This week A Review of BC Hydro’s Purchase of Power from Independent Power Producers came out and to no one’s surprise it revealed that BC Hydro is paying too much for all that intermittent, low-carbon power purchased under the 2007 Energy Plan–Vision for Clean Energy Leadership that informed the 2010 Clean Energy Act (CEA). These policy decisions were the provincial government putting their money where their mouth was when it came to fighting climate change and represents a sign of exactly what we should expect as we continue our fight against climate change.
To put it bluntly BC Hydro, in 2019, is suffering because they are ahead of the curve and got locked into intermittent renewables which is exactly what the environmental activists say we should be doing country-wide. When you read “run-of-river” in this review you could just as easily read “wind” or “solar”. Because of this, BC Hydro’s problems in 2019 are going to be mirrored across the country and that is the price we may need to pay if we are serious about fighting climate change. Moreover, it is guaranteed to be the price we will pay if we decide to go 100% renewables in our fight against climate change.
Let’s start with a little history. In 2007 as part of its Energy Plan (2007 EP) and in the subsequent Climate Action Plan (CAP) our Provincial Government committed us to a path of electricity self-sufficiency. As described in these plans, electricity self-sufficiency was deemed a major priority. The reason for this was self-evident to the authors of those plans; but seems to be lost on the politicians of today. In a world where fighting climate change becomes our defining political battle ensuring we have a steady domestic supply of low-carbon electricity is exactly the reason why we have a government-owned utility.
The two plans foresaw a future where we will need to use more electricity for transportation and residential uses and will need to ensure that we have the domestic capacity to meet those needs. Recognizing that the government of the day couldn’t pay for it all the power, CAP foresaw that we would need to bring in external partners to meet our future electricity needs. Thus the reliance on Independent Power Producer (IPPs). It also acknowledged that paying a bit more to provide flexibility of supply and energy security represented sound governmental policy and not a mistake. As I wrote in a previous post: it is a feature of the system not a bug.
This brings us to the reason for the CAP and the CEA: our desire to fight climate change. By now we all know that the way to fight climate change is to reduce our reliance on fossil fuels, and how do we do that? We need to electrify everything and then make sure that the electricity we move over to is of the low-carbon variety (like run-of-river hydro, solar, wind or large reservoir hydro). Reading that list you see a common feature in three of those choices (run-of-river hydro, solar and wind) they are all intermittent power sources. The problem with intermittent power sources is they are intermittent. Some days the winds will blow and you will have lots of electricity and some days it won’t and you won’t have enough. In order to deal with this challenge you have to over-build capacity; build some storage capacity into the system; and provide some back-up for when the storage runs out. In BC we have done two of these things, we have built a lot of intermittent capacity and have the back-up (in the form of large-reservoir hydro) but we don’t have the storage.
Absent the storage this means that when the intermittent is producing at full capacity we are going to have too much electricity that we will need to get rid of somehow. Due to an absence of capability to move it eastward much of this electricity gets dumped on the southern market at a reduced price. This is the same thing that can happen elsewhere. In California they can get a situation where they literally have to pay other states to take their intermittent electricity while other localities like Denmark often can sell it to an integrated market but that doesn’t always work as the Germans can explain.
So unless we can come up with a way to store the excess electricity provided by all these intermittent sources we will need to subsidize our excess capacity. As for complaining about IPPs? Well if you are not willing to build it yourself, then you are going to have to provide the people who do with security that their investment is sound…and this means long-term contracts. These contracts are the price of doing business and while we are losing money now, that doesn’t mean we will continue doing so.
Ultimately money is the challenge, but then we have been told time and time again that fighting climate change is going to cost money. Ideally, this should be done by increasing electricity prices to drive down demand and spur innovation but we live in BC where raising electricity prices is tangled in politics. This means that BC Hydro has not been able to drive up the price to pay for our government’s desire to fight climate change.
If the government isn’t going to allow BC Hydro to charge what it needs then it is going to have to use some of that carbon tax money to help BC Hydro cover the difference. Realistically the whole purpose of the carbon tax is to help force a move towards electricity and away from carbon-intensive energy sources. It seems logical that some of the carbon tax revenue be used to help BC Hydro achieve this goal.
To close this post let’s reiterate a few facts: fighting climate change is going to be a very expensive, electricity-intensive project that will take a huge political will; the expenditures of massive financial resources; and cooperation between the private and public sectors. This is not something that can be accomplished by governments alone and it will mean making huge sacrifices and compromises.
If the activists are right, by 2050, we will need to be self-sufficient in low carbon energy because our neighbours to the south and east are fighting the same battles that we are. We won’t be able to simply dip into Alberta or Washington’s energy supplies when the wind is not blowing and the sun not shining. We are going to need to take advantage of the massive financial resources of the private sector and to do that we must give them assurances that we will buy the power they produce, hence IPPs.
