Alberta proposes new grid displacement factor with important implications for solar and wind projects

Solar Panels

On March 3, 2022, the Government of Alberta proposed a new electricity grid displacement factor (EGDF) applicable to all emission offset projects that displace grid electricity with renewable electricity or reduce grid electricity usage. Once finalized after a 30-day public comment period, this new EGDF will apply to all renewable offset projects with offset activity start dates between January 1 and December 31, 2023, including solar and wind electricity generation facilities.

The proposed EGDF of 0.52 tonnes CO2e per MWh is a modest drop from the current figure (0.53 tonnes CO2e per MWh). However, this and further potential changes to the EGDF by 2024 will be an important consideration for both existing and prospective offset projects, with implications for project profitability and financial incentives for new solar and wind electricity projects across Alberta.

Emission offset generation by renewable electricity projects in Alberta

One way that industrial facilities subject to Alberta’s Technology Innovation and Emissions Reduction Regulation [PDF] (TIER) can meet their emissions reduction benchmarks is to purchase emission offsets generated by offset projects in the province, including wind and solar electricity projects. To generate emission offsets that are recognized and transferrable under the TIER, projects must satisfy the requirements of section 19(1) of the TIER; i.e., they must result in an emissions reduction in Alberta that was not required by law, is real, demonstrable, quantifiable and measurable, and the reduction cannot already have been used to determine a TIER-regulated facility’s net emissions. Renewable electricity offset projects must also comply with the Standard for Greenhouse Gas Emission Offset Project Developers (Emission Offset Standard) and the relevant approved quantification protocol for the project activity, such as the protocols for solar and wind-powered electricity generation.[1]

The Emission Offset Standard and quantification protocols establish the process for initiating and implementing an offset project and provide the formulas required for quantifying a project’s emission offsets. For any offset project, offsets are recognized for a project’s emissions reductions from a baseline condition; i.e., the difference between total emissions produced without the project (emissions baseline) and total emissions produced with the implementation of the project. In the case of a solar or wind electric facility, the emissions baseline is the CO2e that would be produced by the facility’s generation of electricity if the carbon intensity of that generation were equal to the carbon intensity averaged across generating facilities that currently feed Alberta’s electric grid. This is where the EGDF comes into play.

What is the electricity grid displacement factor?

Under the protocols for both solar and wind-powered electricity generation, the EGDF (in tonnes of CO2e per MWh) is multiplied by a project’s electricity generation (in MWh) to calculate the baseline emissions for a project. Put another way, the EGDF is the approximate carbon intensity of the electrical grid, or the amount of emissions that a renewable electricity project will displace for each MWh of electricity it generates.[2] All else equal, the higher the EGDF, the more emissions a project will be credited with displacing and the more emission offsets the project will generate. The lower the EGDF, the fewer emission offsets the project will generate.

How is the electricity grid displacement factor determined?

The Carbon Offset Emission Factors Handbook, Version 2.0 (Handbook) establishes the EGDF that currently applies to all emission offset projects that displace grid electricity with renewable electricity, reduce grid electricity usage or result in additional electricity usage from Alberta’s electricity grid. The Government of Alberta determines the EGDF using data on emissions from electricity production for the three most recent available years, and revises the EGDF periodically to respond to changes in Alberta’s electricity system.[3] Over the last 10 years, the EGDF declined from 0.65 tonnes CO2e per MWh (applicable pre-2015) to 0.59 tonnes CO2e per MWh in 2015 (applicable from 2015 to 2019), and then to the current value of 0.53 tonnes CO2e per MWh in 2020 (applicable from 2020 to 2022). The expectation is that the EGDF will continue to decrease over time as emissions-intensive technologies operate less frequently and a higher number of low-emissions technologies are constructed and operated in the province.[4]

Proposed new EGDF

On March 3, the Government of Alberta posted the new EGDF of 0.52 tonnes CO2e per MWh within the Draft Methodology for the Electricity Displacement Factor (Draft Methodology) [PDF]. Once finalized after a 30-day public comment period, the EGDF will be published in the Handbook and the final methodology document will be posted online. The new EGDF will be in effect from January 1, 2023, to December 31, 2023. The EGDF may be revised again before 2024 as part of the Government’s broader review of the TIER taking place this year.

