AESO 2014 Long-term Outlook

The information contained in this document is published in accordance with the AESO s legislative obligations and is for information purposes only. As such, the AESO makes no warranties or representations as to the accuracy, completeness or fitness for any particular purpose with respect to the information contained herein, whether express or implied. While the AESO has made every attempt to ensure information is obtained from reliable sources, the AESO is not responsible for any errors or omissions. Consequently, any reliance placed on the information contained herein is at the reader s sole risk.

Table of Contents 1.0 Executive Summary 1 1.1 AESO Scenarios 3 1.2 Forecast Results 3 2.0 Introduction 4 2.1 Overview of the Forecast Process 5 3.0 Economic Outlook 8 3.1 Introduction 8 3.2 Economic Outlook 8 3.3 Energy Commodity Outlook 11 4.0 Environmental Drivers 12 4.1 Introduction 12 4.2 Coal-fired Generation of Electricity Regulations 12 4.3 Specified Gas Emitters Regulation 13 5.0 Provincial Outlook 14 5.1 Introduction 14 5.2 Energy & Load 15 5.3 Generation 16 6.0 Regional Outlooks 17 6.1 Introduction 17 6.2 Northeast Region 18 6.2.1 Load 18 6.2.2 Generation 19 6.3 Northwest Region 20 6.3.1 Load 20 6.3.2 Generation 21 Table of Contents

6.4 Edmonton Region 22 6.4.1 Load 22 6.4.2 Generation 23 6.5 Central Region 24 6.5.1 Load 24 6.5.2 Generation 24 6.6 South Region 26 6.6.1 Load 26 6.6.2 Generation 26 6.7 Outlook Summary and Risks 27 6.7.1 Load Risks 28 6.7.2 Generation Risks 29 7.0 Scenarios 30 7.1 Purpose 30 7.2 Methodology and Drivers 31 7.2.1 Scenarios Drivers 31 7.2.2 Oilsands Production and Load 31 7.2.3 Environmental Policy 31 7.2.4 Technology Advances 31 7.2.5 Other Drivers 32 7.3 Low Growth Scenario 32 7.3.1 Low Growth Scenario Provincial Outlook 32 7.4 Environmental Shift Scenario 33 7.4.1 Environmental Shift Provincial Outlook 33 7.5 Energy Transformation Scenario 35 7.5.1 Energy Transformation Provincial Outlook 35 7.6 2014 LTO Results Summary and comparison 36 Appendix A Main Outlook Detailed Results 38 Appendix B Forecasting Process 40 Appendix C Forecast Considerations 41 Appendix D Forecast Comparison 66 Appendix E System Load 68 Appendix F Industry Engagement 71 Appendix G Alberta Reliability Standard Requirements 72 Appendix H Glossary of Terms 74 Table of Contents

1.0 Executive Summary The 2014 Long-term Outlook (2014 LTO) is the Alberta Electric System Operator s (AESO) long-term forecast of Alberta s expected future demand and energy requirements over the next 20 years, along with the expected generation capacity to meet those requirements. The AESO s Long-term Outlooks describe the methodology, assumptions and results that serve as key inputs to the AESO s long-term transmission planning process, and ultimately the publication of the Long-term Transmission Plan for Alberta. The 2014 LTO is also used as an input into many of the AESO s core business activities, including transmission system development, system operations, customer access and market services. The 2014 LTO is prepared in accordance with the duties of the AESO as outlined in Alberta s Electric Utilities Act (EUA) and the Transmission Regulation (AR 86/2007), and will be used to support Needs Identification Document (NID) filings that may be submitted to the Alberta Utilities Commission (AUC). The Long-term Outlook is the starting point for the AESO s transmission planning process cycle which includes the creation of the Long-term Transmission Plan (LTP) and Regional Plans. Transmission connection studies also rely upon the 2014 LTO s load and generation forecasts. The LTP is a blueprint for ensuring the Alberta Interconnected Electric System (AIES) continues to meet the province s future electricity needs and support the fair, efficient and openly competitive operation of the electricity market. Stock Photograph. 1.0 Executive Summary PAGE 1

As part of its forecast process, the AESO compared the 2014 LTO to past forecasts including the 2012 Long-term Outlook (2012 LTO) and 2012 Long-Term Outlook Update (2012 LTOU). Differences in forecast demand and generation were analyzed to determine if there were material impacts which could affect previously planned transmission facilities. Overall, the 2014 LTO is very similar to the 2012 LTOU. In most instances, changes in the 2014 LTO from the 2012 LTO and 2012 LTOU were already studied as sensitivities in transmission plans because potential major impacts were the result of load and generation project changes. The 2014 LTO includes a 20-year peak demand and electricity consumption forecast and a generation capacity projection for Alberta. The forecast s foundation is an economic outlook which considers global, U.S., Canadian and provincial factors that affect Alberta s economy. The 2014 LTO economic outlook assumes that throughout the forecast and especially over the next five to 10 years, global demand for crude oil will sustain prices and support strong investment in the oilsands, which will also drive strong Alberta economic growth. This economic outlook is verified against other third-party economic forecasts. Expansion of the oilsands will have major impacts on the electricity industry in Alberta. It will increase load growth directly, especially in the northeast region of the province. Economic growth associated with oilsands development will increase load growth across the province. With oilsands growth, cogeneration development will also occur. To meet growing demand and coal-fired generation retirements, and with anticipated low natural gas prices, gas-fired generation is expected to be the predominant source of new generation over the next 20 years. As part of its forecast process, the AESO consults with government agencies, distribution facility owners (DFOs), policy makers, industry experts and both load and generation entities in order to validate forecast results, incorporate the latest and expected industry trends, and align with industry development plans. Other key considerations such as overall economic growth trends (Canada and Alberta), policy evolution (federal and provincial), technology development, energy efficiency, publicly announced projects, generation economics, and the impact of Alberta s market signals are also considered in creating the 2014 LTO. PAGE 2 1.0 Executive Summary