To build and operate those new sources we have to accept that energy is going to get a lot more expensive but that is the price of completely converting our energy system from one based on carbon to one that is essentially carbon-free. That means we are going to have to get used to high energy prices and that our government is going to have to find a way to shelter the poorest among us from the sticker-shock. If we want BC Hydro to keep providing power we need to figure out a fair way to pay for it and simply raising rates is not the answer.
Ultimately this report is telling us what policy experts have been saying for years. Fighting climate change is not going to be cheap and if you want to fight climate change then the government is going to need to invest money in order to do so. Anyone who claims that switching to intermittents will be cheap and easy is simply selling you a bill of goods and anyone who says that BC is the only case of this needs to look at California, Germany and Denmark. They are all leading the charge on integrating intermittents into their power grids and the result has been higher priced energy. BC Hydro is suffering because we are asking it to achieve two mutually exclusive goals: provide a low carbon grid full of intermittents to help in the fight against climate change while keeping prices low. Carbon tax revenues can help it achieve these two mutually exclusive goals.
Author’s note:
Just quick follow-up about the report. It is simply stunning to me that a report on this topic completely ignores the entire topic of climate change. The entire purpose of the CEA is to help in the fight against climate change and yet the report fails to include the term even once. A word search finds it once in an appendix but nowhere in the body of the text. Talking about the CEA and BC’s energy future while excluding the overriding energy topic of our era is simply incomprehensible and a report that ignores climate considerations in energy prices really needs a serious reconsideration.
A Chemist in Langley 
“As will be shown in this report, BC Hydro procured the vast majority of its IPP energy, much of which was not needed, through competitive processes or based on the results of recent competitive processes. However, BC Hydro evaluated the proposals based upon the cost per MWh the projects offered as compared to the offers from competing bids and/or the results of similar procurement processes carried out by BC Hydro or in other jurisdictions, not the market value of the energy produced”
“much of which was not needed”
“If there was one thing BC Hydro didn’t need at the time, and still doesn’t need today, it is more freshet energy.”
“Government directed BC Hydro to purchase 8,500 GWh/year of Firm energy BC Hydro did not need. This direction of BC Hydro’s actions is manifest in the Response EPAs through which BC Hydro managed to acquire 9,500 GWh of blended energy, which is equivalent to 8,075 GWh of Firm energy. The Response EPAs cost ratepayers an Estimated $16.2 billion over 20 years, the estimated period during which BC Hydro will likely not need the energy Government told
it to buy. The annual impact of this surplus energy to BC Hydro ratepayers is estimated as $808 million per year or ~$200 per year per residential ratepayer, which is equivalent to $4,000 per residential ratepayer over 20 years.
The $16.2 billion Estimate is believed to be conservative.”
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“Renewable energy” leaves the wrong impression. A more appropriate description is “weather dependent energy”. Not to mention adapting to climate change of 1 C hotter generally means adapting to the climate of whatever place is about 150 km. further south than where you live presently, which for practical purposes is losing one snow day per winter…just sayin’….
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climate change?
Biomass gets kudos for being dispatchable and having realistic contracts. Yet biomass is a large emitter of CO2 (I don’t think they mention CO2 at all)
I also found this funny: ” To date, B.C. run-of-river projects have not been accepted by California as a renewable resource, due to the diversion of water by the weir.”
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Ideally, this should be done by increasing electricity prices to drive down demand and spur innovation
I’m as free-market as the next guy, but it doesn’t work like that.
For example, if governments force up food prices, people will eat less. But they have to force them up a very long way indeed before people cut back very much (modern societies overeat, but a 20% cut in food consumption would be it before we started to get malnourishment). We simply have to eat.
Well energy pretty much falls into that category. I have to get to work, and no amount of raising petrol prices will cure that. Electricity price rises that significantly reduced demand would merely impoverish people, which would cripple the economy, reducing its ability to pay for renewables. There’s no way out of that loop, which is why not even the “greenest” of green places is going there.
Nor can you obtain innovation by fiat. There’s always room for more efficiency where services are concerned, but energy isn’t one of those areas. We’re still using internal combustion after all these years because innovation hasn’t turned up anything better. And it’s not for want of trying.
There’s this green dream that, somehow, “innovation” will bring down the cost of intermittent energy sources to a low level. Well, it’s a gamble that I think won’t pay out. The physical constraints of solar power are such that we’ll never be able to get more than a few % of the sun’s power, and the systems will always be fragile and have short life-spans. Windmills are large mechanical objects, and the physical stresses on them cannot be wished away.
We’ve been trying to get cheap solar and wind for a long time now, and it’s simply not happening.
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The “duck cruve” is usally associated with solar where demand goes negative in the middle of the day due to solar overpenetration. And then you have to pay somewhere else to take your electricity.
