(Credit: elycefeliz via Flickr)
British Columbia has deserved its status as a global leader in climate change policy. The landmark carbon tax, inclusion in the fledging Western Climate Initiative, a legacy of non-emitting hydroelectric facilities, and a veritable bevy of community and municipal actions to reduce emissions all have placed BC at the high watermark for climate leadership in North America. However, the provincial government has recently changed direction, considering a reduction in the self-sufficiency clause of the Clean Energy Act and actively promoting the natural gas industry, a move that could dramatically undercut BC's climate change agenda.
Under direction from the government, BC Hydro recently reviewed their rate structure and proposed that the self-sufficiency clause and insurance be removed from the policy. The self-sufficiency component requires that BC Hydro be able to produce enough electricity to satisfy provincial electricity demand even during the lowest water years (critical) and have another 3000 GWh (units of electricity) of insurance. BC Hydro is proposing that this self-sufficiency be reduced to the average amount of water years, a significantly lower requirement.
This recommendation seems innocuous but it has huge impacts on our electricity system and greenhouse gas (GHG) emissions once we take in the outlooks for the province's energy industries. Only having enough supply for average water coverage exposes the ratepayers to financial risks of in the event of a drought (not altogether impossible with a changing climate). A shortage will drive BC Hydro to import significant amounts of expensive GHG-intensive electricity, hurting consumers, industry and the climate.
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Under the self-sufficiency clause, all of the energy purchased from independent power producers (IPPs) or built by BC Hydro required net-zero emissions, shifting the electricity market towards more domestic renewable energy production. To meet this requirement, some favoured smaller electricity development from IPPs; however, due to price, BC Hydro favours the Site C dam. IPPs are touted at being about 40% more expensive than Site C and much more expensive than the spot price of electricity. (The spot price represents the price of electricity that BC Hydro can buy through international trade and is based on the cost of excess coal-fired electricity (which must run all day for technical reasons) from the United States and Alberta.) Reducing self-sufficiency essentially means that the highest cost option (IPPs) can be eliminated, leaving BC Hydro free to build Site C and relying on coal-fired imports when the system cannot produce enough to meet demand.
Since the introduction of the Clean Energy Act, the self-sufficiency clause has been problematic. Many people have questioned the necessity of the clause and have expressed concerns about its motive. Some economists argue that self-sufficiency places unnecessary costs on electricity ratepayers while others think it is a framework to promote a privatized clean energy export industry.
But a move away from the self-sufficiency clause has complex implications.
Reducing domestic energy production does not mean guaranteed cost savings. The spot price of electricity is subject to significant uncertainty—what the spot price is now will not be the price in ten years. Due to improvements in efficiency and production, the cost of renewable electricity is dropping dramatically, especially for wind power in B.C. Self-sufficiency means that we may pay more for the costs of new electricity generation today, but it is a protective measure against future rises in the spot price (which is almost inevitable as coal fleets in the U.S. retire and more expensive cleaner energy comes online).
BC Hydro currently exports electricity at premium prices and is eyeing the electricity market in California as a potentially lucrative venture. But if we do not produce enough electricity to match our own demand and instead rely on imported coal-fired power, state regulators will impose financial penalties on any BC electricity sold to California. Reducing self-sufficiency further weds us to the reality of a system dependant on coal-fired imports and the risk of passing up high export premiums for our clean energy.
Finally, as I will explain in my future blog, there may be significantly higher provincial electricity demand if we look at overseas markets, specifically in Japan and Korea where they are eyeing BC's natural gas for their own electricity supply. If this demand cannot be met by relatively low-cost reliable domestic sources, then it will be met by burning natural gas to power the development, processing, pipelining and cooling of natural gas exports which will completely overwhelm our climate targets. Stay tuned as I highlight how the nuclear disaster in Japan will place additional pressure on our energy system and potentially create much more GHGs.
Whatever way to look at this, there are tradeoffs on the future of our electricity system. In my opinion, provided that we can develop clean energy in a way that minimizes local environmental impacts, moving toward an essentially more carbon intensive system by stripping self-sufficiency is a move in the wrong direction.
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2 Comments
10:57 AM
Thanks for the response, Green Dreams.
I would like to clarify that the wind overbuild in the U.S. appears to be all contracted for so I would disagree that there’s an overbuild surplus there for us to tap into.
Otherwise, I would argue that building new power now insulates us against the possibility of using out-of-province and GHG-intensive electricity generation in the wake of rising electricity demand in the future. This demand will stem from a more intensive fuel-switching effort to electricity in the transport sector especially but also in primary industry and potentially buildings.
New renewable electricity is costly to start but inevitably will be cheaper as fossil fuel prices rise due to market issues and policy. We have enjoyed the low power costs of this forward-looking policy with our legacy of investing in hydroelectric power. I don’t see this situation as much different from the past when fossil-fuel energy would have initially been cheaper than building big dams.
It’s more prudent to pursue this course then to open us up to the spot-market volatility and the possibility of drought while addressing our own and leaked GHG emissions. So, while new generation is expensive, it is an insurance policy against rising electricity demand to address GHG reductions and the volatility of fossil-fuel prices, and is in-line with other big generation options like Site C, of which the costs are extremely vague and most likely significantly undervalued.
Thanks again for your comments!
4:50 PM
Wow — I expect better research from DSF on this issue. This article displays a profoundly superficial understanding of the issue on numerous levels.
For one, reducing the bloated definition of "self-sufficiency" does not mean BC Hydro is forced to rely on importing dirty coal power. First of all,we already self-sufficient in electricity, the current definition of "self-sufficiency" was meant to prop up the private power industry with the goal of selling the excess electricity to California. Except California has an Renewable Portfolio Standard which doesn't consider IPP run-of-river power to be "green" and thus they won't be paying a premium for it. Also there was an overbuild of wind energy south of the border which means BC Hydro can pick this power up at a much lower price than it is currently forced to pay for IPP power or if needed BCH could access the downstream benefits from the Columbia River Treaty (we are entitled to 4,000 Gwh of low carbon electricity for the water we store for the US.) — IF we needed the power.
Nowhere in your article is there comment on the fact that BC Hydro is already on the hook for $30 billion in energy purchase agreements to private power producers for electricity that is largely surplus to our needs and will be sold at a loss south of the border. I find it amazing that DSF doesn't recognize the impact that this has on BC Hydro — one of our best tools against climate change.
And is is incredibly misleading to suggest that IPP electricty, which is soft and intermittent, would be able to reliably meet projected new demand — most of which will be from the Horn River Gas Shale Deposit (designed to power the Tar Sands) and new smelting mines as well as coal mines along Highway 37.
Shame on DSF for such a misleading, poorly researched and ultimately deceptive post. I expect far better from your organization. The post above reads as an advertisement for the IPP industry.
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