Alberta’s Future Electricity Needs: What’s the Real Story? Economic Developers of Alberta Annual Professional Conference

1. Alberta’s Future Electricity Needs:What’s the Real Story?Economic Developers of Alberta Annual Professional ConferenceApril 10, 2014 John Esaiw, Director Analytics and ForecastingAESO Public

2. Agenda • About the AESO • 2013 Electricity Market Highlights • Provincial Economic Outlook • Long-term Electricity Outlook • Outlook Risks & Mitigation

3. About the AESO • Not-for-profit corporation established by the 2003 Electric Utilities Act as the “Independent System Operator” • Operates in the public interest • May not own or hold an interest in any transmission facility, electric distribution system or generating unit • Has visibility of all market and transmission activities and data • No government funding

4. The AESO’sCore Functions System Operations Direct the reliable 24/7 operation of Alberta’s power grid Transmission System Access Provide access for both electricity generators and large industrial customers Transmission SystemDevelopment Provide continued reliability and facilitate the competitive market and investment in new supply Market Services Develop and operate Alberta’s real-time wholesale energy market to facilitate fair, efficient and open competition

5. Alberta Energy Market Overview • 176 market participants in 2013 • $8 billion in annual energy transactions • High industrial load • Relatively small market with limited interconnections • $999/MWh price cap and $0/MWh price floor

6. Long-term Objectives of our Wholesale Market • Long-term stability and competitively priced electricity for Albertans • Support for investment and a foundation for economic growth • Suppliers need confidence they can move their product to market and have the opportunity to compete • Load customers need confidence they can access electricity in a predictable fashion and at a competitive price • No central planning of generation • Investors make decisions and bear all the risk of type, timing and location of investments A competitive wholesale market for energy coupled with an unconstrained transmission system deliver a long-term supply of needed electricity without government contracts or public debt

7. Alberta Electricity Market 2013 Highlights Load • New winter and summer records for Alberta Internal Load • Peak load growth of 5% • Almost 1,000 MW of load growth over the past 5 years • Average 2.8% load growth • On track for 20-year forecasted annual growth of 2.6% Generation • Almost 1,000 MW of supply back to the grid • Sundance 1 and Sundance 2 back in action, as well as Keephills 1 • Strong market price produces strong build signal: 1,500 MW currently under construction Interties • Montana – Alberta Tie Line in commercial operation since September 2013 • 10th year in a row of being a net importer

8. Strong Price Year • Pool Price:+24.7% • Gas Price: +32.7% • Heat Rate: -2.1%

9. Strong Load Growth • Load growth follows seasonal patterns

10. Continuous Load Growth Over 5 Years

11. Peak Demand Forecasting Results

12. 2013 Demand Sets New Peak Record

13. Demand Growth and New Generation • 2013 Installed Capacity: +1.1%, Load Increase +2.8%, 1,500 MW under construction

14. Cogeneration Facility Expansion • Cogen: +139 MW • Net: +164 MW

15. Average Revenue by Technology

16. Total Time SMP Exceeded $990/MWh • SMP over $990/MWh more frequently then in 2012

17. Decreased Supply Surplus Events • 4 hours of supply surplus in 2013; 58 hours in 2012

18. Imports Serve 3.3% of Load • Alberta has three interties: B.C., Saskatchewan and Montana • Flows vary depending on intertie limitations, market price spreads in Alberta versus other jurisdictions, water flow levels, and other factors • Alberta remains a net importer for the tenth year in a row • Decrease in imports in 2013 • MATL imports following similar behaviour to B.C. imports

19. Annual Intertie Utilization with WECC

20. Economic Drivers

21. Alberta’s EconomyThe Role of Electricity “Electricity is the facilitator of economic development in Alberta” (2008 Provincial Energy Strategy) • Enables: - $hundreds of billions in infrastructure development • - Conference Board of Canada predicts GDP growth to exceed $500 Billion in 10 years $500 Billion GDP by 2023 AESO forecasts 2.6% growth until 2032 $220 billion in current Alberta capital projects* Electricity Industry *Source: Alberta Innovation and Advanced Education

22. Alberta’s EconomyOilsands Expansion Capital Spend Source: Alberta Innovation and Advanced Education

23. Electricity DemandThe Long-term View Oilsands energy grows from 17% of total in 2010 to 31% in 2022

24. Oilsands Projects Growth

25. Electricity Demand Highly Correlated with the Economy

26. Provincial EconomiesGrowth Comparison

27. The Alberta Economy Full Steam Ahead Population Average Weekly Wages Employment Gross Fixed Business Capital Source: Conference Board of Canada

28. Electricity Consumption by Customer Type

29. The Alberta EconomyPrimacy of the Energy Sector Most other industries are connected to the energy industry in some way Source: Conference Board of Canada

30. Future Electricity DemandThe Regional Road Map Source: AESO. Load outlook by region at AIL Winter Peak, excluding transmission losses

31. Electricity GenerationFilling the Gap Medium Term: Additions of 5,900 MW to 7,500 MW Long Term: Additions of 11,800 MW to 13,700 MW

32. Electricity GenerationEstimated Costs

33. Serving Future DemandIncreasing Capacity, Decreasing CO2 Forecast – 20 year Forecast – 10 year Existing Capacity: ~15,000 MW CO2 Intensity: 0.76 TCOE/MWh Capacity: 21,000 MW CO2 Intensity: 0.67 TCOE/MWh Capacity: 25,000 MW CO2 Intensity: 0.63 TCOE/MWh Source: AESO

34. Electricity Generation Shifting Towards Lower Emissions

35. Electricity SupplyUnregulated Market Continues to Respond

36. Electricity GenerationStrong Growth in Wind • Since 2000, Alberta has seen strong growth in the development of wind generation • Wind generation capacity is currently 7.5% of Alberta’s total installed generating capacity • 347 MW under construction today • There is approximately 2,400 MW of wind generation at various stages of development • With committed transmission reinforcement, in combination with Wind Power Management, an additional 2,700 MW of wind can be incorporated onto the grid Source: AESO

37. 20-Year Electricity ForecastsPlanning for Uncertainty Policy Uncertainty Solution: FLEXIBLE Plans Problem: Access to markets Supply Adequacy Green Energy Policy? Emissions reductions = How to plan for a multiple of futures? DistribGen Oilsands Growth Cost inflation Technology Choice

38. Conclusion • The Alberta economy will continue to grow • Oilsands and related industries will drive the economy • Electricity demand is driven by new customer connections • Risks of long-term transmission planning are mitigated by scenario planning • Policy uncertainty is the greatest risk • Technology shifts are a wild card • Alberta’s competitive wholesale market provides significant opportunitiesfor generation investment in the next 10 – 20 years • Coal retirements will create opportunities for alternate fuel choices • A competitive wholesale market price sends signals to market participants through: • Short-term supply adequacy (generator availability, load response) • Long-term supply adequacy (signal to incent build or retirement)

39. Thank you