Opinion: More IPPs are not the energy solution B.C. needs
Yes to Indigenous and community-owned power projects, but ending windfall profits by Independent Power Producers is legit
Guest post by John Calvert and Seth Klein. Bill 17 has sparked a debate about who should control and benefit from electricity production in B.C. Here at Dogwood we’re fans of vigorous debate, so today’s guest blog offers a counterpoint to our two most recent posts, Californication and Lost in Transmission. Join the conversation in the comments below!
Dogwood’s commitment to defending Indigenous rights and title and economic development initiatives by Indigenous communities is a policy that progressive people in B.C. should rightly support. However, caution is needed to avoid uncritically supporting the interests of private power developers.
Attacks on the “Californication” of B.C. power risk playing into the narrative of for-profit interests in a manner that we find inconsistent with Dogwood’s long-standing work opposing corporate power and political cronyism. The rapid expansion of “independent power projects” (IPPs) during the BC Liberals’ years in office has left a damaging legacy that will drive up the cost of electricity for decades. Care must now be taken to ensure future electricity plans align with our needs as a province.
Why is BC Hydro such a mess?
Back in the early 2000s, the Campbell government legally prohibited BC Hydro from developing new renewable power (excluding upgrades to existing dams and the option of developing Site C). Instead, the publicly-owned corporation was ordered to mass purchase new power generating capacity from private producers, giving them multi-decade contracts at fixed prices that were a licence to print money (see Calvert 2007 and Shaffer 2007).
For years, numerous Campbell government officials went to work for these private corporations after leaving government. Private power investors, now overwhelmingly corporate interests from out-of-province, have already taken far too much money out of B.C. through the excessively priced contracts the previous government forced BC Hydro to sign (McMartin 2010).
Ratepayers will be spending an additional $16.2 billion over the next two decades to pay for this electricity privatization folly (see Davidson 2019). And it won’t end there. Some contracts are for 60 years, inflation protected. Dogwood should be crying from the rooftops about how the B.C. public has been fleeced by these IPP deals.
In 2010, the B.C. government instituted a further constraint on BC Hydro, the “self-sufficiency” requirement, which obliged Hydro to ensure it always had sufficient generating capacity to meet 100 per cent of the province’s needs, and limiting the crown corporation’s ability to engage in profitable energy trading on the spot market (Shaffer 2010). The self-sufficiency rule further justified the expansion of IPPs and continued the previous government’s policy of incremental privatization of B.C.’s electricity system.
The legacy of IPPs
There are many reasons why the cost of private power is so high. Small projects do not have economies of scale. Remote locations result in high construction costs both for power plants and related roads and transmission lines. Investors must make a profit – often a very handsome one. But a key factor is the cost of capital. The interest rates developers pay to banks and hedge funds are significantly higher than what BC Hydro pays. And these additional costs are passed on to ratepayers in the contracts the government directed BC Hydro to sign (McMartin 2010).
Many of the larger IPPs, mainly run-of-river projects, also caused extensive environmental damage. These impacts have been well documented by the Wilderness Committee and other environmental groups.
The legacy of the IPPs – and the more recent Site C decision, another costly mistake that overrode Indigenous objections and whose primary purpose is to provide cheap electricity to the fracking and LNG industry – is an electricity system that is a bloody mess. This is the shambles that now needs to be repaired.
Debate over Bill 17
During the current sitting of the B.C. legislature, the NDP government introduced Bill 17, which would end the self-sufficiency requirement. Dogwood and others are concerned this new bill will kibosh new renewable energy projects that Indigenous and other communities hope to pursue. That’s a fair concern, given Hydro’s lack of support for various community and Indigenous projects.
The government’s apparent failure to consult Indigenous nations and organizations is an inexplicable oversight, and fundamentally at odds with the province’s commitment to honour and implement the UN Declaration on the Rights of Indigenous Peoples. Why has the province and BC Hydro not been working with Indigenous people to provide alternative economic and energy development options? Given this failing, Bill 17 needs to be revised pending some deep dialogue.
But that doesn’t mean Bill 17 should be abandoned. Rather, it can and should be amended to address these concerns.
A closer look at “self-sufficiency”
The government’s mishandling of this file to date does not mean they are wrong in wanting to end the “self-sufficiency” requirement. It is a mischaracterization of Bill 17 to describe it as, “the NDP’s latest maneuver to squeeze out local electricity generation – in favour of U.S. producers,” as a recent Dogwood post asserts.
To understand why the “self-sufficiency” requirement imposed in 2010 was a problem, one has to appreciate the nature of B.C.’s electrical system, its economics and the role that government, BC Hydro, the BC Utilities Commission and the private power industry currently play in the system.
Because of B.C.’s large reservoirs, which act like huge batteries, B.C. Hydro can store large amounts of energy from the spring freshet for use later in the year. This ensures it can keep the lights on in the fall and winter in B.C. when we most need electricity. But it also means we can benefit from trading with the U.S., which BC Hydro has done for decades. This trade is mutually beneficial, reducing the need to build unnecessary capacity on both sides of the border. It also makes sense environmentally.
BC Hydro supplies the U.S. with electricity when it is most in demand there, and imports it back when they have a surplus. This benefits B.C. ratepayers because our storage enables us to choose when to buy or sell and at what price. It is a key strength of our system.
The 2010 Clean Energy Act has undermined much of BC Hydro’s flexibility by forcing it to use storage for its costly IPP purchases and restricting its ability to maximize the benefits to ratepayers from energy trading. (Shaffer 2016). Bill 17 lifts this restriction, which is clearly in the financial interests of B.C.’s ratepayers.
