A renewable energy developer is betting big on Alberta despite the uncertainty of pending electricity market reforms.

Universal Kraft Canada Renewables (UKCR) recently announced it received a credit facility of US$15 million via Crayhill Capital Management to help bring 1.7 gigawatts of solar energy projects online.

“There’s no equity contribution involved. The way it works is Crayhill is a lender in this transaction: they are giving us a loan to cover our GUOC (generator unit owner’s contribution) commitments," Daniela Louback, a member of the business development team at Universal Kraft, told Sustainable Biz Canada. "This loan can be increased to US$50 million if we were, for example, to fund capex items and that would be construction equipment.”

UKCR is a joint venture formed as an equal partnership in 2022 between Sweden’s Universal Kraft and Korkia, a renewable energy accelerator fund based in Finland. Crayhill operates out of New York and is an asset-based lender.

The funds will cover GUOC payments required to the Alberta Electric System Operator (AESO) by companies wishing to build electrical generating facilities.

It is “a refundable payment made by the owner of a project to the AESO during the process where the project is still going through the permitting and the connection approvals,” Louback explained.

“The facility that we have with Crayhill is basically a deposit finance . . . the AESO sets different levels of cost for the GUOC, depending on location, to provide a signal to generators on the areas that are more beneficial to be developed according to the load demand, and when these projects reach fully permitted (stage), the GUOC payment goes from being fully refundable to being non-refundable,” she said.

Multiple projects covered by the funding

Four Alberta solar energy projects will be covered by this funding commitment: Oyen one, Oyen two (near Oyen), LS (Little Smoky) one and LS four (near Little Smoky).

The Alberta government is currently reviewing the GUOC program with a mind to reform and is expected to release draft legislation this year, however, the biggest challenge for energy producers such as UKCR is the “uncertainty around how the market price mechanisms are going to work,” Louback said.

“It’s difficult for you to come to an agreement on a power purchase if you have uncertainty around how the market price mechanisms are going to work, but I think that’s why they’re expediting the process of getting this regulation — the draft legislation — out.”

Despite these potential headwinds, UKCR is confident it is properly positioned to weather them.

“In a general sense, we’re not too concerned. We’re pretty optimistic because we have high-quality projects, and on the other hand, the demand in the market is going to keep growing," Louback said.

"There’s commercial growth, there’s population growth, there’s net-zero policy, there’s more electrification coming in. There are big industries like data centres, crypto mining; all of that’s really moving into Alberta quite strongly and we’re here to meet that demand.”

Advantages of doing business in Alberta

The province offers another advantage: “It is the only really deregulated energy market in Canada. It’s the only market where you have the level of opportunity and incentive for this level of investment and development. So that’s really the benefit of developing in Alberta,” she said.

The partnership is designed to take the construction projects to the “fully permitted” stage, Louback said, “and from that point, you make a final investment decision and notice to proceed to start construction on these projects, and at that stage, we either fully exit or take in equity partners to own and operate these projects.

“We could either maintain the facility with Crayhill that will continue to fund the GUOC once these projects go into construction, or we can refinance the GUOC."

The question of negative pricing

Another potential pain point for operators that might materialize, is if the AESO will allow negative pricing in the market. However, UKCR is well positioned to avoid this, according to Louback.

“We’re very optimistic about our portfolio. They’re high-performing projects. They have no curtailment, which is an issue, and that’s also one of the reasons for the reforms that are occurring in Alberta because there are now issues with congestion, which is basically when you have too much energy on the grid, and the AESO . . . needs to ask generators to reduce their generation and curtail it.”

UKCR has current projects that are “very strategically located” in Grande Prairie and Oyen where “where AESO has already started upgrades on the transmission infrastructure that will mitigate any curtailment that these projects could have,” Louback said.

The company is also very bullish about the renewable energy outlook in 2025.

“It’s definitely a growing market. The opportunity is massive. We really see 10 times growth over the next five years and Universal Kraft has already been experiencing that level of growth in the last two years, so we will continue working towards that,” she said.