New electricity generation projects in Alberta are required to complete a gated six stage connection process in Alberta (Connection Process) before they can be connected to the grid. There are actually seven stages, if you count what the Alberta Electric System Operator (AESO) calls Stage 0. The Connection Process was implemented by the AESO in April 2010 to efficiently and fairly progress generation projects forward and connect them to the grid.
The Connection Process describes the activities and milestones that must be achieved in each stage by a developer for a project to pass that gate and move on to the next stage. It begins at Stage 0 with the submission to the AESO of a System Access Service Request (SASR) and ends, ultimately, with either the energization of the generation project at the end of Stage 6 or, as noted below, the cancellation of the project.
The stages of the Connection Process are loosely described as follows:
Stage 0 – Identify Project;
Stage 1 – Connection Study Scope (4 months);
Stage 2 – Connection Proposal (9 Months);
Stage 3 – Need Identification Document and Facility Application (16 months);
Stage 4 – Application Filings and Alberta Utilities Commission Approval (12 months);
Stage 5 – Construct & Prepare to Energize (8 months); and
Stage 6 – Energize, Commission & Close.
The AESO maintains a list of all of the projects that have filed a SASR (Project List), plus another list called the Connection Queue of all of the projects that have met the milestones to complete Stage 2 and moved past that gate.
Until this month, a fundamental principle of the Connection Process was that a generator had a defined number of months (which we have set out above after the stage description and which are generally twice the time the AESO believes it should take to complete a stage) to complete each of the Stages 1 through 5 or it would be kicked out of the Connection Process. The AESO calls it cancelling the project. The AESO quarterly reviews all of the projects on the Project List and, subject to the AESO granting a time extension because of delays beyond a developer’s control, it cancels any project that has not met its stage milestones within the maximum timeframe permitted for that particular stage. Cancellation by the AESO means that the developer has to file a new SASR and start the Connection Process over again for its project from the beginning.
However, the AESO just announced that beginning on July 1, 2017 a developer will have a one-time right to “place a project on hold” (Time Out) in Stage 2 of the Connection Process once the AESO has accepted the connection proposal for the project. This Time Out can only be taken in Stage 2. Once a project moves past Stage 2, it is no longer able to take a Time Out.
This is big news for developers, especially those who are cash constrained, because a key milestone of Stage 2 is for the developer to provide security for certain costs that will be incurred in Stages 3 and 4. The costs for which security must be posted can be significant – millions of dollars in some cases. However, without an offtake agreement with the AESO under its Renewable Electricity Procurement (REP) or with some other credit worthy party, it is difficult for a small developer to post the security. Even large developers, who may have the financial resources, may not want to post the security without an offtake agreement, especially if they have multiple power projects in their Alberta pipeline. A Time Out means that the requirement for the developer to post the security is also on hold.
Given the foregoing, you will not be surprised to learn that there are many proposed wind and solar projects on the AESO’s Project List that have not progressed past Stage 2. Until now, to borrow a phrase from golf having just watched the Open Championship, these developers were “on the clock” – the AESO’s clock anyway – and at risk of being kicked out of the Connection Process if they did not complete Stage 2 within 9 months. Now they will be able to call a Time Out and still remain at Stage 2 on the Project List. In fact, the Project List will not even show that the developer has called a Time Out.
If a developer calls a Time Out, the AESO will require the developer to check in every 6 months by submitting a form to the AESO. The AESO will then decide each time if the developer’s project can remain on hold. The developer can ask the AESO to reactivate its project – end the Time Out and start again in Stage 2. The AESO will decide at that time whether the project’s prior work, including its connection proposal, will have to be reworked. The longer the Time Out period the more likely that rework will be required.
Developers in Stage 2 are now assessing whether or not to call a Time Out for their projects. We are hearing that some of them will do that. The financial benefit is clear. The risks include (i) the prior connection work becoming stale, (ii) the project’s connection proposal becoming no longer acceptable to the AESO such that the project is cancelled, (iii) the impact that a Time Out may have on the ability of a project to provide the necessary information and to meet the required in-service date in a future REP round; and (iv) the affect that calling Time Out might have on the remedial action scheme (RAS) that might be applied to the project considering that the date that a project completes Stage 2 is its priority date for the application of RAS in Alberta.
We are also hearing that the AESO may be less flexible going forward in granting time extensions for Stages 3 through 5, so developers who now move past Stage 2 (do not call a Time Out) should not expect as much leniency on timeframes from the AESO.
This right to call a Time Out is good news for renewable project developers who do not have the financial means to post the required security in Stage 2. It is also good news for the AESO and transmission companies who have limited resources to deal with the flood of proposed renewable projects in Alberta. We will be interested to see if developers that are further along in the Connection Process, and those who do not choose to call a Time Out, begin to lobby for an advantage in future REP rounds given that they have spent more money and have progressed their projects further in the Connection Process. This is not an advantage that was expressly recognized in the current REP round one procurement terms.
AlbertaPowerMarket.com will continue to follow developments in the Connection Process and in the REP and will update you should any other material changes occur on the generation project connection front.
Kent Howie and Peter Bryan both practice law in the Electricity Markets Group at the Calgary, Alberta office of the national law firm Borden Ladner Gervais LLP. They are regular contributors to the postings to AlbertaPowerMarket.com.