The Alberta NDP government power purchase arrangements (PPA) lawsuit will affect most of the Alberta energy industry even though only the holders of coal-fired PPAs are directly embroiled in the PPA mess. Through the lawsuit, the government is seeking to remove a key phrase “more unprofitable” from the PPAs by deeming it unlawful.
Most of the coverage of the PPA debacle has focused on the:
- Holders of coal-fired PPAs who may be asked to choke down losses in the range of $600 million to $900 million for the remaining years from now until 2020.
- Risk perception of the Alberta investment climate created by the lawsuit.
- Alberta electrical power consumers who will pay the price for the government PPA lawsuit, win, lose or draw.
How the energy industry will be affected by PPA mess has received less attention. It will be affected in the following ways.
Delay Transition Away from Coal-fired Generation
The PPA lawsuit creates fear about governmental retroactive reinterpretation of long-standing agreements. It is likely to make the owners of the coal-fired electrical generation more hesitant to negotiate early shut-downs of these stations with the government.
That hesitancy will delay the transition away from coal-fired electrical generation. That delay will in turn delay the greenhouse gas reductions that the NDP government is anxious to achieve.
As a result of this delay, the energy industry will continue to produce and sell more coal for longer.
Delay Construction of Renewable Energy Generation
The PPA lawsuit undermines renewable energy industry trust in the government with respect to future contracts. The renewable industry can easily become fearful that such contract renegotiations could similarly entangle them. It is likely to make potential investors in renewable energy generation more cautious about negotiating new contracts with the government.
That caution will delay the transition to more renewable energy generation and delay the significant greenhouse gas reductions that the NDP government is keen to realize.
As a result of this delay, the energy industry will continue to produce and sell more natural gas to Alberta electricity generators for longer.
Delay the Implementation of the Carbon Tax
The PPA lawsuit creates new costs for Alberta electrical power consumers that will be reflected in higher electricity prices. These new costs add to the reluctance of consumers to additionally absorb the cost of the carbon tax that was recently passed in the Alberta legislature.
These consumer cost concerns are likely to lead to political pressure to delay the carbon tax. The NDP government desires to implement the carbon tax to increase energy efficiency and to reduce greenhouse gases.
As a result of a delay in the carbon tax, some energy companies will defer energy efficiency initiatives designed to reduce the carbon tax paid.
Increase Uncertainty of Investment in Alberta
The PPA lawsuit is causing investors to see Alberta as a jurisdiction that does not stand by its word. To compensate for this uncertainty, investors will expect a risk premium that will affect the willingness of investors to invest in Alberta.
As a result of this risk premium, the rate of investment in the energy industry will be lower than would have been the case. Lower investment will further exacerbate the recession in the Albertan economy.
How do you think the PPA mess will affect the Alberta energy industry?
Read more insightful analysis from Yogi here