Under the existing “energy-only” market design of Alberta Energy System Operator (AESO), no explicit market rules in the energy and ancillary services markets address the potential exercise of market power by suppliers beyond the offer cap of $999.99/MWh. The AESO limited market rules to address market power to this offer-cap to allow market forces, to the extent possible, to respond to any scarcity of resources in the market and to incentivize new capacity additions.
The combination of Alberta’s lower-carbon, sustainable electricity system policy, and low natural gas prices has led to a concern whether the AESO system can continue to maintain a healthy reserve and attract new investment to ensure its reliability in the future. The Government of Alberta approved the AESO’s recommendation to establish a formal capacity market as a means to provide greater investment incentives for generation needed to supply load in the AESO market.To transition from the energy-only market to an energy plus capacity market design requires changes in market rules that allow AESO markets to achieve a competitive outcome. In particular, it requires the modifications of the definition of fair and efficient competition in the energy and ancillary services markets and associated market rules that prevent suppliers’ potential exercise of market power.