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Abstract

A linear programming model is used to examine the impact of carbon taxes on the optimal generation mix in the Alberta electrical system. The model permits decommissioning of generating assets with high carbon dioxide emissions and investment in new gas-fired, wind and, in some scenarios, nuclear capacity. Although there is an intertie from Alberta to the U.S., the focus is on the connection to British Columbia as wind energy can potentially be stored in reservoirs behind hydroelectric dams. However, storage can also be used to smooth out the net load facing nuclear facilities. A carbon tax facilitates early removal of coal-fired capacity, which is replaced by low-emissions gas plants. It is only when the carbon tax exceeds $125/tCO2 that wind enters the system, although wind is displaced by nuclear power if that option is permitted. Although upfront costs of adding nuclear capacity are prohibitive, nuclear outcompetes wind because wind farms have low capacity factors and, importantly, because a great deal of gas-plant capacity is required to support wind, something avoided when nuclear energy is added. Finally, an intertie with British Columbia is beneficial because of the support it provides for wind and nuclear energy, but the role of natural gas is more important in facilitating a transition to lower system-wide carbon dioxide emissions.

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