The Cost of Electricity from Independent Power Producers - Backgrounder

The Cost of Electricity from Independent Power Producers

Backgrounder

British Columbia’s clean energy producers provide good, fair and long-term value for money for BC’s ratepayers. The cost of electricity generated by clean energy producers is equal to or less than the cost of electricity generated by new BC Hydro facilities. Unfortunately, while the Review of BC Hydro made many useful recommendations that should reduce costs for the ratepayer, critics were quick to use the report to spin misinformation about the cost of private sector-generated electricity.

 

Here are the facts:

 

The role of independent power producers in BC Hydro’s rate increase is minimal

• Despite the allegation that BC Hydro’s rate increase was caused by private sector power purchases, BC Hydro’s rate application before the BCUC highlights the fact that electricity from clean energy producers accounted for only $94 million or 2.6 per cent of BC Hydro’s proposed 32 per cent rate increase over three years.

 

• BC Hydro’s rate increase is more about renewing publicly-owned infrastructure than energy purchases from clean energy producers. Capital charges – financing, amortization – alone account for half of the rate increase.

 

Good, fair and long-term value for money for BC’s ratepayers

• The Review of BC Hydro states that, based on BC Hydro’s most recent competitive bidding process, the Clean Power Call, the estimated cost to BC Hydro to purchase firm electricity and handle it in its system is about $124/MWh.

 

• But the average price paid to the clean energy producer at the “plant gate” is about $100 MWh. Clean energy producers produce non-firm electricity that BC Hydro pays a much lower price for, which is included in the $100 MWh price.

 

• This price is fixed in a contract in today’s dollars for terms of 20, 30, or even 40 years.

 

• BC Hydro conducted a review of the Clean Power Call that showed that the prices they paid for this clean electricity were “at the lower end of the energy price ranges of other North American jurisdictions.”

 

• BC Hydro states in its 2010 annual report that the average price paid for electricity from IPPs over the past 20 years is $63.85/MWh. When the cost of firm electricity from the Clean Power Call is added, this price may rise to $75.00/MWh.

 

• Unfortunately, the review compares the $124 MWh price to other electricity products that are not fair comparators, e.g., Site C and the spot market. The costs of new IPP electricity must be compared to costs of new BC Hydro electricity – produced by new or upgraded projects – not heritage assets.

 

• Comparing the price of electricity produced by an IPP in 2011 to the price of electricity from a heritage asset is like comparing the cost of constructing a house in the 1960s to the cost of constructing a house in 2011, and then criticizing the price of the house built in 2011 as more expensive.

 

• A proper comparator is BC Hydro’s Aberfeldie dam, which was officially budgeted by BC Hydro at $95 million, more than double the original estimate. Constructed in 1922, Aberfeldie had a 5 MW capacity and was redeveloped into a 25 MW facility in three years, beginning in 2007.

 

 

• By locking IPPs into long-term contracts, BC Hydro can hedge against market variations and eliminate price uncertainty for its ratepayers. Therefore, the argument that BC Hydro is subsidizing clean energy producers by paying them for their electricity at a price in excess of the current spot market price is an apples to oranges comparison.

 

• The fact is clean energy assets being built today are tomorrow’s low-cost heritage assets. The cost of their electricity in 20, 30 or 40 years will be much lower than the cost of new electricity that will be generated at that time.

 

• The same principle was at work when WAC Bennett built BC’s large hydro dams. British Columbians paid the upfront capital costs and locked in the operating costs at a long-term and stable price that later generations enjoy today, at low cost.

 

• Today’s contracts with clean energy producers are no different, with one exception: the project development responsibilities, business risks and project costs are borne by the private sector, not the ratepayer.

 

• Increased dependence on the spot market for long-term need is risky. For example, as confirmed by the review, spot prices reached in excess of $900 MWh in 2001, far exceeding what BC Hydro was paying for electricity from clean energy producers.

 

• From January through April 2008, BC Hydro experienced a significant electricity shortfall while spot market prices jumped because of weather and a run up in oil and natural gas prices. Spot market prices were well above those paid to IPPs.

 

• On Page 93 of the review, 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, which predicts spot market prices will rise 50 per cent by 2020 and 100 per cent by 2028. Based on this forecast, it does not appear possible to see the rate savings that the panel reported.

 

Growing BC’s rural and First Nations economies

• To date, clean energy producers existing operations have created 18,000 person-years of employment. Many of these jobs are in First Nations and rural communities.

 

• The clean energy sector has contributed more than $2 billion to the provincial economy, and $378 million to government revenue for public services – money that pays for our hospitals and schools.

 

• The 27 projects in the Clean Power Call represent 3,800 person-years of employment during construction and $3.8 billion in capital investment across the province.

 

• Clean energy producers are leaders in negotiating long-terms economic benefits agreements with First Nations. Some 125 First Nations in BC (almost two thirds) are directly involved as owners, equity investors and partners in the clean energy sector in all regions of the province.

 

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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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