It was, I suppose, too much to expect the government to acknowledge that the self-sufficiency and insurance requirements it had imposed on BC Hydro was a serious mistake. So it was no surprise that they simply stated in their announcement paving the way for the powering of the proposed new LNG plants that the Campbell-era policies were being jettisoned because conditions had changed.
Of course, the only condition that had changed is that it was increasingly obvious to everyone except the IPP lobby (and the Globe’s Justine Hunter) that that these government-imposed requirements were unnecessarily costly, and without question a major contributor to the politically intolerable upward pressure on BC Hydro rates.
The fundamental problem with self-sufficiency and insurance is that it was forcing BC Hydro to buy new sources of electricity supply at prices well in excess of their market value — electricity that BC Hydro did not in fact need to ensure a reliable, environmentally responsible, cost-effective supply. It was a gift to the nascent private IPP industry, and an extraordinarily lucrative one at that.
The question now, however, is what comes next. Will more responsible policies be put in place? Or will the gifting to private interests at the expense of the general public interest continue in a different form. The worry is that the gifting will continue, this time under the cover of a jobs strategy.
The government recognizes that BC Hydro’s standard industrial rates will not recover the cost of supplying the new LNG plants’ demands for power. And it has indicated that the LNG plants will have to pay higher rates. The issue is how much higher. Will the new plants be required to pay for the costs they impose on BC Hydro or will substantial subsidies remain.
A simple policy declaration could clarify the government’s intention. When it amends the Clean Energy Act to eliminate the self-sufficiency and insurance provisions, the government could require that all new major users of power, including not only the LNG plants but also the new electric-intensive mines proposed for B.C., will have to pay all of the costs that BC Hydro has to incur to meet their requirements. The government could ensure that BC Hydro and its customers will not have to subsidize any of these new developments.
There are creative ways industry could minimize the costs of the power it needs. In the case of the LNG plants, they could combine the development of their own gas-fired generating capacity with purchases of non-firm electricity supply that BC Hydro and others often have available for sale at relatively low cost. The gas-fired capacity would ensure the plants have a reliable source of supply. And the purchases of the non-firm supply when available would reduce the need to burn gas — minimizing the LNG plants’ impact on GHG emissions in the province. Or, they could combine their own gas-fired capacitiy with new wind power development, using the wind power to displace gas whenever available.
What responsible energy policy would not allow, however, is the option of new industry forcing BC Hydro to acquire the electricity they need and not paying the full cost –for example, forcing BC Hydro to buy and back up wind power at its own expense. The gifting to private interests at the expense of the general public interest would not be allowed to continue.
Priscilla Judd // Feb 5, 2012 at 9:00 pm
Did I get it right this time?
BC Hydro doesn’t have the infrastructure to power the LNG plant so it plans to buy extra power from BC’s Private Power Corporations. I should understand that Private Power costs more to produce hence more to purchase.
The consequence is that BC Hydro will cost more to operate because it will be purchasing a lot of expensive electricity to supply LNG.
That higher cost will be transferred to our Hydro bills because BC hydro can’t pass on the extra cost to the LNG plant – I believe that large power consumers always pay a lower rate anyway so the higher costs will be covered by you and me – the residential customers in British Columbia.
Both LNG and electricity are sources of energy so in effect, this LNG plant is designed to create a net energy loss for our province. Expensive Liquid Natural Gas will be an energy export that benefits Asian countries who compete directly with BC in the production of goods and services. How smart is that?
The LNG program appears to be a Liberal/Conservative giveaway to friends in high places.
In summary:
1. Currently BC Hydro produces and sells electricity at the lowest price in BC.
2. Private Power costs more to produce so Private Power costs more to buy.
3. The LNG plant will shift money from BC citizens to the wealthy corporations.
Questions to ask:
1. Is it prudent for BC citizens to subsidize Asian interests?
2. Would any normal business design a project that creates a net loss in their asset holdings?
3. Who, besides the Private Power corporations and the Asian buyers, benefits from the planned LNG?
If I got it right this time please let me know and I’ll post it on my blog – thanks
Marvin Shaffer // Feb 6, 2012 at 11:05 am
The issue here isn’t so much the government policy requiring BC Hydro to buy private power. The issue is that new electricity supply from any source is much more expensive than the average costs of BC Hydro’s existing generating stations. And it is those historic average costs which determines BC Hydro’s standard industrial and other rates. Private power, where it needlessly increases the cost of new supply just makes the problem worse.
