INTRODUCTION

Over the next few years, the Alberta Electric System Operator (“AESO”) is undertaking the most significant restructuring of its electricity market in decades and implementing major changes to Alberta’s transmission policies. These initiatives are designed to ensure the province’s power grid remains reliable and affordable while adapting to a rapidly changing energy landscape. This article provides a comprehensive summary of the Restructured Energy Market (“REM”) design and other policy changes being introduced into Alberta, outlining core components, objectives and implementation plan.

WHAT THE REM IS SOLVING FOR

Alberta’s electricity framework faces mounting challenges that require a comprehensive redesign to ensure the system remains reliable, affordable and attractive to investors. The REM was initiated to address these critical issues, which stem from a combination of changing sources of electricity supply, shifting policy pressures and infrastructure demands.

1. TRANSITIONING TO A NEW ENERGY MIX

Alberta has moved away from traditional coal-fired power plants to a mix of renewable resources like wind and solar, alongside dispatchable gas-fired generation. While this has been driven by decarbonization policy and economics of supply, it introduces operational challenges due to the intermittent nature of renewable energy.^[1] The REM builds on the existing energy-only design to send stronger investment signals for the reliability attributes needed in Alberta, especially dispatchable generation sources that improve system reliability. This way the REM supports the integration of variable renewables while maintaining grid stability through flexible, dispatchable generation.

2. NAVIGATING POLICY AND INVESTMENT UNCERTAINTY

Investor confidence in the long-term operation of the market relies on clear frameworks and well-defined design parameters essential for creating a stable and attractive investment environment. REM is designed to provide stronger price signals, ensuring Alberta attracts the necessary investment to support the integration of a diversified supply mix and strengthen system stability.

3. ADDRESSING RISING ELECTRICITY DEMAND

Growth in industrial loads, such as energy processing and data centres, is driving up demand for new generation and transmission infrastructure.^[2] REM seeks to align market incentives with this rapid demand growth, ensuring adequate development of the infrastructure needed to meet Alberta’s evolving energy needs.

4. EXPANDING AND FUNDING TRANSMISSION SYSTEMS

The increasing penetration of wind and solar generation, particularly in southern Alberta is accelerating the need for transmission expansion.^[3] Historically, the cost recovery framework placed the entire burden on consumers, but this is changing. Alberta is moving away from an unconstrained transmission policy toward an optimal transmission planning (“OTP”) framework, where some costs will now be allocated to suppliers based on cost-causation principles.^[4] These changes, introduced through OTP and other transmission policy changes, aim to create a more balanced and sustainable approach for transmission development.

5. ADAPTING TO ALBERTA’S UNIQUE ENERGY LANDSCAPE

Unlike other regions, Alberta lacks significant hydroelectric or nuclear resources and has limited interconnections with neighbouring grids. This forces the province to rely heavily on internal generation, much of it natural gas-powered, with energy-intensive sectors like oil sands and manufacturing driving demand.^[5] REM is designed to reflect Alberta’s unique energy profile, ensuring the market structure supports a system that can reliably meet the province’s specific needs.

6. LEARNING FROM OTHER JURISDICTIONS

Alberta’s challenges are not isolated. Texas has faced reliability issues during extreme weather, and California struggles with balancing renewable integration and grid stability. REM draws on lessons from these markets, aiming to implement solutions that improve resilience and better manage the complexities of a decarbonizing grid.

Through the REM, Alberta is creating a market design that balances reliability, affordability and investment attractiveness, ensuring the province’s electricity system is prepared for the future.

HOW THE REM COMPONENTS ADDRESS ALBERTA’S GRID CHALLENGES

The REM introduces fundamental changes to the technical design of Alberta’s electricity market. The final design, released in August 2025, contains several critical components that will reshape how electricity is dispatched, priced and settled.^[6]

The transition to the REM will have wide-ranging effects on all market participants, from generators and industrial consumers to retail demand. The new design is intended to create a more efficient, responsive and resilient electricity market capable of navigating the energy transition.

1. CONGESTION MANAGEMENT, MARKET CLEARING AND PRICING MECHANISMS

Problem being solved: Alberta’s electricity grid is facing more congestion, making generation dispatch increasingly difficult and inefficient. This challenge, coupled with a changing supply mix, highlights the need to incentivize flexible, dispatchable resources and attract imports during periods of scarcity across neighbouring jurisdictions. To address these issues, Alberta is modernizing grid congestion management tools, revisiting dispatch processes and updating the pricing framework to create a market structure that better supports grid reliability.

