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Dam numbers

The Sun examines the cost of making electricity in B.C.

Scott Simpson, Vancouver Sun, April 3, 2008

VANCOUVER — The New Democratic Party’s call this week for an immediate halt to development of independent power projects makes for good headlines, but it doesn’t make for good sense, according to British Columbia Energy Minister Richard Neufeld.

Nor do recent claims about the sector make for good math, a review of BC Hydro filings and other documents suggests.

Some IPP opponents, notably B.C. Citizens for Public Power, have warned that the approximately 450 water licenses applications by prospective IPPs represents the industrialization of B.C.’s waterways.

But even 450 licenses, if issued, would represent stakes on about .001 per cent of B.C. streams — and it is by no means guaranteed that all those stakes will develop into run-of-river hydro projects.

For example, there are 59,917 active mining claims in B.C. - but it’s thoroughly unlikely that those stakes will develop into 59,917 mines.

(In fact, B.C. has not opened a new metal mine in a decade).

Each year, only about 10 water licences are issued to IPPs.

In an interview this week, NDP Opposition leader Carole James suggested the provincial government through its energy plan has touched off a "gold rush" among private sector power developers, to the detriment of public and environmental interests.

“The government just opened the door and said ‘Come on in, stake your claim’ ... without taking a look at what the impact would be,” James said in a telephone interview.

She wants a review of the entire “private power” sector — and a moratorium on new independent projects until it’s complete.

Certainly, the furore at a public meeting last week in Pitt Meadows over an independent producer’s application to build a voltage transmission line through Pinecone Burke provincial park suggests heightened community scrutiny of the sector.

B.C. Environment Minister Barry Penner had been hinting for two weeks that the application would be rejected, and indeed announced within 24 hours of the public meeting that he wouldn’t approve it.

James said “it was pretty clear” from the beginning that there were problems with the application, which was tied to a proposal to put seven small-hydro projects in the Upper Pitt River Valley alongside the park.

The government, she said, could have avoided a great deal of public turmoil by applying greater scrutiny in the first place to the whole independent power sector.

But Neufeld said there’s much less substance to the NDP’s position than an initial hearing might suggest.

“It doesn’t matter what happens in British Columbia, the first thing that Carole James asks for is an independent investigation — about anything,” Neufeld said in a telephone interview.

“They don’t care about what they say anymore. They are just caught up in trying to make everything the government is doing wrong, and trying to gain some votes.”

Neither do the NDP comments jibe with its track record of encouraging IPP development when it was the government.

Neufeld noted that there were 26 IPPs operating in B.C. when the Liberals were first elected in 2001 and since then, 19 more have been built or are in advanced development.

This is a matter of some concern to the government, not because of some regime-to-regime rivalry, but because since 2001, the failure rate on IPP projects accepted by Hydro for power sales to the Crown has averaged about 50 per cent.

Hydro documents on file with the B.C. Utilities Commission show that attrition has already cost BC Hydro about half the expected power from the 2006 call for new electricity production - and that the situation is causing enough concern within Hydro and government that the Crown corporation now requires bidders to post bonds which are forfeited if the projects fail.

Purely from a consumer’s standpoint, the attrition rate suggests that the rates Hydro is offering IPPs are too stingy to make many projects economic.

The NDP has also seized on the disparity in electricity production costs between BC Hydro’s 40- and 50-year-old dams, and the cost of electricity production from new IPP assets on the premise that Hydro could have developed the new assets at a much cheaper price — although the party’s grasp of the situation appears weak.

According to a January 29 press release from NDP energy critic John Horgan, it costs BC Hydro “an average of $5.98 per megawatt hour for electricity it produced, compared to $60.67 per megawatt hour for power from IPPs.”

Hydro documents dating from 2003 show it costs BC Hydro $25 per megawatt to produce power.

Documents on file with the B.C. Utilities Commission also show that a recent upgrade to the Alberfeldie Dam in southeastern B.C., an older Hydro-owned facility, has pushed the cost of electricity production there to $62 per megawatt hour — same as an IPP.

Nor has Hydro fully abandoned public sector power development. It is currently engaged in a review of its Site C project on the Peace River, which has an estimated cost of about $8 billion including a dam, generating station and transmission lines.

Power from that facility will cost roughly $100 a megawatt over the 40-year payback timeline applied to the private sector.

But even if Hydro’s rate were to jump to 10 cents a kilowatt (which is roughly the consumer price for electricity costing $100 per megawatt), Hydro would still only be charging average rates compared to most utilities in North America, according to Hydro Quebec’s annual North American rate survey.

Assertions by Horgan that the government is setting the stage for future power sales to the U.S. also invite scrutiny.

It’s true that the power sales contracts with Hydro will be up for renegotiation in 20 to 40 years, and the NDP, the Western Canada Wilderness Committee and others have seized on this as evidence that B.C. consumers will eventually be forced to bid against U.S. buyers for resources originating in this province. However, it’s also true that the Crown land leases on IPPs have expiry dates — 40 years or less — and that the power facility fixtures, the dams and turbines, become property of the provincial government after that.

Water licenses also have a 40-year expiration date, due to an amendment of the province’s Water Act three years ago by the Liberals.

Both those situations presumably put the province into a better bargaining position than the pessimists envision.

The National Energy Board also plays a role here — any Canadian business seeking to export electricity on a long-term, firm basis must first offer that power to a Canadian utility on the grid.

Finally, here is an overlooked fact amid the outcry about running a new high-voltage power line through Pinecone Burke — there’s already a major transmission line within the park.

It has carried electricity from the B.C. Interior to Metro Vancouver since the 1960s, before Pinecone Burke became a park in 1995.

© Vancouver Sun