The use of the term “self-sufficiency” in the 2010 Act was always misleading. As the preceding illustrates, the legislation was designed to force BC Hydro to buy large volumes of private power even though it was not needed and would constitute an enormous subsidy to private investors (Calvert 2013). But “self-sufficiency” sounded like a good label to package this entirely problematic policy.
Does B.C. need more power?
Our current supply of electricity (given past IPP deals and now Site C) is projected to meet domestic requirements for the next 15 years. For the next while at least, we are already “self-sufficient.” But given the need to rapidly decarbonize our society, as we electrify our buildings and homes, there will be a need for more electricity generation capacity down the road – although not as much as many assume.
Conservation and building retrofits are still where we get the best bang for the buck; modern heat pumps are much more efficient than the electric heaters of old; electric cars don’t generally charge at peak demand times; and as we push for the wind-down of fracking and LNG in light of the climate emergency, this will free up electricity currently consumed by that sector. But some new capacity will be needed.
The issue will be – where should that new energy come from and who will produce it? But demanding that BC Hydro must purchase more private power now – power that it does not need at prices three or four times what prevails in the energy market – is difficult to defend as sound public policy.
If the legacy of the IPPs tells us anything, it is that the province should not continue to direct BC Hydro and its ratepayers to fund what amounts to an extremely generous subsidy program, the benefits of which will go overwhelmingly to out-of-province investors (Beers 2019). Fully 81 percent of the $1.4 billion, annually, that BC Hydro is now paying to private developers is leaving the province (Davidson 2019). This is money taken from the pockets of ratepayers who otherwise would spend it in B.C. A consequence of the exit of this money is to decrease economic activity and employment within the province.
It is unfair to ask BC Hydro’s customers to pay even more for continuing the misguided and exorbitantly expensive policies of the previous provincial government. Low income users of electricity are already paying far more for their power than would have been the case had the government not implemented its private power agenda (Farrell 2020). As earlier noted, a very conservative estimate of the additional – and wholly unnecessary – costs of the existing contracts amount to $16.2 billion over the next 20 years or $200 per year per ratepayer. Adding even more costs is inequitable and places a further burden on many families who can ill-afford an additional rate increase.
Supporting Indigenous-led projects
First Nations have legitimate grievances associated with the way BC Hydro has dealt with them in the past and present. But expanding the role of out-of-province private investors is unlikely to redress these issues. It is certainly not clear why shareholders based in Calgary, Toronto, Montreal, or New York have more of an interest in doing so than people in B.C. who are the owners of BC Hydro.
We should also be careful not to accept the industry’s narrative that the core purpose of future renewable projects is to foster First Nations economic development. The annual reports of many of these national and multinational private power corporations tell a different story, namely, that their shareholders, not First Nations, are the owners of these projects.
There is no reliable, publicly accessible evidence to collaborate the industry’s claims that First Nations will be the primary beneficiaries of many of the major new projects – and their revenue streams – that might be affected by Bill 17 in the event they were to be built. The private power industry clearly has an interest in shaping the narrative presented to the public. And it has an interest in preserving the polices of the previous government that forced BC Hydro to sign $52 billion in energy purchase agreements.
So what is the alternative?
A new approach is needed. Ideally, the current debate over Bill 17 can provide an opening – a chance to fundamentally re-imagine BC Hydro’s relationship with Indigenous nations.
For starters, maybe it’s time to broaden what we mean by “public” power. We all understand BC Hydro to be a shared publicly-owned asset. But some communities also have their own public utilities. And when a First Nation owns a utility or energy project, that form of collective ownership should be seen as public too. Indigenous energy projects have the potential to significantly reduce or even eliminate money that numerous First Nations currently must pay BC Hydro each year to meet local electricity needs.
Indigenous communities are involved in many renewable energy projects around the province, but it’s worth distinguishing between those that are truly community-owned, and those where Indigenous communities have a minority stake in what is actually a corporate power project. The former – where an Indigenous community is the majority owner and the project is Indigenous-led – should be supported.
BC Hydro needs to change how it works with Indigenous communities, so that First Nations do not need to rely on deals with profit-seeking private power corporations. When a renewable energy project is proposed by an Indigenous community – or any other community via a public community utility – and the project is indeed to be majority owned by that community, then BC Hydro should seek to support it (not, as too often occurs now, discourage such projects or place roadblocks in their way).
Four ways BC Hydro can support local power
The crown corporation should offer favourable financing, which it can do at far better rates than the IPPs, allowing Indigenous communities or public/neighbourhood energy utilities to fully own their assets. And BC Hydro should agree to backstop such projects with the firm power at its disposal – offering to purchase surplus power from these projects when they exceed the needs of the community, and letting these communities continue to access the BC Hydro grid when local electricity production is lower than local needs.
The Crown utility should also be expanding its funding for renewable, off-grid projects to displace diesel generation. It can – and should – give greater priority to First Nations training and employment opportunities within the corporation.
These are the elements of what could constitute a true partnership between BC Hydro and Indigenous communities, and we should all demand that BC Hydro deal fairly with local communities in this way. Giving priority to these kinds of initiatives would be far more cost effective than shovelling even more money to the private power industry.
John Calvert is a long-time researcher of BC electricity issues and author of “Liquid Gold: Energy Privatization in B.C.” Seth Klein is an author, policy researcher and a new board member with Dogwood.