The following is the first in a two-part series by geologist and concerned British Columbian George Gibson examining the failed private power model in BC.

——————————-

Dedicated to my 4 year old daughter who asked, “Dad, can BC Hydro make electricity from ice?”

We were on a family walk along one of our favorite rivers. She had just heard her parents lamenting that this river was one of many in the area slated for private power development. It was a crisp January day and her parents had failed to notice that there was only a trickle of water in the main channel.

The recently awarded Environmental Assessment Certificate for the Kokish River hydroelectric project provides a fitting backdrop for a review of disastrous and increasingly relevant flaws in BC’s Clean Energy Act. Premier Christy Clark’s complacency and Energy Minister Rich Coleman’s failure to address glaring new realities has resulted in increasingly desperate collusion by government and corporate influences to justify obsolete policy. The ongoing explosive growth of wind power capacity in the Pacific Northwest Power Pool, the collapse of natural gas prices, and a timely reminder of infrastructure vulnerabilities from the earthquake in Japan are all examples of evolving conditions where adaptability is key to survival.

Inherent flaws in BC’s Clean Energy Act are an inevitable consequence of a policy committed to the paradoxical agendas of economic growth and reducing GHG emissions. The invariable result of this combination is that neither will be done well. Furthermore, many of the specific directives of the Clean Energy Act reflect private sector influences that are both self-serving and profit driven. This private sector influence is therefore in a direct conflict of interest with value-based solutions that honour the best interests of the public.

Clean Energy BC (formerly the Independent Power Producers Association of  British Columbia) and the Green Energy Advisory Task Force are prominent influences on policy. Both groups are dominated by expertise in business and corporate finance. Perhaps the most troubling attribute of these advisory groups is the near absence of engineers, scientists (including ecosystems and fisheries biologists), and environmental researchers. Those most qualified to build an effective policy and assess the legitimacy of “green” qualifications have been largely bypassed.

Government policy embracing a profit-based, finance-driven corporate agenda for the clean energy sector has had the unfortunate side-effect of introducing deceptive and questionable marketing and promotion practices to a generally wholesome industry. Sadly, these promotion strategies are driving development in projects tailored to maximizing profits rather than effectiveness in reducing GHG emissions. Adding insult to injury, The Clean Energy Act burdens BC Hydro with outrageous and conflicting expectations to both facilitate IPP development and maintain obligations to ratepayers. The following analysis will detail how inherent defects in this legislation will result in little meaningful reduction in GHG emissions while transferring senseless risk and expense to the ratepayer.

The Clean Energy Act: A suicide mandate for BC Hydro

“The Clean Energy Act sets the foundations for areas of priority”, as per the Ministry of Energy Shareholder’s Letter of Expectations presenting government mandated directives to BC Hydro. These directives must then become the basis for BC Hydro’s Service Plan. The Letter of Expectations for BC Hydro’s 2011/12 Service plan includes the following areas of priority:

• Ensuring electricity self-sufficiency at low rates
• Supporting the development of clean private power projects to enable economic growth and create jobs in every region
• Securing long-term export power sales by partnering with private power producers without risk or cost to BC ratepayers

Furthermore, this Letter of Expectations contains an explicit directive from government for BC Hydro to “explore and identify opportunities to facilitate access for independent power producers to sell clean, renewable electricity in western North American markets”. ( That’s right…the same government that accused BC Hydro of being over-staffed is now expecting their marketers to do legwork on behalf of private power producers!)

The mandates referenced above are absurdly inconsistent with the realities of the challenges facing BC Hydro. BC Hydro’s obligations to ratepayers are to provide  reliable, secure and sufficient supplies of electricity safely and cost-effectively. The most significant challenges to these obligations are to provide reliable service under conditions of maximum demand and stress on the system.

The conditions for peak electricity demand and largest risk to the system are explicitly identified by both BC Hydro and the Northwest Power Pool as “cold weather” or “significant weather events” where temperatures drop more than 10°C below normal. This is for the simple reason that in BC, space heating requirements are responsible for about 57% of total household energy use. A legacy of the era of cheap hydro power is that between 200,000 and 500,000 of BC’s 1.8 million households use electricity as either a primary or complementary source for space heating. This calls for a staggering amount of capacity: approximately 2000 MW over and above typical usage patterns.

This causes unique problems for jurisdictions where electricity is generated primarily from hydro power facilities. Freezing temperatures stall the process of precipitation runoff, and within a matter of hours, river and stream flows are reduced to minimum levels. Hydro reservoirs are taxed by maximum withdrawals and minimal refilling. Capacity support from run-of-river facilities during these conditions is not effective. Furthermore, capacity support from wind generation may or may not be available depending on the location of those facilities and whether or not temperatures at those sites drop below standard operating limits (typically -10° C). Cold weather limitations on electricity supply from hydro power sources, including run-of-river, have been a major contributor to historical requirements for BC Hydro to offset short term energy supply shortfalls with market imports. It is therefore unrealistic to expect clean energy electricity suppliers to meet demand driven by cold temperatures.