It looks like BC did a “duck curve ” for freshet periods when the snow melts and IPP’s are producing most of their power at the same time as the big dams so BC has to give away or pay someone else to take the surplus. The ability to send excess power to Alberta or Washington/Oregon won’t last forever. BC can’t even make money trading power anymore.
Idiots.
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“duck curve” … not “cruve”
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Author, Blair says, “As for complaining about IPPs? Well if you are not willing to build it yourself, then you are going to have to provide the people who do with security that their investment is sound…and this means long-term contracts. These contracts are the price of doing business and while we are losing money now, that doesn’t mean we will continue doing so.”
Willingness was not part of the plan: the BC Liberals forbade Hydro from taking part in run-of-river, or other non-dam projects.
I heard an IPP expert on CBC Radio this month, saying that Hydro lacked the expertise to build such projects.
I lack the expertise to build a computer, a house or a car — but guess what? I own them all, having gotten experts to build them for me. After paying them off, or even during the repayment, I have autonomy on how I will use my purchases.
BC Hydro could have done the same, if they had been allowed. Then they could have gained expertise, while learning how to use the plants most efficiently. As it is now, they only have control of their own dams and are obliged to idle them or open the spillways, while accepting high-priced IPP power during spring run-off.
Andrew Weaver, on the same radio show, described Gordon Campbell as a “Visionary.” Maybe so, in the very beginning of his IPP push. For one, I don’t begrudge the use of IPPs in isolated communities, previously powered by diesel generators.
In the meantime, despite a generous lift in its population, BC has flat-lined its electrical consumption for over a decade, while IPPs have taken over 25% of the production. Hydro thus had-and-has the capacity to meet our current demands on its own… with spot market purchases, in emergencies.
If the ‘visionary’ had foreseen (or had seen in real-time) the flat-line of demand and the huge drops in solar, wind and storage costs, he surely would have slowed the push for run-of-river projects. He didn’t, which suggests other motivations and favours were involved.
Thankfully, there is currently a moratorium on new IPPs until a new vision can be figured out.
I’d hope the new vision is for far-lower contract prices, such as seen in Alberta, which has a 3.9¢ per kW/hr contract for wind power. (No, we won’t be selling 10¢+ per kW/hr Site C or IPP power to Alberta.)
https://www.cbc.ca/news/business/wind-power-cost-1.4979213
I’m also hoping the new vision for BC green-energy power will include BC Hydro ownership. We need to be in charge of our infrastructure.
Yes, we will need to electrify more, to reduce carbon use — but we need to be in control, not being controlled by long-term contracts.
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You ignore the critical limitation that was placed on BC Hydro, it did not have an infinite amount of money to spend. IPPs were used because they brought in the power (and resources) of the free market and in doing so reduced the stress on the public purse.
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Hydro certainly has ‘some’ money, though — and the ability to magically “defer” costs —but the BC Liberals passed laws, cutting Hydro out of being involved in anything but dams.
The (dated) article below talks about the practice of developing and flipping IPPs to national or international entities. BC Hydro was not allowed to purchase even one of the projects. If they had bought a ready-made plant, they wouldn’t have been tied to contracts with automatic inflation factors, as they are now.
https://thetyee.ca/Opinion/2010/05/31/BCEnergyIndependence/
Run-of-river isn’t solely a BC Liberal development, btw. The Scuzzy Creek IPP, south of Boston Bar, was developed in the 1990s under the NDP’s watch. That part of the canyon was well-known for power failures, due to rock slides or other causes; the Scuzzy plant helped resolve those concerns.
Its initial 25-yera contract would have been complete in recent years. It would be useful to know the rate they re-signed for, after their development costs had been recovered. It SHOULD have been closer to the going rate for spot market power, of ~ 2.5¢ per kW/hr. Since we are not allowed to know about these contracts, we are left to wonder. I suspect it’s closer to 10¢. If so: why?
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Hydro certainly has ‘some’ money, though — and the ability to magically “defer” costs —but the BC Liberals passed laws, cutting Hydro out of being involved in anything but dams.
The (dated) article below talks about the practice of developing and flipping IPPs to national or international entities. BC Hydro was not allowed to purchase even one of the projects. If they had bought a ready-made plant, they wouldn’t have been tied to contracts with automatic inflation factors, as they are now.
https://thetyee.ca/Opinion/2010/05/31/BCEnergyIndependence/
Run-of-river isn’t solely a BC Liberal development, btw. The Scuzzy Creek IPP, south of Boston Bar, was developed in the 1990s under the NDP’s watch. That part of the canyon was well-known for power failures, due to rock slides or other causes; the Scuzzy plant helped resolve those concerns.
Its initial 25-year contract would have been complete in recent years. It would be useful to know the rate they re-signed for, after their development costs had been recovered. It SHOULD have been closer to the going rate for spot market power, of ~ 2.5¢ per kW/hr. Since we are not allowed to know about these contracts, we are left to wonder. I suspect it’s closer to 10¢. If so: why?
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