1.1 AESO Scenarios Recognizing inputs into the forecast may change, the AESO s 2014 LTO incorporates the use of three comprehensive scenarios, established by identifying key drivers and assumptions deemed to be of high impact or importance to the forecast. These scenarios are: 1) Low Growth What if provincial growth is strongly reduced? 2) Environmental Shift What if a strong environmental policy that supports oilsands development is implemented? 3) Energy Transformation What if a strong environmental policy that severely limits Alberta s oilsands and electricity industries is implemented? These scenarios allow the AESO to analyze the impacts of changes to major forecast drivers and assumptions and test the effects on its plans and other processes. 1.2 Forecast Results The 2014 Long-term Outlook forecasts the Alberta economy to continue to grow strongly throughout the forecast period, driven by growth in oilsands development. The 2014 LTO projects electricity consumption to grow in tandem with the economic outlook, also led by growth in the oilsands energy sector. Over the next 20 years, Alberta Internal Load (AIL) is expected to grow at an average annual rate of 2.5 per cent. Natural gas-fired generation additions are expected to make up the bulk of the new capacity in response to this growing demand for energy as well as generation retirements. The 2014 LTO s three comprehensive scenarios test the major drivers and assumptions underpinning this outlook. 1.0 Executive Summary PAGE 3

2.0 Introduction The 2014 Long-term Outlook (2014 LTO) is the AESO s long-term forecast of Alberta s expected future demand and energy requirements over the next 20 years, along with anticipated generation capacity to meet those requirements. The 2014 Long-term Outlook is the starting point for the AESO s transmission planning process cycle which includes the creation of the Long-term Transmission Plan (LTP) and Regional Plans. Transmission connection studies also rely upon the 2014 LTO s load and generation forecasts. The 2014 LTO will be used by the AESO as the foundation for the next Long-term Transmission Plan. The LTP is a blueprint for ensuring the Alberta Interconnected Electric System (AIES) continues to meet the province s future electricity needs and supports the fair, efficient and openly competitive operation of the electricity market. As part of its forecast process, the AESO compared the 2014 LTO to past forecasts including the 2012 Long-term Outlook (2012 LTO) and 2012 Long-Term Outlook Update (2012 LTOU). Differences in forecast demand and generation were analyzed to determine if there were material impacts that could affect previously planned transmission facilities. Overall, the 2014 LTO is very similar to the 2012 LTOU. In most instances, changes in the 2014 LTO from the 2012 LTO and 2012 LTOU were already studied as sensitivities in transmission plans because potential major impacts were the result of load and generation project changes. Stock Photograph. PAGE 4 2.0 Introduction

The Transmission Regulation (AR 86/2007) provides additional forecast direction, requiring that the AESO, in planning the transmission system: must anticipate future demand for electricity, generation capacity and appropriate reserves required to meet the forecast load so that transmission facilities can be planned to be available in a timely manner to accommodate the forecast load and new generation capacity; must make assumptions about future load growth, the timing and location of future generation additions, including areas of renewable or low emission generation, and other related assumptions to support transmission system planning. In addition, the Long-term Plan must include for at least the next 20 years, the following projections: the forecast load on the interconnected electric system, including exports of electricity; the anticipated generation capacity including appropriate reserves and imports of electricity required to meet the forecast load; the timing and location of future generation additions, including areas of renewable or low emission generation. 2.1 Overview of the Forecast Process The AESO s outlook relies on trusted third party information, data, and processes, and reflects the latest industry outlooks. The AESO typically updates its long-term forecast every year. Alberta is growing rapidly and the change that comes with that growth requires continuous monitoring of constantly changing factors that affect both load and generation, including: Alberta s economy including key drivers such as crude oil, natural gas, and oilsands industries as well as financial and commodity market conditions Provincial, federal, and international policies and regulations concerning economic development, the environment, and the electricity industry in Alberta Technological changes including generation technologies, costs, and resource availability; energy efficiency and other Demand-Side Management (DSM) initiatives; energy storage; electric vehicles; and smart grids Announced, applied-for, approved, under-construction, and existing oilsands, industrial, generation and other projects Regional factors including specific and potential sources of load and generation changes 2.0 Introduction PAGE 5