And it isn’t that BC Hydro can’t pass on the costs of the new supply it must acquire for the LNG plants. Rather it is that BC Hydro needs a clear new mandate to do so. The standard industrial rate won’t recover even half of the costs of new supply, and under the government’s Energy Policy and Clean Energy Act, it is the standard rate that is supposed to be charged
The bottom line though, is what you suggest. If BC Hydro doesn’t recover the costs of the new supply, BC Hydro ratepayers will have to pay more for their power and there will be a transfer of wealth from you me and every other BC Hydro ratepayer to the private interests benefitting from the LNG plant. That may not be the Asian buyers of LNG. It could be the LNG project owners, or the gas producers, or some combination depending on how the effective subsidy of the electricity supply affects both the selling price of the LNG and the field price of natural gas.
Graeme Simpson // Feb 5, 2012 at 8:07 pm
Government announcements, particularly those by the BC Liberals, are very selective in terms of the information they put forward. Eliminating the critical water self-sufficiency requirement sounds like a good idea to help protect BC Hydro ratepayers. However the fact that BC Hydro appears to be committed to supplying all electricity to the LNG producers raises the concern that there will be ongoing subsidies and more rate increases to support the government’s “jobs plan.”
Here are some basic facts that may help put the issues in perspective:
- Replacing the critical water self-sufficiency provision of the Clean Energy Act with “average water” will reduce the future new energy supply requirements for BC Hydro by about 4000 GWh/yr.
- On the other hand, taking on the additional load obligations associated with the planned LNG export terminals near Kitimat will add about 1500 MW of new peak load to the BC Hydro system by 2020. This is equivalent to the approximately 12,000 GWh/yr of new energy load.
- Assuming BC Hydro is restricted to acquiring the majority of new energy supply reuqirements from IPPs, the net acquisition of new IPP energy required will therefore be about 8000 GWh/yr.
- The maximum amount that the LNG producers would be prepared to pay to BC Hydro for electricity supply would likely not exceed the cost of their self-supply option (burning gas to run LNG refrigeration units). This self-supply cost is likely about $100/MWh, inclusive of the opportunity value of LNG sold in foreign markets and the BC carbon tax.
- New IPP energy is likely to cost significantly more than $100/MWh based on the results of BC Hydro’s recent Clean Power Call.
- There will be substantial additional costs to BC Hydro associated with upgrading its transmission infrastructure to Kitimat and providing capacity back-up required by the LNG loads (because of intermittent nature of IPP run-of-river and wind generation).
The above facts suggest that it will not be possible to pass all of BC Hydro’s new supply costs on to the LNG producers, thus the “gifting” to IPPs will have to continue as will the associated rate increases to existing BC Hydro ratepayers.
Rather than forcing BC Hydro to acquire 8000 GWh/yr of new IPP supply, the government would be wise to further amend the Clean Energy Act to remove restrictions on the inclusion 5000-6000 GWh/yr of firm energy capability from Burrard Thermal (as well as 900 MW of firm capacity). This would enable BC Hydro to acquire further energy from the open market under most conditions and would return to BC Hydro’s planning criteria as they existed before the introduction of the Clean Energy Act. If this were done, the obligation to acquire new IPP energy would be further reduced to only 2000-3000 GWh/yr and it may be possible to get the overall BC Hydro new supply costs below the LNG producers’ willingness to pay threshold. This may avoid placing any further burdens on existing ratepayers to subsidize the costs of supplying new loads.
Priscilla Judd // Feb 4, 2012 at 7:29 pm
I tried to parse out the most important information in your post but the writing is not very clear so – please correct me if I didn’t understand.
Are you saying that the Liquid Natural Gas plant will use more power than it can generate?
Thank you
Marvin Shaffer // Feb 5, 2012 at 2:45 pm
The LNG plants are capable of generating the power they need. In fact that is what is done elsewhere. In B.C., however, it would appear that the LNG plants will buy power from BC Hydro instead of generating their own. The issue, given the very large amount of power they will use, is whether the price they pay will fully recover the costs that BC Hydro will incur to supply them.