Site C a losing power play for BC Hydro: academics

New UBC-led research adds economic concerns to group’s analysis of $8.8 billion mega-project’s environmental impact 

Aerial view of Site C dam earth movement operations | BC Hydro

Add research from a group of academics to the growing inventory of questions raised over the economic prudence of BC Hydro’s $8.8 billion Site C dam project.

The concerned scholars’ group, which includes more than 370 academics across the country, is headed by a quartet of initial signatories that includes Karen Bakker, director of the University of British Columbia’s (UBC) Program on Water Governance. Its economic analysis is the fifth in the group’s series of Site C research documents.

The analysis was released April 19, the day after BC Liberal Leader Christy Clark, campaigning in northern B.C., said, “Site C means thousands of jobs and 100 years of clean, affordable and reliable power – enough for 450,000 B.C. homes. It means being ready to meet increasing demand as Canada’s leading economy continues to grow.”

Previous research papers from the scholars’ group analyzed the dam’s environmental impact, greenhouse gas emissions, First Nations engagement and the approval process that allowed Site C to avoid BC Utilities Commission (BCUC) scrutiny.

The group’s economic analysis maintains that the business case for Site C is weak and that the massive energy infrastructure project that will erect a third dam on northern B.C.’s Peace River is at high risk of becoming a stranded asset that will generate losses of between $800 million and $2 billion atop the project’s projected $8.8 billion capital costs.

The 160-page Reconsidering the Need for the Site C Project report also estimates that Site C is now between $500 million and $1.5 billion more expensive than the wind power alternative.

It questions the business case for a multibillion-dollar hydro project whose power the report says will be 100% surplus when it is completed.

The report recommends that Site C be shelved until it has undergone the BCUC review it should have been subject to originally.

While BC Hydro will have sunk close to $2 billion into the project by the end of June, the report’s authors estimate that cancelling Site C now would save taxpayers between $500 million and $1.65 billion.

Bakker said the analysis, which is based on BC Hydro numbers, was funded through UBC’s Program on Water Governance.

“It’s just straightforward research. This is a non-partisan, common-sense, sober second-thought analysis. We feel this is a substantive contribution to the debate at this time.”

Bakker said she and the report’s two co-authors began testing Hydro’s Site C math in part because B.C.’s Clean Energy Act (2010) exempted the project from the public scrutiny normally required of such major infrastructure investments.

“Our view on Site C is that due process has not been followed, … and so if we don’t follow due process, if we don’t do the independent evaluation, how can we know?”

She said the group’s reports provide the analysis that a BCUC process would have given the province’s taxpayers.

The group’s previous assessment of Site C’s environmental impact maintained that the dam is neither cleaner nor greener than an alternative portfolio of solar, wind and other renewables that would deliver the needed power cheaper and with less environmental impact.

It also questioned the potential for exporting Site C’s power to Alberta because of its relatively high cost compared with other North American energy sources.

The group took the province’s Clean Energy Act (CEA) to task because it all but requires Site C to be built, regardless of the cost-effectiveness of major alternatives.

It noted, for example, that much of the power that will eventually be generated by the dam is already available to B.C.’s domestic market from such sources as the Columbia Treaty. The province owns the Canadian Entitlement portion of the electricity produced from the Columbia River dam in the United States. That power, the group said, is close to Site C’s estimated energy and capacity, and it’s already available for domestic use, but Powerex, BC Hydro’s power marketing division, sells it into the North American grid.

Because the CEA now requires the province to be electricity self-sufficient, the Columbia River power produced downstream in the U.S. can’t be used for domestic purposes.

That power is also subject to an America-first requirement and can’t be used during times of average or above-average river water flows.

In addition, the CEA prohibits the use of B.C.’s natural-gas-fired Burrard Thermal plant, which could be refurbished at a fraction of Site C’s cost to generate a comparable amount of power when demand required.

According to a Hydro fact sheet, the Crown corporation suspended its review of Site C as a potential option for new electricity supply in 1991 because “opportunities for demand-side management and gas-fired generation were identified as potentially better ways to meet demand.”

The academic researchers are not alone in questioning Site C’s economics.

As Business in Vancouver has previously reported, Dan Potts, a former executive of the trade association representing BC Hydro’s large industrial customers, maintains that annual costs for Site C energy will be $300 million more than the market value of the power it will generate.

The horizontal drilling and hydraulic fracturing technology that has opened up vast amounts of natural gas and other fossil fuel reserves in North America and around the world has dramatically redrawn the global energy landscape.

In its recently released 2017 energy outlook  report, the U.S. Energy Information Administration forecast that the United States would become a net energy exporter by 2026.

That has reduced the marketability of Site C’s relatively expensive hydro power during times of the year when the dam’s power is surplus to domestic needs. It has also added a significant marketplace premium to that power for domestic users because many U.S. power plants have or will be converted to natural gas turbine technology that can generate electricity far cheaper and with a far smaller carbon footprint than was available from previous generations of turbines.