The AESO s 2014 Long-term Outlook is effectively a study in the above factors combining the current and expected trends into a comprehensive outlook (main outlook) over the next 20 years for Alberta s economy, load, and generation. Recognizing uncertainty inherent in predicting the future, the 2014 LTO also contains three comprehensive scenarios which test key assumptions and drivers in the main outlook. The forecast process begins with the economic outlook which is derived from The Conference Board of Canada s annual long-term provincial economic forecast. 1 This economic outlook is verified against other third-party forecasts for reasonability and accuracy. The economic outlook is a 20-year view of the economy, and is therefore designed to capture long-term trends such as demographic and economic shifts rather than short-term events. The economic outlook is used as a key input to forecast electricity consumption, or energy, using the economic drivers specific to five customer sectors: Industrial (without Oilsands) Oilsands Residential Commercial Farm The Oilsands sector is separated from the Industrial sector due to its importance to the economy and its unique electricity needs. The energy forecast is then combined with point of delivery (POD) load shapes to produce an hourly load forecast by POD. The POD-level data is informed by historical data, publicly available information such as the AESO Connection Queue and Project List, 2 as well as external discussions with individual stakeholders, market participants, third-party experts, Distribution Facility Owners (DFOs), consultants, and others. In the longer term, there is naturally more uncertainty and less available information in terms of the location of future electricity needs, so the forecast relies more heavily on the trending of the long-term economic outlook. 1 www.conferenceboard.ca > Products and Services > Reports and Recordings > Economic Trends 2 www.aeso.ca > Customer Connections > Connection Queue PAGE 6 2.0 Introduction

Generation development in Alberta is a competitive business driven by independent investment decisions. In the development of the generation forecast, the forecast load is compared against currently installed generation and expected future retirements to assess the amount of incremental generation needed to reliably serve the growing demand. Generation technology drivers and costs are assessed to determine what and where resources are expected to be developed to supply future electricity load. In a process similar to that of the load forecast, the generation forecast is informed in the near term by the AESO Connection Queue and Project List, as well as by discussions with stakeholders, market participants, third-party experts, consultants, and other sources. In the longer term, the forecast relies more heavily on expected long-term trends in generation development such as relative technology costs and expected technology developments. A visual map of the forecasting process is available in Appendix B. There are key risks and uncertainties inherent in any long-term forecast, and these uncertainties increase the farther out the forecast extends in time. The 2014 LTO addresses these key risks and uncertainties using scenarios which are explained in detail in Section 7. Stock Photograph. 2.0 Introduction PAGE 7

3.0 Economic Outlook 3.1 Introduction The economic outlook is the foundation of the 2014 LTO and is a key input to the long-term load and generation forecasts. The way in which Alberta s economy changes over the next 20 years will, along with policy drivers, determine how demand and supply of electricity will develop. In the near term, the outlook is driven by current economic trends, policies and expectations for sustaining growth in exports, private investment and consumer spending. In the longer term, the outlook is driven more strongly by demographic projections and assumptions regarding labour productivity, as well as growth in oil production. The economic outlook is underpinned by The Conference Board of Canada s annual longterm provincial economic forecast. This forecast is validated for reasonability against other third-party economic forecasts. 3.2 Economic Outlook Global economic growth to drive demand for Alberta s resources Reduced fiscal constraint and the supply-chain effect that the more successful European countries are having on the other European Union (EU) member countries is expected to result in economic growth following two years of recession in the EU. While Europe accounts for less than 10 per cent of Canadian exports, positive growth in the region could certainly help bolster demand for Canadian goods directly, and also indirectly by building on global demand. While the performance of developed and developing economies has been mixed recently, the contribution of China and other developing economies to global growth continues to rise. Moreover, China s reliance on exports is easing, with domestic demand and household consumption there rapidly emerging as a source of growth for its domestic economy and as a growing opportunity for global exporters, including Canada. Over the past decade, raw material prices skyrocketed by nearly 80 per cent, providing a huge influx of revenue into the Canadian economy and boosting profits, investment, and income. While raw material prices are expected to stabilize over the near term and rise modestly over the longer term, this will continue to stimulate exploration and mine development throughout Canada, and it provides a solid outlook for Alberta s energy production over the medium and long terms. PAGE 8 3.0 Economic Outlook

Solid U.S. growth and retreat of Canadian dollar boost Canadian economic growth In 2013 the U.S. economic growth was slowed by untimely fiscal action, as a combination of tax increases and spending cuts at the beginning of the year chopped around 1.5 percentage points from real GDP growth. In 2014, less restrictive fiscal policy suggests that government will be much less of a drag, removing 0.4 percentage points from economic growth. Low relative labour and energy costs, along with solid corporate profits, have bolstered growth in private investment on structures and machinery. These trends are expected to continue, lifting near-term hiring and output growth. The medium-term outlook is relatively solid as the U.S. economy is anticipated to slowly catch up to its potential. And, while further setbacks are possible, a strengthening U.S. economy should go a long way in shoring up investor confidence on a global level. Canadian economic growth driven by demand for resources Over the past few years, a two-tiered Canadian economy has emerged, with resource-rich Saskatchewan, Alberta and Newfoundland and Labrador outperforming the rest of the country. However, the outlook for most of the provinces is positive as they benefit from a stronger U.S. economy, improving business and consumer confidence, and a firmer domestic economy. While the fiscal situation remains tenuous in several provinces, beyond 2017 economic growth is expected to slow as it realigns with weakening growth in potential output. Slower population growth and the effects of an aging population will restrain labour force growth and heavily influence income and spending patterns. Despite the negative effects of these demographic trends on the economy, real GDP growth will average Stock Photograph. 3.0 Economic Outlook PAGE 9

