultants, Alberta revealed earlier this week that the unit owner fee would be replaced with a non-refundable and uncapped “transmission reinforcement payment” by 2025.

Alex Markowski, market analyst for EDC Associates, said the city would, under the current regulations, make a $13-million payment for the proposed 325-megawatt farm, for example.

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“Now, Saamis is probably going to have to pay anywhere from $100 to $300 million and not get it rebated back,” Markowski told CHAT News.

“Hence, overnight all of a sudden now, the project just maybe racked up like a $100-million bill if it gets built.”

EDC, which has operated in Alberta since 1992, was analyzing the solar project by request of the Medicine Hat Utilities Ratepayer Association.

The association, along with a group of developers that could be impacted by the proposed solar farm site, have been outspoken against the initiative in filings to the regulator.

Medicine Hat has maintained the current effort only includes acquiring the rights to purchase the project and any cash, plan or intent to start building would require council approval.

In response to the claim by EDC Associates, the city said any new information that emerges through a potential development process will be considered.

“Further analysis of these developing regulations is needed to determine whether they would apply to our situation,” the city said in a statement to CHAT News on Thursday.

“Preliminary financial analysis supported the city’s purchase of the project based on information at that time.”

In a scenario where the regulator approves the purchase, staff would dig deeper.

“If and when the city becomes the owner, further review with more detailed and up to date information will be required to ensure the project remains economically viable and in the best interests for the city,” the statement added.

Medicine Hat requested the AUC deny applications from MHURA and a group of developers to act as formal intervenors as the regulatory process.

The ratepayer association argued in a filing to the AUC on Dec. 6 that its “rights will be directly and adversely affected” by the city’s application.

The association argues the city has not effectively consulted with the public and criticizes what its members see as a lack of transparency.

The City of Medicine Hat said MHURA’s concerns were “premature” and that a project is also “a matter within the legislative authority of the city for approval” by council.

‘Hostile’

Observers and advocacy groups say the Alberta government’s ongoing energy sector changes mark an attack on clean energy.

The Canadian Renewable Energy Association said the new measures are “punitive and unfairly target the renewable energy sector.”

The association’s president Vittoria Bellissimo said in a statement the province needs to be cautious as it would be “counterproductive” to jeopardize existing wind and solar projects.

“These projects were built in good faith but could fail if they cannot repay their debt, causing credit downgrades across the sector,” Bellissimo said.

“This will raise borrowing costs for companies and ultimately increase the cost of electricity for customers.”

EDC’s Markowski said makes less sense to the city to move ahead.

“Basically all of the new elements of the redesigned market are hostile towards wind and solar, but very favorable to gas-fired generation,” Markowski said.

City officials say if Medicine Hat does purchase the solar park, it would likely take a gradual approach and scale up in phases.

That won’t work well, Markowski argued.

“The smart play in Alberta when you’re building something is build it once to the size you want, boom, get it done, get the capital cost savings, move on,” he said.

“To build it in phases is not terribly capital efficient.”

Solar farm

The city announced its intent to purchase the solar park in August.

Rochelle Pancoast, the city’s managing director of energy, land and environment, said then that the purchase would allow the city to scale the project in a way where it can meet the needs of Medicine Hat and green energy requests from commercial customers.

The investment will diversify Medicine Hat’s largely thermal and natural gas-fueled energy portfolio that will allow the city to offset increasing carbon levy costs and prepare for a coming energy transition to cleaner sources, Pancoast explained.

She said at the time that she expects the park to be profitable for the city.

The solar power plant and accompanying substation were approved, with conditions, by the Alberta Utilities Commission on July 18, under the ownership of Saamis Solar Park Ltd., part of the Irish-headquartered DP Energy Group.

The current AUC approval enables construction to begin in 2025 and to be in service by 2027.

By purchasing the project, the city would follow the same timeline but would break up construction.