Solution: The REM introduces locational marginal pricing (“LMP”) to manage congestion in the grid by ensuring electricity prices vary by location based on real-time grid conditions, including system line losses. LMP will apply to supply resources, while most consumers will continue to pay a single Alberta-wide price. Eligible large customers will have a one-time option to choose to pay their local price instead.

Dispatching the new market will be based on a security-constrained economic dispatch (“SCED”) mechanism, used in many North American markets, to clear the market every five minutes. This system co-optimizes energy bids and a new 30-minute ramping reserve (“R30”) while accounting for the transmission system’s physical limits as well as each generator’s operational constraints.

The REM also revises market price parameters to encourage investment. The energy market offer cap will increase from $999.99/MWh to $1,500/MWh initially, rising to $2,000/MWh by 2032. When the grid supply conditions are in scarce conditions, prices could set at the price cap which will increase from $1,000/MWh to $3,000/MWh. A scarcity pricing curve will set prices between the offer cap and price cap, providing stronger investment signals for dispatchable resources while setting prices at the cap during scarcity. The price floor will also be adjusted to incent flexible generation and demand response by dropping it from $0/MWh to -$100/MWh in 2032.

Forward-looking impact: With locational marginal pricing (“LMP”), electricity prices will vary by location, providing clear economic signals for where new generation and transmission upgrades are needed. SCED, R30 and the new pricing framework will incent flexible generation and demand response, which in turn will enhance grid efficiency, optimize resource allocation and incentivize investment in critical infrastructure.

2. NEW ANCILLARY SERVICES AND RELIABILITY TOOLS

Problem being solved: The increasing integration of intermittent renewable generation creates challenges for grid stability, requiring new mechanisms to ensure sufficient supply and manage fluctuations.

Solution: To address this, the REM introduces two key reliability mechanisms: the R30 and the reliability unit commitment (“RUC”). The R30 ensures the system has flexible capacity to respond to sudden changes in demand or renewable output, while the RUC allows the AESO’s system operators to commit additional generation resources if a supply shortfall is forecast. Both R30 and RUC providers will be compensated for their role in maintaining system reliability.

Forward-looking impact: Rewarding these reliability services incentivizes investment in dispatchable technologies and infrastructure that improve their predictability or flexibility. This will enhance overall system flexibility and resilience, supporting a smooth transition to a sustainable energy grid by ensuring consistent power delivery even with increased renewable energy sources.

3. MARKET POWER MITIGATION

Problem being solved: The market is maintaining the concept of strategic bidding as a mechanism to incent investment. This needs to be balanced with appropriate guardrails that protect consumers against the excessive exercise of market power, especially during periods when there is limited competition. REM balances market power mitigation rules protect consumer affordability while allowing cost recovery to attract investments that enhance grid reliability.

Solution: The REM establishes a market power mitigation framework that includes broad market power mitigation (“MPM”) for large market participants and local MPM rules to address situations where transmission constraints create market power in specific geographic areas. A key component of the broad MPM framework is the introduction of a secondary offer cap, designed to limit the potential for the use of market power to maintain prices above fair levels over a prolonged period.

Forward-looking impact: This framework protects consumers from excessive costs by limiting the ability of suppliers with large portfolios and generating units in constrained areas to exert undue influence on prices. While the higher offer caps create the potential for higher prices during scarcity events, the overall design aims to drive long-term investment in a reliable and diverse supply mix. Ultimately, this will promote competition and deliver lowest cost of delivered electricity over the long run.

4. SETTLEMENT AND COST ALLOCATION

Problem being solved: The current 60-minute settlement interval is not aligned with real-time grid dynamics, leading to less accurate price signals and less efficient operational responses. Additionally, existing cost allocation methods may not accurately reflect who benefits from or drives certain grid costs.

Solution: A key element of the REM is the transition to a five-minute settlement interval, aligning financial settlements with dispatch and pricing. New principles for cost allocation will also be introduced.

Forward-looking impact: Five-minute settlements will provide more accurate price signals and reward resources that can respond quickly to system needs and promoting operational efficiency. The revised cost allocation will create economic incentives for intermittent resources to enhance grid reliability (e.g., by pairing wind/solar with batteries), ensuring a more equitable distribution of costs based on actual causation.

OPTIMAL TRANSMISSION PLANNING FRAMEWORK

The optimal transmission planning (“OTP”) framework changes how Alberta plans and approves investments in its electricity grid.^[7] Developed by the AESO, based on direction from the Minister of Affordability and Utilities in July 2024, OTP replaces the previous “zero-congestion” model.^[8]

OTP is guided by several principles: transparency, predictability, balance and practical implementation. The framework uses a 20-year planning horizon within the AESO’s regular long-term planning cycle.