2.1 per cent annually over the 2018 to 2035 periods, thanks to heavy investment in machinery, equipment and technology, and in firms utilizing more highly skilled workers and more innovative production processes. Over the 2026 2035 period, strong labour productivity getting more output per hour worked is a key assumption underlying the projections, with real GDP growth forecast to ease to 1.8 per cent over the later years of the forecast. Oilsands development continues to drive Alberta s strong economic growth The Alberta economy will advance solidly over the next 20 years, expanding at a compound average annual rate of 2.4 per cent with the province s energy sector, especially oilsands, being the driving force. While Canadian oil prices have been lower than other global crude oil prices, the oilsands are, and are expected to remain, profitable throughout the forecast. Strong oilsands development driving the Alberta economy is further evidenced by the Alberta Inventory of Major Projects (Figure 3.2-1) which shows how capital investment in the oilsands sector dwarfs all other sectors. That investment will spur construction especially in the near term, create jobs, and support all other areas of the Alberta economy. Significant oilsands growth driving the Alberta economy is a major assumption of the 2014 LTO. Recognizing there are potential risks to assuming strong oilsands growth, the AESO created scenarios including a Low Growth Scenario (Section 7). While the long-term forecast for the province is favourable, the aging of Canada s population will take its toll on economic output across the country, including in Alberta. Weaker demographic conditions will slow the Alberta economy in the mid-to-long term. Figure 3.2 1: Inventory of Major Projects in Alberta Figure 1: Inventory of Major Projects in Alberta Oilsands Pipelines Oil and Gas Infrastructure Power Commercial / Retail Institutional Tourism / Recreation Residential Chemicals and Petrochemicals Agriculture and Related Mining Biofuels Other Industrial Forestry and Related Manufacturing $0 $20,000 $40,000 $60,000 $80,000 ($Cdn Millions) $100,000 $120,000 Source: Alberta Enterprise and Advanced Education (Feb. 2014) PAGE 10 3.0 Economic Outlook

3.3 Energy Commodity Outlook Abundant tight gas supply expected to keep prices weak Due to the abundance of unconventional natural gas resources including shale and other tight sources, the North American gas industry has expanded considerably over the past five years, and the 2014 LTO forecasts continued expansion. The abundance of supply is expected to keep a ceiling on natural gas prices which rise gradually through the latter half of the forecast. Relatively low prices have already impacted generation development plans in Alberta with a significant number of announced gas-fired generation projects over the near and mid term. Natural gas as a fuel source is also attractive because it is the least carbon-intensive among fossil fuel sources. Continued global oil demand will sustain oil prices Overall, the global economy is expected to grow over the next 20 years of the 2014 LTO. This growth will result in increasing energy demand, driven mainly by increasing consumption from countries outside the Organization for Economic Co-operation and Development (OECD). While demand for all forms of energy is expected to increase, crude oil will remain the dominant fuel source as demand for it rises. As demand rises and supplies of lower cost crude oil sources become depleted, crude oil prices rise throughout the forecast. Oilsands production to double over the next decade Continued global interest in Alberta s oilsands resources is expected due to the massive size of the reserves, favourable and stable political and fiscal terms, and demand from countries and companies looking for new and additional sources of crude oil supply. Oilsands bitumen production is expected to increase from approximately 2 million barrels per day (bbl/d) today to 3.9 million bbl/d by 2024 and to 4.9 million bbl/d by 2034. While there are risks to the future development of Alberta s oilsands, generally the conditions are favorable for strong growth. The AESO s 2014 LTO assumes that oil export constraints will be addressed and policies will continue to support development. 3.0 Economic Outlook PAGE 11

4.0 Environmental Drivers 4.1 Introduction The electricity industry is affected by a wide range of environmental regulations, both federal and provincial. The main environmental drivers that most affect the 2014 LTO are summarized in this section. These drivers are key because they directly impact the outlook for generation development in Alberta. However, there are several other environmental regulations, either under development, or in existence but expected to have a lessor impact on various parts of the forecast, which are detailed in the Environmental Considerations Section of Appendix C. The 2014 LTO assumes that regulations currently in force at time of writing will persist through the forecast, with existing policy lending overall direction to the forecast. Policy and regulation are significant sources of uncertainty in the 2014 LTO. Policy change risk to the 2014 LTO is explored through the development of comprehensive scenarios, which are described in Section 7. 4.2 Coal-fired Generation of Electricity Regulations In September 2012 the Canadian federal government enacted the Reduction of Carbon Dioxide Emissions from Coal-fired Generation of Electricity Regulations, 3 which will reduce carbon dioxide (CO2) emissions from the country s coal-fired generation fleet. Photo courtesy of TansAlta 3 http://www.gazette.gc.ca/rp-pr/p2/2012/2012-09-12/html/sor-dors167-eng.html PAGE 12 4.0 Environmental Drivers

The regulation allows existing coal units up to 50 years of operational life before they must either retire or retrofit with carbon capture and storage (CCS). The first significant retirements are expected to occur in 2019. Given the current costs of CCS, the 2014 LTO anticipates that no new coal-fired plants will develop. The high cost of CCS also drives the replacement of retiring coal-fired generation with less costly technologies like combinedcycle natural gas-fired generation. 4.3 Specified Gas Emitters Regulation While federal regulations set minimum emission standards for coal-fired generation, Alberta also has a provincial greenhouse gas (GHG) policy. Alberta s current GHG regulation, the Alberta Specified Gas Emitters Regulation (SGER), 4 was enacted in 2007. The regulation requires industrial facilities, including electricity generators which emit more than 100,000 tonnes of GHG per year, to reduce their corresponding emissions intensity by 2 per cent per year up to a limit of 12 per cent. The use of credits and financial contributions 5 to the Climate Change and Emission Management Fund (CCEMF), 6 which invests in projects related to Alberta s climate change strategy, is also allowed as a compliance mechanism. Since implementation of the regulation in July 2007 to the end of March 2013, the Alberta Emissions Offset Registry (AEOR) has registered a total of 137 projects and serialized almost 28 million tonnes (Mt) of GHG emission reductions or removals through registration of offset projects. 7 This regulation impacts the levelized cost of electricity of generation technologies. For those units that emit more than 100,000 tonnes of GHG per year, there is additional cost from the requirement to offset GHG emissions with credits or financial contributions. For renewable technologies, such as wind, credits are received for emissions that they offset, decreasing the levelized costs. SGER is currently under review by the provincial government as the regulation expires September 2014. The regulation is expected to be renewed but any changes to it and alignment with federal policy initiatives are not available at time of writing. 4 http://environment.alberta.ca/01838.html 5 Currently $15/tonne for every tonne exceeding the allocated limit 6 http://ccemc.ca/ 7 http://carbonoffsetsolutions.climatechangecentral.com/policy-amp-regulation/alberta-offset-system-compliance-aglance/2012-compliance-year 4.0 Environmental Drivers PAGE 13

