Should Site C proceed? Only under certain conditions, says new study

Rating: Advanced high school and post-secondary

Summary: Markham interviews energy economist Ken Fellows, School of Public Policy at the University of Calgary, about the new study, “Energy & Environmental Policy Trends: Is the Site C Project Worth Its Growing Price Tag?”

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Video interview: Site C bombshells in new study by American consultant

This interview has been lightly edited.

Markham Hislop: There’s a new paper out today from the school of public policy at the University of Calgary, examining whether or not the BC government should go ahead with Site C, which has turned into a train wreck of epic proportions. There are now technical problems, cost overruns – it’s yet again another nightmare. So should the government eat five or six billion? Should the project keep going?

What this study did is it took a look at it in a different way. It used a different set of metrics, a different measuring stick if you will. So normally it’s the Levelized cost of energy, which is all of the costs amortized over however long you think that dam is going to last – 40, 50 years is the usual like the time. And at that rate, the current Levelized cost of energy is about $100 per megawatt-hour or 10 cents a kilowatt-hour. That’s expensive electricity. Wind and solar are in the three to four cent range right now. So if you judged it on the basis of Levelized cost of energy, BC Hydro probably should not go ahead with the dam.

But Professor Kent Fellows and his co-authors took a different view and they say it maybe makes sense to go ahead. This is a very useful paper that you’ve produced because it looks at the project through a different lens and God knows this project has been looked at through a lot of lenses, but I don’t think this one. So explain your net present value analysis.

Kent Fellows: As you mentioned, a lot of the current evaluation sort of compares costs of different technologies. And so we had the report by a colleague of mine, Blake Schaffer a couple of weeks ago that looked at different costs for wind and solar and how much those have fallen.

What we’ve done here is we’ve looked at a value metric. So not what is the electricity cost compared to other sources of electricity, but what value it adds.

And that’s a different question because the electricity that we get out of something like Site C is dispatchable. We can choose when we’re running water through the dam or not. And you can also use it as storage when it’s not running…that reservoir fills up behind the dam, then when it is running you’re drawing down the reservoir.

When you start factoring those things in and think about how the dam fits within the wider context of Alberta and BC generation profile and transmission profile, can we actually get the electricity somewhere else?

Then you get a different answer.

Markham Hislop: You’ve just raised the key point here, which is the combination of Alberta and BC, because Site C normally gets viewed within the BC context only. And there’s more and more talk about viewing Canada as a minimum of two electricity markets. The first would be Manitoba, Saskatchewan, Alberta, and BC and the second would be Quebec, Ontario, and the Maritimes.

If you look at Site C from the point of view of a regional electricity market, then the value of the hydro dams coupled with wind and solar from Southern Alberta – where intermittent electricity can be generated very cheaply – then those dams have an entirely different value proposition.

Have I kind of explained it well?

Kent Fellows: That is what we found. Anytime you’re talking to an economist about modelling, the answers you get depend on the model’s assumptions. And what we find is that Site C does still make sense if you have really ambitious decarbonization goals.

If you can build new transmission between Alberta and British Columbia, for exactly the reason you mentioned, Alberta’s got this great wind resource. We can get a lot more out of it here if we can buffer it with Site C in BC, but that only works if you’re really really trying to decarbonize at higher rates. And if you can build new transmission.

Otherwise it makes sense to go with something like a carbon capture and storage paired with natural gas or something like that.

Markham Hislop: Well, let’s talk about that because clean BC does envision very aggressive de-carbonization and electrification of the economy. Now I’ve looked at a number of electrification studies and they generally estimate that by 203, we’ll need an additional 25,000 gigawatt hours a year, which is the equivalent of about five Site C’s.

BC is not building any more hydro dams. That is a real problem for British Columbia that nobody talks about. And this might be a potential solution is to get some of that electricity it’ll need.

But then on top of that, there’s the whole issue of what Alberta is going to do. Now, the Alberta government does not have an aggressive decarbonization plan, but [Prime Minister] Justin Trudeau does. And as I said, in a column earlier this year the federal steamroller climate policy is about to roll over Alberta because Alberta is not going to be allowed to get away just scot-free.

So it really, it looks to me like there’s logic behind building Site C, building out renewables in Southern Alberta, making it all part of one system and then having aggressive decarbonization policies for both provinces.

Kent Fellows: Yeah, but I think the aggressive de-carbonization has to come first because really without that goal, Site C is a non-starter. So you need aggressive decarbonisation in Alberta and BC, and you need cooperation between the systems operators and a strategy for new transmission between the two.

Otherwise, some of the fossil fuel lower-emissions technologies like combined cycle natural gas with carbon capture and storage [make more sense]. That’s a more cost-effective way to get that last little bit [of electricity] that you need.

Wind and solar are gonna play huge parts in this because they are so cheap, but as critics of them are fond of saying, the wind only blows some of the time, the sun only shines during the day. And so you still do need some of these buffering technologies.

And the question is, how far do you want to go to get carbon out of electricity generation? Site C really only makes sense if we are very, very keen on getting carbon out of the system.

Markham Hislop: That’s where the Trudeau Government comes in again, because now we’re talking about building more inter-ties between Alberta and BC. That’s a huge, huge capital cost. And if we waited around for the provincial governments and the private sector or the utilities to build it, it would be a long, long time, maybe never get built. Hasn’t been built so far.

But now we’ve got a new federal infrastructure bank and this might be a really good role for the infrastructure bank to step up and say, “We like this plan with Site C as part of a regional approach to decarbonisation and then finance that new transmission infrastructure that you need to make that thing work.” What do you think?

Kent Fellows: In this paper, we really focused more on what was technologically possible and what the costs were from the policy direction. It goes back to this idea of a better quality linear infrastructure, all across Canada, something that we’ve discussed in the past on the Canadian Northern corridor concept. But I think absolutely there are huge gains from trade in this country, electricity being an important sector for that.

Thinking more seriously about that strategy, thinking about how you do that from a regulatory perspective, from a consultation perspective, is really important. And so we’re stressing that if the BC government wants to go ahead with Site C, they need to be thinking about that as a complimentary policy or in fact, an enabling policy to make this cost effective.

Markham Hislop: My last question here Kent is really not an economics issue or a policy issue, it’s more of narrative issue, which I guess feeds into the policy. And that is, we’re not even talking about these issues and I’m sure that’s why one of the reasons why you and your colleagues did this paper is because we need to get these ideas out. We need the policy makers talking about them. We need the public talking about them to put it on the table. Otherwise we’re just in this whole binary, yes or no, kind of scenario. Fair enough?

Kent Fellows: Yeah, I think so. I mean, so much of the conversation and electricity is about costs and treating, you know, an electron as an electron, which is absolutely true, but how you’re getting that electron, whether your generation is dispatchable, what you’re doing on these complimentary policy issues like transmission, they’re all part of this conversation. And so we need to have a broader view of the sector, both from a technical perspective and an economic perspective and a policy perspective. You have to have the whole conversation together.

Markham Hislop: Yeah. And I’m working on a series of deep dives on this very question. And one of the things that becomes apparent is that the conversation both in Alberta and BC around de-carbonization is very, very limited. And when you have limited narratives and limited public conversation, because public conversation is about what becomes politically possible. And when that happens, then you limit your political options, you limit your policy options. And in this case, we need to expand our policy options. So really appreciate this Kent, a great conversation. And we’ll look forward to having you back again, as we always do.

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