If B.C. decided to proceed with the construction of the hydro-electric generation dam at Site C, the lasting legacy would be one of wealth destruction. The huge cost of $7.9 billion to build the dam will rob the province of valuable resources that could be used to deliver other needed government services and burden the B.C. economy with debt and high power rates that will sap its competitiveness.
The electric-power supply situation in the province has changed dramatically since the construction of the successful suite of dams on the Peace and Columbia rivers. The first significant change was the development of active markets in electric power at many locations in North America.
B.C. Hydro established Powerex in 1988 to participate in, and profit from, the opportunities these markets created. The second major change began with the introduction of natural-gas-fired combustion turbines in the early 2000s. These low-cost, quick-to-construct facilities reduced the amount of natural gas required to produce electric power by 30 per cent.
When first introduced, their use was limited because of the volatility of natural gas prices and the expectation of long-term shortages and high prices. This situation has changed with the development of the necessary technology to exploit the large reserves of shale gas. The market expectation now is that natural gas will be plentiful at relatively low costs.
North American utilities have capitalized on this situation by installing highly efficient gas-fired turbines to cost-effectively supply power during periods of peak demand. Under most circumstances, there is a surplus of available generating capacity. Since these facilities are built, paid for, maintained, staffed and might even be operating at less than full load, the amount of power they produce will increase whenever the market price exceeds the incremental fuel cost.
For each megawatt hour of electric power produced, about seven gigajoules of natural gas is required. At current natural gas prices approximating $4 per gigajoule, the current market price is in the range of $30 per megawatt-hour. Actual market data, available over the Internet, confirms this reality.
B.C. Hydro has filed information that the cost of electric power from Site C will be in the range of $100 per megawatt-hour. If Site C were now operational, the market value of the power produced would be $350 million per year less than the cost. In order for electric power from Site C to be competitive on the market, natural-gas prices will have to increase by a factor of three-and-a-half times. Given the availability of gas in North America, is such an increase a reasonable expectation?
This situation assumes the project is built for its estimated cost of $7.9 billion. There is a significant risk of substantial cost over-runs. There may be additional costs associated with First Nations accommodation. Such developments would further reduce the likelihood that Site C will be cost-competitive.
Why doesn’t B.C. Hydro consider natural gas or market purchases as alternative source of electric power? I believe it would if it could.
Unfortunately, using natural gas or the market to supply electric power to B.C. is prohibited by the Clean Energy Act and provincial policy. In addition, the province has dictated the early retirement of the Burrard Thermal generating station, with about the same amount of firm capacity as site C. This facility provides valuable capacity backup and supply security, which will be hard to duplicate with remote hydroelectric facilities.
Proceeding to build Site C is the equivalent of turning gold into lead. The cost will seriously hamper the ability of B.C. to provide needed public services in the areas of health care, education and transportation infrastructure.
The provincial government should recognize the costs, risks and market reality and postpone proceeding with Site C until there is a reasonable business case indicating its construction will be a benefit to British Columbia.
Dan Potts is the former executive director of the Association of Major Power Customers of British Columbia.
