Site C (Again)

Opponents of the Site C project are quite right that sunk costs, no matter how large, should not determine whether it is appropriate to complete the project. The decision to proceed at any point in time should be based on the costs and benefits of going forward. That was true when the current government decided to continue construction in 2017 and remains true today.

However, any such go-forward analysis requires a clear understanding of the challenges and opportunities that electric utilities face with growing penetration of wind, solar and other intermittent supply, and the strategic value a resource like Site C can provide. That is completely missing in the latest calls to halt the project. 

Based on a comparison of spot market electricity prices in the US Pacific Northwest with their estimate of the cost of completing Site C, project opponents calculated  that BC Hydro could  save some $100 million per year by halting construction at this time.  It is not clear that this calculation fully considered the contract termination, dismantling and rehabilitation costs that halting a project this far advanced would entail.  Nor did it appear to recognize any benefit to a capital-intensive project like Site C from the low interest rates BC Hydro has locked into.  Nor is there any reason to have confidence in their estimate of the cost of completing Site C, or of the cost of their alternative, US spot market supply, over the long life of a project like Site C.

But more important than all that, the project opponents' analysis completely ignores the strategic value that the dependable capacity and shaping capability of a hydro resource like Site C provides. 

Growing amounts of wind, solar and other intermittent developments are increasing the variability of electricity supply and corresponding volatility of electricity market prices. When the wind is blowing and the sun shining, there is ample supply of electricity and market prices fall -- sometimes to zero or even negative levels when supply far outstrips demand. However, when supply from those intermittent sources is limited by weather or sunlight conditions, electric systems are constrained in their ability to meet demand and market prices can spike to very high levels. 

The US Pacific Northwest or other spot markets can be very cost-effective sources of supply. Indeed, the restrictions that government has imposed on BC Hydro in their use of spot market supply to meet provincial demand should be eliminated. (Ironically it is one of the most vocal opponents of Site C -- the Green party -- that prevented the NDP government from relaxing those restrictions this past summer). However, the best use of the spot market is an opportunistic one.  It isn't a source of supply you want to be forced to rely on regardless of the market price, for example in peak demand periods when you are short of supply because of a lack of your own dependable generating capacity..  Rather you want to buy from the spot market when supply is plentiful and prices are low. 

The opportunistic use of the spot market is precisely what BC Hydro's hydroelectric system enables it to do -- generate power in BC when spot market prices are high, and buy power,  backing off its own generation, when spot market prices are low. The development of Site C will enable BC Hydro to do that even more. 

What the latest opponent analysis of Site C completely misses is that the spot market is not a substitute for Site C. Nor is the expansion of wind and solar projects in the province that others would have BC Hydro acquire in lieu of Site C. Those sources do not provide the dependable capacity and shaping capability to produce your own power when it is most valuable, and to buy from the spot market when it is most advantageous to do so. 

What needs to be recognized is that rather than substitutes for one another, Site C complements greater cost-effective use of the spot market and can serve to accommodate more wind and solar development in BC and neighbouring jurisdictions. It is a strategically important and valuable resource.

It is possible, though highly unlikely, that the geotechnical problems and cost escalation for Site C would justify terminating the project at this time. But the challenge then would not be simply to replace the energy that Site C would have produced. It would be to develop the alternative demand and supply side measures that could offer the dependability and flexibility that more hydro production in the province would provide. The project opponents have yet to recognize the issue, let alone provide practical, cost-effective solutions.

On Tax Cuts and Cash Giveaways

They were never meant to be well considered policies.  The Liberals' promise to reduce the provincial sales tax and the NDP cash giveaway of $1000 per household were both the standard stuff of populist-driven electoral politics.  Still, it would be nice if during the leaders' debate or other forums, there was some serious discussion about government taxation and spending in this province - where the parties want to go over the medium to long term.

While one can justify virtually any fiscal stimulus including tax cuts and cash giveaways in the wake of Covid, in the not-too-distant future government will have very hard choices to make.  The government won't be able to sustain the on-going deficits it is currently incurring and yet there will be demands for more government resources in a whole host of critically important areas.

The homelessness and despair in our parks and streets is both a tragedy and disgrace.  There are no simple answers but one thing is clear.  It will require a Covid-level commitment to address the underlying problems and the resources to match. 

Reducing greenhouse gas emissions is a universally shared objective, but it too will require serious commitment and resources to get beyond high-minded targets and achieve major reductions.  Infrastructure and other investments will be needed to make affordable, green energy alternatives available for households and industry.  Comprehensive programs and plans will be needed to support fossil fuel-dependent workers and communities in their transition to new employment and economic activity in the face of their industry's decline.  

The benefits of high quality early education and child care, both for long term child development and the more immediate needs of parents, are now widely recognized and accepted across the political spectrum.  But for that to be provided throughout the province on more than a piecemeal basis will require major investment in facilities and staff training, and on-going commitment to operating costs. 

And then there is the aging population and growing need for health care facilities and services.  There is backlog in transportation infrastructure; the on-going need to seismically upgrade, refurbish and expand school facilities; and other major demands as well.  The list could go on.

Of course, government must make choices -- not everything can be done to the extent we would like.  But if we are to take these challenges seriously, government must commit to doing more than they have in the past.  The question is whether and how the Liberas or NDP are willing to do so. 

The short term fixes the parties are offering are of no help in dealing with these critical needs.  Cutting taxes as the Liberals are offering, which will be difficult to reverse in future years no matter what their current intentions, will only make the problems worse.  Government will need more resources and unless the Liberals have some other tax in mind, their tax cut proposal will make it more difficult to address the fundamental fiscal challenges government will face. 

The NDP cash giveaway is not much better.  It will add to the deficit in the short term and increase the fiscal challenge government will face to allocate more resources to the pressing medium and long-term needs.

It is no doubt naive to think any party will want to talk about how much resources they will devote to the problems we know have to be addressed, and more to the point, how they think they will raise the required revenues.  But it still would be nice to hear whether the leaders appreciate the challenge, and in suitably election-tainted general terms, tell us how they plan to deal with it.