5.0 Provincial Outlook 5.1 Introduction Oilsands growth to drive strong load growth, especially in the Northeast Region, while gas-fired generation becomes dominant baseload technology As mentioned in the economic outlook in Section 3, it is expected that the energy sector, especially oilsands, will be the driving force of Alberta s economy. Strong growth in the oilsands means significant development of load in the northeast of the province is expected. Oilsands growth also has secondary and tertiary effects on other parts of the province. Pipelines to move bitumen, diluents, and other products are required both to export bitumen from Alberta and also to move products within Alberta. Other industries such as chemicals, metals, and machinery manufacturing also directly benefit from expanding oilsands. As the oilsands expand, it is also expected that there will be significant job creation which will encourage immigration to Alberta. As Alberta s population increases, so too will demand for goods and services from a wide array of businesses. With population growth and increased business activity, residential and commercial demand will grow, especially in urban centres. Stock Photograph. PAGE 14 5.0 Provincial Outlook

As energy and load growth occurs and existing generation retires, new generation development is expected. The types and location of future generation development depend upon available technologies and fuel sources, comparative generation technology costs, and policy. Based on expected trends, gas-fired generation will be a significant technology source in providing baseload and peaking generation capacity through the addition of cogeneration, combined-cycle, and simple-cycle. This gas-fired generation will be complemented by additional renewable development. The AESO uses a comprehensive methodology to forecast future energy, load, and generation which includes third-party assessments, discussions with industry and stakeholders, and reviews of the latest and expected economic, policy, technological, and demographic trends. Regional forecasts are discussed in greater detail in Section 6, while details of the AESO s overall forecast methodology and assumptions can be found in Appendices B and C. Additional detailed forecast results can be found in the 2014 LTO data file. 5.2 Energy & Load As mentioned, oilsands development is expected to be a major driver of overall electricity consumption within Alberta. There are a significant number of oilsands projects currently under various forms of development that are expected to be completed over the next five years. These projects, along with the economic spinoff and job creation resulting from their development, are expected to drive strong average annual Alberta Internal Load (AIL) energy consumption growth in the near term. As part of its forecast process, the AESO individually analyzes and forecasts electricity consumption by five customer sector types according to each type s unique characteristics and drivers. The Oilsands sector forecast is mainly project-driven and is expected to grow the fastest at an average annual rate of 4.5 per cent over the next 20 years. The Industrial (without Oilsands) sector is forecast to grow at 2 per cent over the next 20 years, driven mainly by growth in industries associated with oilsands and economic growth including pipelines, petrochemical, and manufacturing. Residential electricity consumption is driven by population growth as well as changes in consumption behavior. Over the forecast, residential electricity use is expected to grow at an average annual rate of 1.6 per cent. Commercial electricity consumption is forecast to grow at an average annual rate of 2.2 per cent as that sector grows with the overall economy. Over the next 10 years, AIL energy growth is forecast to remain robust as additional oilsands projects develop and contribute to economic growth. Over the next 20 years, energy growth is not expected to remain as strong as in the nearer term. Greater uncertainty about future oilsands and other development in the province, reduced oilsands and economic growth along with improvements in energy efficiency result in a lower rate of AIL energy consumption growth. Over the next 20 years, AIL energy is forecast to grow at an average annual rate of 2.5 per cent. The AESO s energy forecast can be found in Appendix A and additional details and assumptions regarding the energy forecast can be found in Appendix C. Similar to AIL energy, AIL peak is forecast to grow at an average annual rate of 2.5 per cent over the next 20 years. System load, which excludes load served by onsite generation, is expected to grow slightly slower than AIL at a rate of 2.3 per cent over the next 20 years. 5.0 Provincial Outlook PAGE 15

