Alberta’s Restructured Electricity Market (REM): What it Means for Albertans and Indigenous Communities

Alberta’s electricity sector is on the cusp of its biggest market redesign in decades. The Alberta Electric System Operator (AESO) recently unveiled the final design for its Restructured Energy Market (REM), a sweeping overhaul intended to modernize the province’s “energy-only” electricity market. While much public commentary has focused on reliability, investor signals, and cost impacts for everyday Albertans, the implications for Indigenous communities could be noteworthy – particularly those with equity stakes in generation projects or located in remote regions—merit careful consideration. This article will explain what the AESO is, why the province (via its ministry direction) is driving the change, the core elements of REM, and how Indigenous communities may be affected.

What Is the AESO?

The Alberta Electric System Operator is the independent entity tasked with operating and planning Alberta’s interconnected electricity grid in a safe, reliable, and economic fashion. The AESO does not own transmission, distribution, or generation assets; instead, it administers the wholesale electricity market, dispatches generation, manages system balancing, and sets long-term transmission planning.

In Alberta’s deregulated energy market, power generators and large consumers transact in a wholesale “pool,” with the AESO matching supply and demand and settling the market. Over time, Alberta developed an energy-only design: generators are paid only for the energy they produce, with wholesale prices (when supply is tight) rising high enough to recover fixed capital costs.

But recent shifts have begun to stress the traditional market framework through the growth of intermittent renewable generation; a rapid transition from coal to natural gas generation; more dispersed grid load; the introduction of power hungry AI data centres; and transmission constraints.

Why Is the Ministry Driving Market Change?

In early 2024, the Minister of Affordability and Utilities directed the AESO to propose a high-level redesign of the electricity market to respond to evolving grid conditions.

Several pressures underlie this direction:

1. Evolving supply mix
   Alberta has seen substantial growth in wind, solar, and battery/storage projects in recent years. Such intermittent, location-sensitive resources present new challenges for maintaining grid reliability and sending correct price signals.

2. Reliability concerns and grid complexity
   As the grid becomes more dynamic—with variable generation, changing demand, and congestion constraints—there is greater need for additional operational services, commitment mechanisms, and pricing granularity to preserve stability.

3. Attracting long-term investment
   The Alberta Government and AESO see a need for clearer, more stable price signals to support investment in dispatchable, flexible capacity (gas turbines, storage, demand response, carbon capture and storage) and new transmission. The idea is that by better aligning revenues and cost recovery, investment risk is reduced.

4. Cost causation and fairness in grid costs
   Under the current regime, some transmission and system costs are socialized broadly. The new design aims to assign new transmission costs more directly to power producers who cause or benefit from congestion.

In effect, the ministry’s push is to make the electricity market more robust, responsive, and investment-friendly in a changing grid environment.

Major Changes Under the REM

When Alberta’s Restructured Energy Market (REM) comes into effect in 2027, it will bring several big changes to how electricity is priced and managed in the province. One of the most important updates is how prices will be set across the grid. Right now, there is a single province-wide electricity price, no matter where power is produced or used. Under REM, prices will start to vary by location through a system called locational marginal pricing (LMP). The goal of LMP is to encourage investment in the right places and make better use of the grid, although it could mean that power producers or customers in remote or constrained regions see higher costs.

REM will also introduce new tools to help manage the ups and downs of electricity supply and demand. A key example is a new reserve product called R30, which requires power producers to be ready to deliver electricity within 30 minutes when needed. This rewards flexibility and quick response times, helping to keep the grid stable when renewable sources like wind and solar fluctuate.

Another significant change is how prices will move during periods of high demand or excess supply. REM will raise the maximum price that electricity can reach during scarcity – from $1,000 per megawatt hour to $3,000 – to better reflect real market conditions. It will also allow prices to drop below zero, as low as -$100 per megawatt hour, during times when there’s more supply than demand, such as on very windy or sunny days.

To make the transition smoother, the AESO plans to offer temporary protections for existing power producers. These will include Financial Transmission Rights (FTRs) or other financial tools that help offset potential losses caused by the new location-based pricing system. These measures will phase out over several years as the market adjusts. Throughout this process, the AESO will be engaging with industry, Indigenous communities, and other stakeholders to ensure the new rules are implemented fairly and transparently.

How REM Could Impact Indigenous Communities

Indigenous communities in Alberta have diverse connections to the electricity system. Some hold equity stakes in renewable energy projects or small-scale generation, others host energy developments on reserve or traditional lands, and many are located in remote or constrained areas of the provincial grid. The changes introduced through the REM will affect these communities in different ways, bringing both risks and opportunities.

Many Indigenous communities have spoke out against the proposed policy and market changes, expressing concerns about the potential impacts to revenue and the local social programs reliant on the success of these projects. One key challenge to communities is location. Under the new locational marginal pricing system, projects in congested or remote areas may earn lower revenues or face higher costs than those in less constrained zones. With negative pricing and rapid market swings occurring – greater price volatility could make financial planning more difficult for smaller or community-owned projects. The new market’s added complexity, including multiple reserve products and the need for advanced forecasting and modeling, could pose a barrier for communities with limited technical capacity. Financing may also become more difficult if lenders view REM as introducing regulatory or market uncertainty, potentially raising borrowing costs. In addition, market power mitigation measures may advantage traditional thermal generators over renewable or hybrid projects, while new cost-causation rules could assign grid upgrade expenses directly to those operating in constrained areas. This could leave Indigenous projects with disproportionate financial burdens.

Implementation of the REM

The REM is set to be implemented gradually, with final rule development and stakeholder consultations taking place through 2025 and 2026, and full market launch targeted for mid-2027. As the transition unfolds, market participants will need to pay close attention to several key decisions and opportunities. One early focus will be the one-time choice between settling at the province-wide Alberta Load Price (ALP) or opting into locational marginal pricing (LMP), which could significantly affect project revenues depending on geography and congestion. Developers and communities should also evaluate the potential of behind-the-fence generation, power-to-heat opportunities, and battery storage solutions to manage price volatility, avoid congestion charges, and capitalize on new reserve and ramping products. Careful planning during this transition period – particularly around location, flexibility, and market participation – will be critical to ensuring long-term competitiveness and resilience under the new REM framework.

Conclusion

In the months ahead, Alberta’s market structure will evolve further through rule drafting, consultation, and phased implementation. This these changes, success will depend on careful implementation and ensuring that all participants, including Indigenous communities, are supported through the transition and able to share in the benefits of Alberta’s evolving energy future.