The conditions for greatest stress with maximum potential for service interruption are caused by winter storms. BC Hydro explicitly identifies the single greatest cause of power interruption as damage caused by trees and branches falling on power lines. In the wake of major service disruptions caused by this type of damage, BC Hydro has managed to reduce these occurrences on a measly annual vegetation management budget of approximately $20 million. The proliferation of private power facilities will require significant expansion of transmission infrastructure and only serve to exacerbate this issue.

Added to the challenge of hardening a system against winter storms, is the requirement to harden against seismic risk. BC Hydro bears the responsibility of managing complex and capital intensive requirements for operating a power supply and distribution network of critical infrastructure in an area threatened with the inevitable occurrence of a major earthquake. In fact, much of the $6 billion worth of capital that BC Hydro has committed to spending on renewing or replacing aging infrastructure is related to seismic upgrades. This stems from the fact that at the time these facilities were built, our knowledge of seismic hazards and vulnerabilities of critical infrastructure was limited to only a handful of documented events. In light of the numerous devastating earthquakes that have occurred since then, and the vast amount of data available for identification of earthquake hazards and infrastructure vulnerabilities, it is completely unreasonable to criticize the economic efficiencies of these expenditures.

The challenges mentioned above are largely reflected in a summary of significant costs for BC Hydro in supplying domestic needs, as stated in the BC Hydro Service Plan 2010/11 – 2012/13:

• The cost of buying energy accounts for between 35% and 40% of BC Hydro’s overall domestic costs. This includes the cost of net market electricity purchases, IPP purchases, and natural gas costs for thermal generation facilities.
• Capital investment costs account for approximately 33% of overall domestic costs. This includes system upgrades for reliability as well as capacity additions.

The Clean Energy Act has alarming implications for the future escalation of these costs.

The act mandates BC Hydro will loose the flexibility to augment supply with net market imports beyond 2016. This will restrict access to approximately 13,000 MW of wind power capacity in the Northwest Power Pool. The Northwest Power Pool Assessment of Reliability and Adequacy 2011-2012 Winter Operating Conditions reports on a situation that has been completely ignored by the BC Government: There is already a problem with surplus clean energy capacity in the spring and fall when wind and hydro generation may exceed load plus the capacity to export. This supply surplus has resulted in downward pressure on Pacific Northwest wholesale electricity markets, creating bargain prices during the freshet and periods of mild wet weather. February 2012 wholesale prices are trading around $24/MWh for firm, on-peak delivery. Despite this fact, BC’s Government and the IPP sector justify The Clean Energy Act mandate for electricity self-sufficiency with repeated reference to wild price volatility and potentially exorbitant costs of importing electricity from external markets.

In a perverse display of deception, both parties make specific example of the California Energy Crisis as the calamitous consequences of any dependency on external supply. Any degree of familiarity with this event reveals that this example had very little to do with real supply shortages and everything to do with market manipulation by fraudulent private sector participants such as Enron. Any contribution to real supply constraints was caused by the combination of cold weather and drought conditions which critically reduced hydro power capacity in the Pacific Northwest.

These inherent limitations, and in particular cold weather limitations on hydro power generation, pose a conundrum for BC Hydro. An increased dependency on hydro power in a hydro power dominated market only serves to exacerbate supply gaps during times of peak demand. Nevertheless, the IPP sector and the BC Government continue to press the urgency to build more run-of-river facilities in order to fulfill increasingly speculative and illusory future supply gaps. BC Hydro is left to deal with the paradoxical realities.

BC Hydro will lose even more operational flexibility and incur additional affordability challenges as the option to offset peak system loads by purchasing cheap natural gas for thermal generators will be restricted by limitations on GHG emissions.

Future capital investment will be committed to transmission infrastructure expansion to facilitate IPP development and the highly controversial Site C project. The end result is that BC Hydro’s single greatest cost, buying energy, will be almost entirely dedicated to an exclusive group of private power producers. Furthermore, a significant portion of capital costs will go toward facilitating this. To date, over 70% of BC Hydro’s contracted electricity purchases for clean energy have been awarded to private run-of-river and limited storage hydro power projects. BC Hydro’s yearly cost for run-of-river power alone, currently stands at $340 million (assuming 3,400 Contracted GWh/year at a weighted average of $100/MWh). This contribution amounts to about 6% of total annual electricity demand. However, as previously explained, cold weather limitations shift the timing of this supply to periods of low demand. The value of electricity supplied to BC Hydro is indexed to market pricing only when timing of delivery corresponds directly to periods of daily peak demand.

The wisdom of these directives, including expectations for new clean energy to supply economic expansion, and the implications for BC ratepayers will be considered in the context of the Kokish run-of-river private power project, which we’ll examine in detail in part 2 of this series. This project provides an excellent opportunity to assess glaring deficiencies, blatant collusion, and unacceptable costs for both ratepayers and the general public.

George Gibson is a retired geologist from Courtenay, BC , who applies his passion for science and the environment to wilderness preservation, and the promotion of environmental stewardship through ecotourism.