Aug 27, 2013

BC Hydro’s Integrated Resource Plan and The Case Against Site C


It could have been me taking time off during the short Vancouver summer, or perhaps that the news release got dropped on the Friday before the August long weekend, but I totally missed the release of BC Hydro’s Integrated Resource Plan (IRP). It is an important document for the province, one that sets out the planning direction for BC Hydro for the next 20 years, and therefore one that merits more public debate than I have seen in practice. There is a final round for public consultation up to Oct 18.

My beef with the IRP is this: BC needs a high-quality electricity system, and in the fight to reduce greenhouse gas emissions, we need BC Hydro to play a central role in delivering clean energy. Instead, BC Hydro is planning to power a major ramp up of the province’s dirtiest industries (fracking for natural gas, converting that to liquified natural gas or LNG for Asian export, plus new mining operations), and gets there by building the controversial Site C dam on the Peace River.

Just over a year ago, when the draft IRP was circulating for public comment, John Calvert and I released Clean Electricity, Conservation and Climate Justice in BC, which took a big picture view of BC’s electricity system in the context of climate change. We started from the need to plan for a zero-carbon future, and noted BC has a tremendous advantage in having BC Hydro, with its vast hydroelectric power reserves. These were extremely controversial in their own time, but now a profound legacy of WAC Bennett. This represents the sort of clean (very low in greenhouse gas emissions) electricity supply that many other jurisdictions in North America, who burn coal to generate electricity, could only dream of.

BC government policy since 2002 has emphasized BC Hydro acquiring new renewable electricity supply. But with a catch: instead of building new generation through BC Hydro itself, as it has historically done, the government required the Crown to buy from private power corporations. These private power producers have managed to stake claims and get $40 billion in multi-decade contracts to deliver power to BC Hydro. Sadly, this bed was made by ratepayers: BC Hydro itself did the early research identifying the best sites. And it has meant that in high water years, BC Hydro has to spill water from its dams because it is contractually required to buy from private producers. In the Spring of 2012, BC Hydro lost $180 million due to this dynamic.

The BC government also created policy (“self-sufficiency” and “insurance” and renewable exports) to ensure that BC Hydro would have to buy this private power. Much as I want to champion renewables (wind, microhydro, biomass in recent calls for power), the way these contracts have been structured has saddled BC Hydro with huge future liabilities. New renewable power is not cheap: as of 2011, a review of BC Hydro found that half of BC Hydro’s domestic energy costs came from private power projects supplying just 16% of the power. This will get worse in coming years.

In one sense, Site C marks a return to public sector investment in new generation assets, a pleasant change noted by Marvin Shaffer. But the context for the Site C endeavour is misconceived, because what is really driving growing demand in BC are mining and natural gas, energy-intensive industries that have significant environmental impacts. In contrast, demand from residential and commercial customers is projected to be flat looking forward (think of residential, commercial and industrial each representing about one-third of electricity demand).

I should note that the new version of the IRP actually reduces projected electricity demand from LNG, the result of the BC government’s convenient declaration that natural gas is “clean energy” as it relates to an LNG export industry. That is, lots of energy is needed to liquify gas prior to shipment by tanker, and most of it will come from burning natural gas at the facilities. Nonetheless, BC Hydro is planning to supply LNG industry to the tune of 3000 GWh per year, an amount equivalent to powering 270,000 BC homes. The Liberals made development of an LNG industry the major plank in its election platform, and all manner of statistical junk has been created to justify it. But if successful, an LNG industry would create few jobs, while making it impossible for BC to meet its legislated greenhouse gas targets. And if also look at greenhouse gases emitted by the importing countries, it would be like adding 24-64 million cars on the roads of the world (numbers crunched here).

If we accept that supplying BC’s dirtiest industries with clean power is the path we want to go on, this necessitates the Site C dam. But if BC were instead to stick with its legislated greenhouse gas targets, and strategically ramp down mining and natural gas industries over a transition period (of perhaps a couple decades), this new power supply would not be needed. John and I model this out in our paper, and even account for increased electric vehicles and shifting homes off of natural gas.

So brace for a big fight in the Peace, as the government tries to ram through Site C (it has been exempted from oversight at the BC Utilities Commission) over the objections of local residents and First Nations. Even if you build clean hydropower from a GHG perspective, there are still massive local environmental impacts, such as loss of farmland, of building this dam. Water resources, in particular, are affected by the fracking process and Site C, as pointed out by Ben Parfitt. First Nations treaty rights are trampled on by this entire industrial policy shift.

There is another shoe to drop: BC Hydro rate hikes are coming, and are likely to be big annual increases. Industry typically pays much lower prices for its power (the “heritage” rate) than residential consumers, and much lower than the cost of new supply. In a sense, BC Hydro has been buying high for new power purchases and selling low to industry. You don’t have to be an economist to know that this business model cannot last long. The catch is that all ratepayers will have to shoulder higher prices. That is, even though residential and commercial demand has not really grown, higher prices get spread across all customer categories, a move that effectively subsidizes dirty industries.

The Integrated Resource Plan is deeply flawed because it helps the province dig even deeper, literally and figuratively, into fossil fuels. If BC wants more mining and gas development, those industries must shoulder the full cost of the increased electricity demand (include expensive transmission lines being built or proposed exclusively for those industries). There are negotiations on this stuff between the province and industry, but when push comes to shove I think the BC government will cave in to secure new investment. In the meantime, keep your eyes on the Treaty 8 First Nations, who are opposed to Site C. As with other fossil fuel infrastructure projects like the Enbridge and Kinder Morgan pipeline proposals, it may be First Nations that hold the trump cards.

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