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COVID-19, low oil prices leads to dramatic drop in demand for power in Alberta

COVID-19, low oil prices leads to dramatic drop in demand for power in Alberta
WATCH ABOVE: You might have noticed on your most recent power bill that the price of electricity has gone down in Alberta. This is due to a drop in demand across the province. But, as provincial affairs reporter Tom Vernon explains, this may lead to longer term rate increases.

Measures to prevent the spread of COVID-19, combined with a slowdown in Alberta’s oil patch, led to a dramatic drop in demand for electricity in the province.

Numbers released by Alberta’s Electric System Operator (AESO) show demand has fallen eight per cent. The drop began in mid-March, as businesses like shopping malls and restaurants closed their doors due to public health orders.

It was exacerbated in April, when the price for a barrel of oil fell into negative territory and oil and gas operators began shutting-in production.

“This is something that is new to the province, and really, new to any electricity market in North America,” said Mike Deising, the director of corporate communications with AESO.

“It’s going to be a couple of years, potentially, before we see electricity demand back to where we would have seen it pre-COVID.”

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The drop in power demand adds up to the amount of power used by two medium-sized Alberta cities — and just like the economy, it will take some time for power demand to fully return.

READ MORE: Athabasca Oil to shut down oilsands project due to drop in oil prices, COVID-19 pandemic

For consumers, Deising said this will likely mean lower prices. Alberta’s market works on a supply-and-demand model — so with demand down, prices have followed suit.

“The year we had the most zero priced hours in Alberta was 2012 — we had 57 zero-priced hours,” Deising said, adding in 2020 “We’re already at 47 zero-priced hours.”

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For power providers, this means different things. At Capital Power, business is still good.

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“We’re riding this storm reasonably well,” said Brian Vaasjo, the CEO of Capital Power.

Half of Capital Power’s business in Alberta comes from locked in long-term contracts with its customers, so the company is still being paid.

That said, the company is keeping an eye on its bottom line as it moves forward on investments in maintenance and new renewable projects.

“In the short term, what it means is you have to manage your capital, you have to manage your costs and so on.”

Electricity prices are only one side of the bill in Alberta, as there are a number of fixed costs in the system that need to be paid as well.

Read more: Alberta’s transmission system upgrade: Was it worth the price?

“In the long run, this can have upward pressure on rates,” said Blake Shaffer, an assistant professor at the University of Calgary.

Shaffer has co-written a paper with Andrew Leach from the University of Alberta and Nic Rivers from the University of Ottawa, that looked at how the pandemic impacted power systems across Canada.

“Many fixed costs of the electricity system, e.g. transmission and distribution grid costs and fixed contracts whose costs, at least in the short run, are mostly independent of volumetric demand, are recovered through variable rates,” the paper reads.

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“Less demand means a smaller base from which to collect revenue, leading to revenue shortfalls for utilities.”

According to Shaffer, that money will have to be found.

“Transmission distribution companies will probably have to go to the utility commission to say, ‘I need to up the rate to recover the cost that I wasn’t able to recover during the pandemic,'” Shaffer said.

The paper does say any potential increases would likely be spread out over time to avoid rate shock.