OTP evaluates new transmission projects based on three criteria: system reliability, a legislative requirement, or a clear net benefit based on cost-benefit analysis. For the latter projects focused on economics, a structured cost-benefit method is used. Development alternatives that fit under the reliability and legislated project streams are assessed using least-cost principles.

OTP is part of broader electricity market changes in Alberta and has been developed alongside the REM. These measures are intended to improve investment decisions and ensure that grid development aligns with system needs and government priorities.

The OTP design will be finalized by the end of 2025, with implementation set for the AESO’s next Long-Term Transmission Plan.

IMPLEMENTATION TIMELINE AND REGULATORY FRAMEWORK

In fall 2025, the AESO will be consulting with stakeholders on the detailed independent system operator (“ISO”) rules that govern the new market.^[9] The AESO intends to submit the REM-related ISO rules for approval by the Alberta Minister of Affordability and Utilities before the end of 2025.^[10]

Implementation of the Restructured Energy Market will begin in mid–2027. For updates and technical backgrounders, please check out: www.aeso.ca/rem

• * Ruppa Louissaint is the Director, Markets at the Alberta Electric System Operator (“AESO”), where she leads teams responsible for both the design of future market enhancements, and the implementation of changes within the existing market. With over 20 years of experience in the electricity sector, Ms. Louissaint plays a pivotal role in advancing the evolution of Alberta’s electricity market, most recently leading the design of the Restructured Energy Market (“REM”). Since joining the AESO in 2003, Ms. Louissaint has held a range of progressively senior positions, contributing her expertise to the strategic evolution of Alberta’s electricity market. Her leadership is instrumental in shaping a reliable and efficient market framework that supports Alberta’s evolving energy future.

  ¹ For an assessment of how the Alberta grid is impacted by intermittent and inverter-based resources, such as wind and solar generation, see Alberta Electric System Operator, “2025 Reliability Requirements Roadmap” (August 2025), online (pdf): <aeso.ca/assets/Uploads/future-of-electricity/AESO-2025-Reliability-Requirements-Roadmap.pdf>.

• ² Alberta Electric System Operator, 2024 Long-Term Outlook Report (Calgary: Alberta Electric System Operator, 2024), online (pdf): <aeso.ca/assets/Uploads/grid/lto/2024/2024-LTO-Report-Final.pdf>.

• ³ Alberta Electric System Operator, “2025 Long-term Transmission Plan” (January 2025), online (pdf): <aesoengage.aeso.ca/34607/widgets/151628/documents/146968>.

• ⁴ Alberta Government, Minister of Affordability and Utilities, “Direction Letter to the AESO on REM technical design, transmission planning and ISO tariff design” (July 2024), online (pdf): <aeso.ca/assets/direction-letters/Direction-Ltr-from-Minister_REM_Tariff_Tx-Policy_03July2024.pdf>.

• ⁵ For an overview of Alberta’s historical generation mix, see AESO, “2024 Annual Market Statistics Report” (March 2025), online (pdf): <aeso.ca/assets/Uploads/market-and-system-reporting/Annual-Market-Stats-2024.pdf>.

• ⁶ Alberta Electric System Operator, “Restructured Energy Market Final Design” (August 2025), online (pdf): <aeso.ca/assets/REM/Restructured-Energy-Market-Final-Design.pdf>.

• ⁷ Alberta Electric System Operator, “Optimal Transmission Planning Framework: Methodology and Process Recommendation” (September 2025), online (pdf): <aesoengage.aeso.ca/45964/widgets/194012/documents/158689>.

• ⁸ Alberta Government, Minister of Affordability and Utilities, “Direction Letter to the AESO on market and transmission policy” (December 2024), online (pdf): <aeso.ca/assets/direction-letters/Direction-Ltr-from-Minister-REM_Tx-Policy_10Dec2024.pdf>.

• ⁹ As Alberta’s independent system operator, the AESO has the authority to make ISO rules. See Electric Utilities Act, SA 2003, c E-5.1, s 20.

• ¹⁰ The Alberta government may, by regulation, establish REM ISO rules for the operation of a restructured energy market and to support its implementation, as it was initially outlined in Alberta Government, Minister of Affordability and Utilities, “Direction Letter to the AESO on REM technical design, transmissions planning and ISO tariff design” (July 2024); see also Alberta Government, “Transforming the Utilities System” (April 2025), online: <alberta.ca/transforming-the-utilities-system>.