5.3 Generation In developing the generation forecast, assessments of each technology are performed including location and fuel availability, current developments, relative levelized costs, and impact of policy. Generation development over the next 20 years is expected to be strong as a result of growth in AIL and the retirement of large coal-fired facilities. The economics around generation has combined-cycle as the lowest cost technology while wind energy has the second lowest cost. Other technologies such as cogeneration will see development as the benefits of captured heat within industrial applications is strong. In the first 10 years, generation development in the oilsands is primarily expected to be cogeneration and baseload combined-cycle in anticipation of both coal-fired retirements and increased AIL. In addition to the baseload generation, some developments of wind facilities and gas-fired simple-cycle have been forecast. Wind development is economically challenging; however, many wind projects remain interested in connection to the transmission system. In the latter half of the forecast, large additions of baseload generation are expected to develop in response to further retirement of coal-fired units and continued load growth. Combined-cycle is the main type of baseload technology developing in the forecast. Cogeneration development in the second 10 years of the forecast is lower than the first 10 years, reflecting slower overall oilsands growth. Wind sees little growth as forecast economics remain challenging and existing policy is not strong enough to provide adequate incentives. Additions of other generation technologies also continue in the second 10 years but at a reduced level. 2014 LTO: Generation Capacity Mix Comparison Existing as of December 31, 2013 Total Capacity: 14,568 AIL Peak: 11,139 2019 Total Capacity: 18,259 AIL Peak: 14,274 2024 Total Capacity: 21,039 AIL Peak: 16,014 2034 Total Capacity: 24,953 AIL Peak: 18,519 43% Coal 6,271 29% Cogeneration 4,245 6% Combined-cycle 843 6% Simple-cycle 804 6% Hydro 894 7% Wind 1,088 3% Other 423 30% Coal 5,402 33% Cogeneration 6,003 14% Combined-cycle 2,513 7% Simple-cycle 1,228 5% Hydro 894 10% Wind 1,751 3% Other 468 26% Coal 5,402 30% Cogeneration 6,302 19% Combined-cycle 4,001 8% Simple-cycle 1,679 4% Hydro 894 11% Wind 2,263 2% Other 498 10% Coal 2,509 27% Cogeneration 6,737 36% Combined-cycle 8,871 10% Simple-cycle 2,399 4% Hydro 894 11% Wind 2,679 3% Other 864 Total 14,568 MW Total 18,259 MW Total 21,039 MW Total 24,953 MW Source: AESO PAGE 16 5.0 Provincial Outlook

6.0 Regional Outlooks 6.1 Introduction As the 2014 LTO will be used as a basis for AESO planning, it has a regional focus that examines key features of the AESO s planning regions along with an assessment of the key drivers and trends that affect both load and generation within each region. This regional approach helps the AESO to understand the geographical impacts associated with forecast load and generation. Figure 6.1 1: AESO Planning Regions and Areas 17 Rainbow Lake 18 High Level 25 Fort McMurray 19 Peace River * Planned areas are numbered Source: AESO 20 Grande Prairie 22 Grande Cache 23 Valley View 24 Fox Creek 29 Hinton / Edson AESO Planning Regions* Central Edmonton Northeast Northwest South 21 High Prairie 26 Swan Hills 34 Abraham Lake 40 Wabamun 30 Drayton Valley 38 Caroline 44 Seebee 31 Wetaskiwin 35 Red Deer 39 Didsbury 57 Airdrie 6 Calgary 45 Strathmore/ Blackie 46 High River 27 Athabasca / Lac La Biche 60 Edmonton 33 Fort Sask. 56 49 Stavely Vegreville 36 Alliance/ Battle River 53 Fort MacLeod 54 Lethbridge 55 Greenwood 32 Wainwright 42 Hanna 43 Sheerness 47 Brooks 28 Cold Lake 13 Lloydminster 37 Provost 48 Empress 52 Vauxhall 4 Medicine Hat 6.0 Regional Outlooks PAGE 17

6.2 Northeast Region Northeast growth contingent upon ongoing oilsands development The Northeast Planning Region is characterized by a relatively sparse population but significant amounts of industrial load and cogeneration. It is also the fastest growing region in terms of load as new oilsands and other industrial projects connect to the AIES and ramp up. Table 6.2 1: Northeast Characteristics 2013 Average Load (MW) 2,460 2013 Summer Peak (MW) 2,231 2013/2014 Winter Peak (MW) 2,877 Population (000s) 245 Area (000 km2) 184 Source: Alberta Municipal Affairs, AESO 6.2.1 Load The majority of load in the Northeast Region is industrial-based. The Fort McMurray (Area 25) and Cold Lake (Area 28) areas contain the majority of the province s oilsands operations. The Fort Saskatchewan area (Area 33) contains the Industrial Heartland which includes some oilsands activity such as the Shell Scotford Upgrader, as well as a significant number of other industrial facilities. The Athabasca/Lac La Biche area (Area 27) has a relatively low load compared to other planning areas in the Northeast Region; however, it does contain a number of forestry facilities. Overall, the population in the Northeast is relatively low at approximately 245,000 or about 7 per cent of the province s total population. Most of these residents live in the Regional Municipality of Wood Buffalo which has a population of approximately 116,000 including a shadow population of about 42,000 temporary workers. 8 The low population in the region means there is minimal residential and commercial load. Despite the low population, the Northeast Region contains approximately 29 per cent of AIL. The high amount of industrial load and relatively low amount of residential and commercial load in the Northeast means that the region has a comparatively flat load profile. However, there is some seasonal variation with higher load levels in winter. The Northeast Region contains the majority of oilsands load. The 2014 LTO oilsands forecast is based on a bottom-up approach which adds up all oilsands projects and adjusts them based on development status so that the oilsands forecast aligns with industry projections of oilsands growth. Over the past 10 years, the Northeast Region experienced stronger load growth than any other region, growing at an average annual rate of 5.1 per cent. As oilsands projects develop and the industry expands, it is expected that the Northeast Region s load will grow rapidly and be the fastest growing of any region with average annual growth of 3.4 per cent over the next 20 years. 8 Source: Alberta Municipal Affairs http://www.municipalaffairs.gov.ab.ca/mc_official_populations.cfm PAGE 18 6.0 Regional Outlooks

