Rochelle Pancoast, managing director of energy, land and environment with the City of Medicine Hat, presented the case for Saamis Solar at Monday night's city council meeting. "What we're seeking to achieve with a project like Saamis Solar is favourable in economics, full stop," she said.--News Photo Brendan Miller
zmason@medicinehatnews.com
While there’s always some risk involved in an investment as large as Saamis Solar, the city’s top energy official says the project has been meticulously planned to shelter against risk.
On Monday, city council voted unanimously to approve $131.5 million for a 75 MW phase of the solar farm.
The council decision was a milestone. But City of Medicine Hat managing director of energy, land and environment Rochelle Pancoast says it is just the first step allowing staff to proceed with the groundwork to ensure success. Several more milestones need to be met before the project advances to construction.
“Monday night was really a mandate from council to keep going, to land the key success factors that will allow it to have a sufficiently favourable business case,” Pancoast told the News on Thursday.
Pancoast says when the Saamis Solar project was initially broached, the business case was clearly favourable due to market conditions, which forecast high power prices through the life of the project.
Since then, she says the province’s new energy market design and other factors have introduced significantly more uncertainty on power prices at the provincial level.
Under new market conditions, Pancoast says there are several boxes that need to be checked to give the city the confidence the project will be profitable.
One of those is landing a long-term supply agreement with a dedicated customer.
Changes to the energy market introduced last year make it costlier for Medicine Hat to export power onto the provincial grid due to new transmission fees. But if the city can secure a long-term local client for the power produced by the Saamis array, it can sidestep those costs.
“The city is sheltered by those changes when we are seeking a customer behind our fence,” said Pancoast.
Partnering with a long-term customer also mitigates market price exposure for the Saamis project, which would shelter profits against volatility of the energy market by establishing a fixed price for electricity.
Collapsing prices over the last two years have seen power revenues for the city crash from $134 million in 2024 to $12 million last year, and projections shared by city staff this week predict low prices to continue through 2027.
Engagement with regulators has been ongoing since changes to the energy market were announced last year. Medicine Hat’s unique exemptions leave a lot of questions unanswered about how it will be treated under the new regulations. Pancoast says those discussions are ongoing.
“We look forward to learning more,” she said. “A level of uncertainty still remains there.”
In addition to locating a customer, the next steps for the city include receiving an investment tax credit from the federal government, and acquiring permit approval from the Alberta Utilities Commission before construction would be confirmed.
Navigating these steps will incur some costs, but Pancoast says the process is designed so most of the spend would be backloaded, occurring with construction.
“If by chance we can’t land every one of those milestones, then at least we’re not in a position of walking into the sizable spend of construction,” she said. “Every energy investment carries a degree of risk, but in this case, we’re looking to mitigate that risk through the inclusion of a long-term supply customer and through maximizing the investment tax credit.”
The investment tax credit from the federal government will allow for a partial refund of the investment capital.
The initial funding model for the project proposes 50 per cent coming from the Energy Transition Reserve, a pot of city money put aside specifically for projects like these, and 50 per cent new debt. But Pancoast says the credit should help the city claw back some of that new investment after construction.
Overall, Pancoast says Saamis Solar is a growth enabling project that positions the city to find new business partners interested in accessing green energy.
“I think there’s a natural concern from an ideological perspective, concern for people who don’t believe green energy is helpful,” said Pancoast. “The city doesn’t approach these decisions from an ideological perspective. We approach them from a business perspective.”
Business details regarding early conversations with customers are still confidential as negotiations are ongoing. However, councillors indicated Monday there is expressed interest from potential customers.
“I can understand the leap of faith that it takes by the community to believe what we’re saying in terms of it will make money by design, because we’re setting up all the parameters to get us there, without the detail.”
But Pancoast says if the city can land these key success factors, she is confident the project will add to the bottom line of the energy business.
“We now have the mandate to go and do the work needed to set it up for success. We’ll be rolling up our sleeves to do that work in these next few months.”
