BC Hydro Acquires Increasing Amounts of Electricity from IPPs

by Arthur Caldicott

For ten years, the BC government has been pushing BC Hydro to acquire increasing amounts of electricity from independent power producers (IPPs). Initially, Hydro was told it could not build any new generation facilities, so would have to buy from IPPs. Then the policy ramped up: buy enough “clean” energy by 2016 to meet domestic demand. Then: meet domestic loadand add “insurance” (another 3000 gigawatt hours per year).

The domestic demand rationale could no longer justify the acquisition rate, so in 2010 the government introduced its appalling Clean Energy Act. BC Hydro, for the first time, would buy energy exclusively for export.

BC Hydro is now charged with acquiring billions of dollars of electricity that need not have been generated at all. First problem: the supply cycle does not match the demand cycle. Most of it comes in a big burst during the spring freshet (May through July) when it is least needed.

Profit = Revenues – Costs

Second problem: price. IPP energy is being purchased at prices that have steadily escalated through the last ten years and are now well above $120 per megawatt hour (MWh).

“Mid-Columbia” is the index price for Pacific Northwest power and an indicator of what BC Hydro can sell power for in the region. The average “Mid-C” peak electricity price last year was $35.25/MWh. As we go to press, it’s $37. None of the power purchased by BC Hydro from IPPs during the last ten years has been priced so low. There is no way BC Hydro can make a profit selling electricity it purchased for more than $120/MWh into a $37 market. Although obvious to many, this glaring fact is not of interest or concern to the BC government. If the “Green Energy Powerhouse” is Emperor Campbell’s new suit of economic clothes, he is revealed to be very naked. Or very deceiving.

Gloating at this program that’s doomed to fall flat on its face is a short-lived satisfaction. It won’t be California – by far BC’s biggest potential market for energy exports – paying for BC’s huge mistake. It will be, as it already is, BC’s electricity ratepayers.

Price is just one of the problems for BC’s new energy in the California market. There are a couple of other issues.

California’s Renewable Portfolio Standard (RPS)

California’s 2006 Global Warming Solutions Act (AB32) was updated in 2009 to require that by 2020, 33% of the electricity sold in the state must be from energy sources which are RPS compliant. The BC government and PG&E, California’s largest utility, see BC as being a big part of the solution to that renewable requirement.

If it were so, BC’s electricity would jump to the head of the queue, and fetch a premium price.

Here’s how well BC’s energy fits the RPS: it flat out does not.

• Under 30 MW: The RPS requires that hydro electricity come from facilities of 30 MW capacity or less. Most of the new IPP generation in BC, and most of the forecast new generation is from much larger facilities. Think 49 MW from the Innergex Ashlu project, or 197 MW from the GE/Plutonic Toba Inlet project, or 1027 MW from their Bute Inlet proposal. All of BC’s heritage hydro energy is ruled out.

• No change in flow: The RPS says that hydro projects built since 2005 must result in no change in volume or timing of streamflow. BC’s new hydro projects divert up to 95% of the water out of the streambed in the “diversion” reach.

• CA eco-standards: The RPS requires that the environmental standards under which these new facilities are built be at least equivalent to those applicable in California. On a number of counts, BC’s standards do not measure up. These include instream flow levels for fish, and public and local government participation in permitting, oversight, and monitoring.

Note, however, that this does not prevent BC’s electricity from being sold in California. But it does not come with the special advantage and premium-pricing of renewable electricity. It will have to compete on price alone with all other sources of electricity.

Proposition 23, the California Jobs Initiative

Prop. 23 was on the California ballot on November 2, 2010. It sought to suspend AB32 until the state’s unemployment rate drops to 5.5% or below for four consecutive quarters. Unemployment today is about 12.5%, and hasn’t been as low as 5.5% since 2007. In a Prop. 23 world, AB32 would be suspended for a long time.

Many believe Prop. 23 was not really about jobs or California’s economy, but was about preserving the status quo for energy corporations, which were not averse to sabotaging environmental objectives for their own benefit. A look at the money behind Prop. 23 pretty much confirms this thinking: the largest supporters of the proposition were all petroleum refiners, marketers and distributors. Leading the way were the Texas-based corporations, Valero and Tesoro.

What did Prop. 23 mean for BC’s export agenda? California’s specific demand for RPS-eligible electricity would have stopped indefinitely, and again, BC would be back to where it is today, competing with all the vendors of electricity selling into the California market.

Whitman or Brown

California’s retread governor, Jerry Brown, promised to uphold but make “adjustments” to AB32. Meg Whitman, the Republican gubernatorial competition, said she didn’t support Prop. 23, but would suspend AB32 for a year anyway.

With or without Prop. 23, with or without AB32 and the RPS, BC’s electricity export ambitions will still be thwarted by the large gap between what it costs BC Hydro to buy the power, and what it can sell it for. As the new costly energy is blended with heritage power, because there will be no market for it as a niche green product, it will gradually increase BC’s average cost of generation until BC has no energy advantage at all.

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Arthur Caldicott writes frequently for the Watershed Sentinel on energy matters.

[From WS November/December 2010]

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