6.2.2 Generation The Northeast Region contains a variety of sources of energy that can be used to create electricity. The region currently contains: Natural gas-fired generation from industrial sites in the Fort Saskatchewan, Fort McMurray and Cold Lake areas Biomass generation in the Athabasca area Over the last 10 years the Northeast Region has seen almost 1,300 MW of net generation additions, primarily from cogeneration. The region has also seen the addition of a small amount of biomass. Potential generation development in the Northeast Region consists of gas-fired and hydroelectric (hydro) generation. Gas-fired generation could come from cogeneration related to the oilsands, baseload combined-cycle, and/or simple-cycle peaking. With growth in the oilsands, cogeneration is an attractive source of generation where both power and heat can be produced. The region also has potential from large combined-cycle units with capacities in the 500 to 1,000 MW range. Currently, there are 940 MW of combined-cycle and 180 MW of simple-cycle projects that have applied for AESO connection in the Fort Saskatchewan area. Hydroelectric generation is also a potential source of energy in the region. Projects have been discussed for the Slave River area with capacities of approximately 1,000 MW. In the next 10 years, additions of cogeneration related to oilsands development and combined-cycle generation to meet expected baseload requirements are forecast for the region. In addition to combined-cycle, the forecast has an increase in peaking capacity in the region. The forecast in the second 10 years has smaller growth of cogeneration related to reduced growth in oilsands development, but has continued growth in combined-cycle and simplecycle generation to meet load increases and coal-fired retirements. Table 6.2.2 1: Northeast Load and Generation Capacity Forecast MW Existing 2024 2034 Load at AIL Peak 2,877 5,265 5,855 Coal-fired 0 0 0 Cogeneration 3,372 4,739 5,174 Combined-cycle 0 940 2,210 Simple-cycle 0 180 450 Hydro 0 0 0 Wind 0 0 0 Other 149 149 149 6.0 Regional Outlooks PAGE 19

6.3 Northwest Region New oilsands developments changing the Northwest landscape The Northwest Region is characterized by low population, a relatively high proportion of industrial load, low growth in recent years and a respectable amount of oilsands potential, including cogeneration, in the Peace River area. There is currently a variety of generation in the area including biomass, coal-fired, and gas-fired units. Table 6.3 1: Northwest Characteristics 2013 Average Load (MW) 1,040 2013 Summer Peak (MW) 883 2013/2014 Winter Peak (MW) 1,111 Population (000s) 173 Area (000 km2) 230 Source: Alberta Municipal Affairs, AESO 6.3.1 Load Over the past 10 years, load growth in the Northwest has been the lowest of any of the regions with an average annual peak load growth rate of 1.2 per cent. Of the five AESO planning regions, the Northwest has the lowest population with approximately 172,000 people or less than five per cent of Alberta s population. The largest population centre in the Northwest is Grande Prairie with a population of about 55,000. The low population means residential and commercial electricity demand is relatively low and industrial demand is relatively high. The Northwest Region also contains some agricultural activity. With a low population, there is a relatively small amount of residential and commercial load compared with other regions. The relatively high amount of industrial demand means the region has the highest load factor of any region. Industrial load in the region is comprised of forestry sites and oil and gas, including unconventional plays such as the Montney play. There is also some oilsands activity (mostly small test/pilot projects) and associated pipelines, as well as some manufacturing including chemicals. The AESO expects that load growth will occur in the Northwest Region due to expansion of oilsands projects in the Peace River area along with associated infrastructure development. As a result, the Northwest Region is forecast to grow at an average annual rate of 1.8 per cent over the next 20 years. PAGE 20 6.0 Regional Outlooks

6.3.2 Generation The Northwest Region has many sources of energy that can be used to create electricity. The region currently contains: Coal-fired generation in the Grande Cache area Natural gas-fired generation Biomass generation Net generation developments in the last 10 years totalled approximately 350 MW from a variety of sources including coal-fired, gas-fired, and other technologies such as biomass. Gas-fired generation has the highest potential for future development in the Northwest Region. In addition, there is also potential from biomass, waste heat, hydro, and Integrated Gasification Combined Cycle (IGCC). Gas-fired generation could come in the form of cogeneration related to oil production, baseload combined-cycle, or from simple-cycle peaking units. The area currently has applications from all three of these gas-fired technologies. The potential for biomass and waste heat is expected to be small as many existing industrial sites have already adopted generation, but there remains potential for the growth of new developments. While there are no IGCC projects with applications at the AESO, projects have previously been announced and could return. Hydroelectric generation, such as the Dunvegan Hydroelectric Project, has also been proposed for the region and could be developed in the future. The forecast for the Northwest Region in the first 10 years includes the addition of the 690 MW Carmon Creek cogeneration project. The forecast also includes the development of simple-cycle peaking units. The first 10 years is also expected to see some growth in smaller generation technologies such as biomass. There is uncertainty around the timing of larger generation sources such as combined-cycle. No units have been included in the first 10 years, although sensitivities can be performed to test the impact of earlier development. Retirements in the region could see the H.R. Milner plant either decommission or significantly reduce annual generation to meet federal GHG requirements. Gas-fired retirements from three Rainbow and two Sturgeon units have also been included. The second 10 years forecast has continued development of gas-fired generation through the addition of baseload combined-cycle and simple-cycle peaking. Hydro has not been included in the outlook as the economics and capital risks do not appear to currently support the development. 6.0 Regional Outlooks PAGE 21