Former head of the Site C review panel Harry Swain has estimated that the project will stick B.C. ratepayers with a $7 billion bill for what he maintains will be power that can’t be sold for what it costs to produce.

As has BIV, Swain noted that electricity demand in the province has remained relatively flat for the past decade.

Falling demand from pulp and paper, forestry, mining and other major industrial users, in part the result of the Great Recession, has raised questions over Hydro’s electricity demand forecasting used to justify Site C.

For example, from 2006 to 2015, Hydro sales in that category slipped 15%.

BC Hydro’s recently released 2016-17 third-quarter report shows core domestic demand from residential, light industrial and large industrial customers at 35,892 gigawatt hours (GWh) for the nine-month period ending December 31 compared with 36,062 GWh for the same period a year earlier. The 2016-17 core domestic demand is down 3.1% from the same period 10 years ago, when it was 37,046 GWh.

BC Hydro’s service plan filed with the province’s Budget 2017 shows domestic sales flat lining through to 2019-20 and the corporation’s debt rising to $23 billion during that time.

BC Green Party Leader Andrew Weaver told BIV’s editorial board in March that Site C might be needed at some point, but “it makes no sense right now. It’s an egregious waste of taxpayers’ money to deliver into an industry [liquefied natural gas] that’s not happening. … And it has killed the clean-energy sector in B.C.”

Concerns over Hydro’s demand forecasts are not new. In its final report on Hydro’s original 1980 application for an energy project certificate for Site C, the BCUC panel reviewing the application questioned Hydro’s “optimistic” probable load forecast used to justify the project. It recommended that the government defer issuing the certificate.

Hydro has also projected that population growth of roughly 1.2 million (27%) over the next 20 years will increase electricity needs 40% over 2012’s demand even though a population increase of 1.1 million (33%) in the previous 20 years increased demand by 22%.

The Canada’s Energy Future 2016 update from the National Energy Board released late last year noted that, while the country’s energy use increased by 1.3% annually between 1990 and 2014, the projected annual increase will slow to an average rate of 0.5% to 2040.

In addition, the Crown power corporation plans to spend $20 billion over the next 10 years to upgrade infrastructure.

Bakker said BC Hydro’s plan to reduce its demand-side management (energy conservation) programs in light of the surplus power that Site C will generate is one of the surprises uncovered during her group’s economic analysis research.

“Energy conservation costs about one-third as much as Site C. So it makes sense when you are looking for ways to supply electricity cost-efficiently … to pursue demand-side management and energy conservation. So [BC Hydro has] been doing so. But now that Site C is coming on board – and it will be 100% surplus when it comes online – then from a planning perspective it makes sense to reduce energy conservation and energy efficiency programs.”

However, BC Hydro maintains that it’s the right time to invest billions in another dam project.

In a December 2015 briefing with BIV, Chris O’Riley, the Hydro executive overseeing the project, remained convinced of the long-term need for Site C’s capacity when it comes online in 2023, and of the fiscal prudence of the massive engineering project.

He added that Hydro is confident in its forecasts of 1.1% annual growth in electricity demand in B.C.

“You don’t build something like this [Site C] for today or even 10 years; you build it for the long term.”

O’Riley said the forecast is based in part on population migration to B.C. and “the continued reliance in B.C. on the resource sector,” regardless of whether liquefied natural gas export plants are built in the province or not.

“When you look at the prospects for the electrification of oil and gas and mining investment over time, we think 1.1% is a reasonable number.”

O’Riley added that low interest rates make it a good time to invest in major power infrastructure projects like Site C.

BC Hydro spokeswoman Mora Scott told BIV in late March that Hydro continues to forecast “significant long-term growth across all of our customer classes.”

She conceded that uncertainty has clouded expectations in mining and oil and gas, “but the forecast increase remains significant and well within the expected ranges, so we are forecasting that our electricity needs will grow by almost 40% over the next 20 years. … We are expecting another one million residents and economic expansion.”

To meet that demand, she said, Hydro would be advancing a diverse portfolio of resources that includes Site C and other new hydro/wind/solar projects, “conservation programs, renewals of existing contracts with independent power producers and a sixth unit at the Revelstoke dam.”

The Crown power corporation’s community relations manager, Dave Conway, added that Site C remains on schedule to hit its $8.35 billion project budget.

The BC Liberals, meanwhile, maintain that Site C will be required even with what the party says are BC Hydro’s ambitious Power Smart programs that are targeted to meet 78% of future electricity growth.

The party also says that the project, “which has undergone a thorough and independent multi-year environmental assessment process, will provide approximately 10,000 direct construction jobs.”

In a 2016 Year in Review column published in BIV (issue 1416-17; December 20-January 2), Hydro CEO Jessica McDonald noted that the dam project has become “a major employer for industrial workers in the northeast with 85% of the 1,870 project workers from B.C. and over 700 employees from the Peace region.”

In March, the government reported that the Site C project now employs more than 2,000 workers.