Energy Self-Sufficiency in BC - Backgrounder

Self-Sufficiency and the need for ‘critical water’ in BC

Backgrounder

The Clean Energy Act and the 2007 BC Energy Plan require BC Hydro to be energy self-sufficient by 2016 at critical water levels. Redefining the definition of self-sufficiency from critical to average water, as recommended by the BC Hydro Review Panel, creates significant risks for the provincial economy. Maintaining the definition at critical water will not produce any short-term rate increases, but will result in long-term cost savings for the ratepayer. The Clean Energy Association of BC believes it may be prudent for the ratepayer to consider the elimination of the 3,000 GWh of insurance in the self-sufficiency definition, as per the panel’s recommendation.

 

Self sufficiency and drought

• Self-sufficiency is not new – it’s a long-standing policy designed to provide ratepayers with low-cost, domestically-produced electricity that provides energy security and reliability over the long term, while protecting ratepayers from the highly volatile U.S.-based spot market.

 

• With one minor exception, BC Hydro has planned its electrical system on the basis of self-sufficiency. The reason is simple: almost all of its generating facilities are hydro electric and are subject to variations in reservoir inflows because of the weather.

 

• During a drought period, electricity demand must still be met through firm supplies of electricity. However, given the fact that no one can accurately predict when and for how long a drought will occur, it is prudent for BC Hydro’s system to be based on critical water; it provides the utility with a buffer or contingency reserve for unforeseen load growth.

 

• Critical water means that BC Hydro plans to have enough firm electricity to power the province through a critical drought period, which is based on several dry years that occurred in the 1940s.

 

• Alternatively, average water means BC Hydro plans to have enough power under so-called ‘normal’ circumstances. But as well as know, weather is not normal, particularly under the conditions that climatologists are now seeing.

 

• If your electricity system is planned on an average water basis, you will be short of power in a drought. Because other jurisdictions and utilities in the region will be dry, the cost of electricity on the spot market will sky rocket.

 

Impact on the BC economy and BC Hydro demand scenarios

• BC Hydro’s current demand forecast does not include key industries and initiatives that the BC government intends to support, namely: LNG terminals, unconventional gas development and new mines.

 

• A shift from critical to average water at a time of large, pending industrial growth could mean that BC Hydro will not be able to serve the load, and by extension, support these new economic opportunities. Acquiring this amount of energy on the spot market is risky, and may be prohibitively expensive. Its impact on the transmission system and Powerex’s trading activities has not been made known.

 

Impact on ratepayers

• According to BC Hydro’s 2011/12 – 2013/14 Service Plan, the utility will essentially have sufficient supplies of electricity to meet demand under critical water conditions by 2016. Changing the definition to average, therefore, will result in no net savings for ratepayers.

 

• On the contrary, maintaining the definition at critical will not produce any short-term rate increases and will result in long-term cost savings for the ratepayer. As well, it will protect ratepayers and industry from rate shocks in a drought and ensure that there is a buffer or industrial electricity contingency reserve to attract and drive economic development.

 

Reliance on the spot market

• By redefining self-sufficiency to average water years, BC Hydro would become more dependent on the spot market for long-term needs, which is risky given price volatility. For example, in 2001 spot electricity prices reached in excess of $900 MWh for months at a time, far exceeding what BC Hydro was paying clean energy producers for their power.

 

• The panel assumes that in order to gain rate reductions of up to 8 per cent in 2016 and 20 per cent in 2020, the current low spot market prices would have to continue. However, this assumption is inconsistent with BC Hydro’s own Mid-C price forecast (in real 2010 $US/MWh), made public in April 2011.

 

• BC Hydro’s own price forecast for the spot market predicts it will rise 50 per cent by 2020 and 100 per cent by 2028. Based on this forecast, it may not be possible to see the rate savings that the panel envisioned.

 

• It appears the panel overlooked the fact that the price for wind energy has declined considerably since the 2008 Clean Power Call. The price for wind at the plant gate is now comparable to BC Hydro’s projected spot market price, adjusting for the cost BC Hydro pays to get the electricity to the border ($5 MWh) and the income and taxes wind projects provide to the BC government.

 

Economic impact on First Nations

• Moving to average water will negate the ability of BC’s first nations, many whom are direct owners, equity participants or partners in the clean energy industry, to reap the economic and social benefits of clean energy development.

 

• This stands in opposition to the express objective set out in the Clean Energy Act, regarding fostering the development of first nation and rural communities through the use and development of clean or renewable resources.

 

Risk related to Demand Side Management (DSM)

• A further and real risk to BC’s domestic supply of electricity relates to the potential that BC Hydro may not meet its DSM targets. Under this scenario, moving to average water for planning purposes will place BC in a more dependent position on a spot market where prices are expected to rise in the coming years.

 

GHG risks

• Changing the definition of self-sufficiency must take into account BC Hydro and Powerex’s ability to maximize revenue from its short term electricity trading with California — by far, Powerex’s largest market. Moving to average from critical may result in a very significant loss in trade revenue due to the state’s legislated requirements concerning GHG emissions.

 

• If the province opts to increasingly depend on the spot market for a portion of its energy needs, British Columbians will be importing dirty energy generated largely by fossil fuels, such as coal.

 

• Moreover, while British Columbians are importing dirty U.S. power, we are essentially exporting jobs, investment and rural economic development to neighbouring jurisdictions.

 

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For more information, please contact:

Tamara Little

NATIONAL Public Relations

Mobile: 604-767-0207

E-mail: tlittle@national.ca

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