Significance of changes to the EGDF

For new emission offset projects (being those that have not registered their emission offset project plan as at the “activity start date” as set out in the Emission Offset Standard), a project developer must use the most current version of the Handbook for its applicable emission factors, including the EGDF. This means that projects with an offset activity start date after December 31, 2022, will have to use the new EGDF. In the case of existing projects, developers will have the option of either continuing to use the EGDF from the version of the Handbook under which the project was initiated, or using the EGDF and all other applicable emission factors provided in the updated Handbook.[5]

Given the length of offset crediting periods for renewable energy projects and the frequency with which the Government of Alberta will revise the EGDF, the timing of a project can have a significant impact on its ability to generate offsets for sale. Wind and solar electricity project developers will be motivated to lock in their EGDF for the entirety of their eight-year offset crediting period (which comes with the opportunity to apply for five-year extensions) or for an alternative ten-year crediting period (if authorized, which does not come with the opportunity for further extension).[6]

Assuming the EGDF will continue to decrease over time, as anticipated, this intuitively means the sooner a project can be operational, the better. Of course, this is subject to several other factors that project developers must consider, including such things as the availability of provincial and federal funding incentives, electricity demand and prices, project capital and operating costs, and the market price for emission offsets, which would be expected to increase in step with the TIER fund credit price and the federal carbon pricing threshold (as discussed in an earlier Canada Energy Transition Blog post on agricultural emission offsets). At a certain point, if the EGDF drops far enough, it may become more profitable for a wind or solar electricity project to opt into the TIER regulation and begin to generate and sell emission performance credits (another way for TIER-regulated facilities to comply with emission benchmarks) rather than emission offsets,[7] although we expect this prospect remains several years away.[8]

It is also critical for market participants to recognize the limitation set out in section 22(7) of TIER, which establishes that there is no legal entitlement to a future offset credit (either to its creation or use). This means that although the application of the EGDF and the crediting periods established by the Emission Offset Standard as they appear today may present attractive revenue profiles for renewable energy projects intending to monetize TIER offsets, this opportunity remains subject to regulatory uncertainty that may be a barrier to financing a project based on anticipated TIER offsets alone.  

Proposed EGDF and Draft Methodology open for public comment

The public can comment on the proposed EGDF and the Draft Methodology by submitting a comment sheet to by April 4, 2022, at 5:00 PM MST. Comment sheets are available on the Government of Alberta’s emission offset website. We encourage existing and prospective renewable electricity project developers who stand to be impacted by this and future changes to the EGDF, as well as interested members of the public, to review the Draft Methodology and submit any comments they might have.


[2] See Alberta Electric System Operator (AESO), “2021 Long-term Outlook” [PDF] at p. 22, online; Government of Alberta, Electricity Grid Displacement Factor Draft Discussion Paper [PDF] (December 2018) at PDF 4, online.

[3] Government of Alberta, Electricity Grid Displacement Factor Draft Discussion Paper [PDF] (December 2018) at PDF 4–5.

[4] See Alberta Electric System Operator (AESO), “2021 Long-term Outlook” [PDF] at p. 22, online.

[6] Standard for Greenhouse Gas Emission Offset Project Developers, Part 1, sections 11 and 12 (PDF 12–13).

[7] Technology Innovation and Emissions Reduction Regulation, Alta Reg 133/2019, section 4; Government of Alberta, Renewable Electricity Facilities Fact Sheet (December 2021).

[8] Alberta Electric System Operator (AESO), “2021 Long-term Outlook” [PDF] at p. 22, online.