Table 6.3.2 1: Northwest Load and Generation Capacity Forecast MW Existing 2024 2034 Load at AIL Peak 1,111 1,443 1,628 Coal-fired 144 0 0 Cogeneration 191 881 881 Combined-cycle 73 73 773 Simple-cycle 364 523 703 Hydro 0 0 0 Wind 0 0 0 Other 171 212 262 6.4 Edmonton Region Edmonton Region to remain major generation centre as new combined-cycle facilities complement steady urban load growth The Edmonton Region contains the city of Edmonton and surrounding communities. It contains the second largest population of the AESO s five planning regions with about 1.2 million people or about 34 per cent of the total population. It also contains the most significant amount of generation capacity located in the Wabamun area. Table 6.4 1: Edmonton Region Characteristics 2013 Average Load (MW) 1,569 2013 Summer Peak (MW) 2,166 2013/2014 Winter Peak (MW) 2,158 Population (000s) 1,234 Area (000 km2) 22 Source: Alberta Municipal Affairs, AESO 6.4.1 Load The Edmonton Region has approximately 20 per cent of Alberta s load. Much of this is residential and commercial load associated with the City of Edmonton. However, there is also a significant amount of industrial load including demand from Refinery Row as well as other manufacturing and pipeline load. Over the past 10 years, the Edmonton Region load has grown at an average annual rate of 1.9 per cent. Future growth is expected to be in line with forecast average annual growth of 2.1 per cent over the next 20 years, driven primarily by residential, commercial and industrial development associated with the province s expected overall economic and population growth. The bulk of this forecast growth is anticipated to occur in the Edmonton area (Area 60). PAGE 22 6.0 Regional Outlooks

6.4.2 Generation The Edmonton Region contains primarily coal-fired generation with the potential for gasfired generation. The region currently contains: Coal-fired generation in the Wabamun area Natural gas-fired generation within the Edmonton area The Edmonton Region has seen a net increase in supply of 121 MW in the last 10 years. There have been large retirements from the old Clover Bar units as well as coal-fired retirements from the Wabamun units. This has been offset with both coal-fired and gas-fired additions. The most likely future generation fuel source in the Edmonton Region is natural gas. The region has existing infrastructure that can be used to connect large-scale generation, making it an attractive location for future development. In addition, as existing coal-fired units in the region retire, the infrastructure could accommodate new baseload generation. There is currently over 2,700 MW of interest in gas-fired generation for the region. Smaller district energy and microgeneration have the potential for development within large urban areas, such as the 39 MW unit at the University of Alberta. Waste heat applications have also been announced and have the potential for development. The forecast for the Edmonton Region in the next 10 years is for the addition of one combined-cycle unit and the retirement of approximately 600 MW of coal-fired generation. Given the need for baseload generation in the first 10 years and the attractiveness of the region, combined-cycle generation could develop within the region. In the mid-to-long term, there is continued development of large combined-cycle generation and retirements of coal-fired generation forecast for the region. Additional smaller technologies such as waste heat capture are also expected to develop. Table 6.4.2 1: Edmonton Region Load and Generation Forecast MW Existing 2024 2034 Load at AIL Peak 2,158 2,785 3,340 Coal-fired 4,658 4,082 1,729 Cogeneration 39 39 39 Combined-cycle 0 900 3,300 Simple-cycle 250 250 250 Hydro 0 0 0 Wind 0 0 0 Other 0 0 158 6.0 Regional Outlooks PAGE 23

6.5 Central Region New pipelines in Central East drive new load growth while generation has modest growth The Central Region contains a relatively low population which is mainly concentrated in the Red Deer area (Area 35). The Red Deer area contains significant amounts of chemical and other manufacturing. In addition, there are significant pipeline concentrations, especially on the eastern portion of the region. Recent years have seen the addition of two new wind facilities. Table 6.5 1: Central Region Characteristics 2013 Average Load (MW) 1,282 2013 Summer Peak (MW) 1,338 2013/2014 Winter Peak (MW) 1,608 Population (000s) 361 Area (000 km2) 131 Source: Alberta Municipal Affairs, AESO 6.5.1 Load The Central Region contains about 352,000 people or about 10 per cent of Alberta s population but about 15 per cent of AIL. The Red Deer area contains significant industrial load related to chemical and other manufacturing. In addition, there is significant pipeline load, especially on the eastern portion of the region. An important feature of the Central Region to the load forecast is the significant number of pipeline-related projects and development. Hardisty is a major crude oil pipeline terminal storage centre located in the Lloydminster planning area. Several intra-alberta pipelines are connected to it with additional projects planned. Also, two major export pipelines, Keystone XL and Energy East, are planning to connect to Hardisty and they will run along the east side of the Central Region before turning east into Saskatchewan. The pumping stations used to move crude oil through these various pipelines is expected to be a significant source of load growth in the Central East Region. Over the next 20 years, the AESO forecasts the Central Region s load to grow at an average annual rate of 2.1 per cent due to increasing pipeline loads as well as urban load in the Red Deer area and other industrial growth. 6.5.2 Generation The Central Region has many sources of energy that can be used to create electricity. The region currently contains: Coal-fired generation in the Battle River area Natural gas-fired generation Hydroelectric generation including the large Bighorn and Brazeau facilities Wind facilities Biomass generation PAGE 24 6.0 Regional Outlooks