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.
Good points Marvin. I have not seen any mention of transmission line restraints in the opponents views. In addition, one need only look to Alberta and California during peak demand times to see the danger in power purchases on the spot market.
ReplyDeleteMarvin, we've been at the many issues around Site C for a long time. I have to say that I think you are wrong on a variety of issues related to this. You repeat that some people are not addressing the issue of capability, and that just isn't true. In your last comment you say that project opponents haven't addressed the issue of matching Site Cs benefits to the grid such as through demand and supply side measures. Did you read the BCUC findings on Site C this time around? A mixture of conservation, wind, and geothermal would provide the same service to the Province as Site C.
ReplyDeleteThe Commission said that this could be accomplished for about the same amount of money as completing Site C, and they included the so called sunk costs of money spent, contractual obligations, and a very exaggerated rehabilitation cost for the valley in the cost of developing those alternatives. And this was when Hydro was still pretending that they could get it built for 8.8 Billion. When the NDP approved continued construction they added another 2 Billion dollars to the cost of the proposed dam, and now with the risk 'materializing' of unstable footings, estimates of a couple more Billions needed are probably under estimates. Do you remember in the 82/83 hearings when the PVEA asked the Commission to halt Hydros geotechnical drilling on the site? And Hydro responded, every thing we can learn will be important when we are building the dam. And now 40 years later risks are materializing that they haven't designed for. It may be the geotechnical problems that shut this down, and it may be the financial costs, but it should be the incompetence.
There are a variety of options for storage and recovery of electricity in surplus at any given moment, pumped storage, batteries, hydraulic pressure, etc. Producing a mix of electricity resources just in itself reduces the need for and frequency of down times for any one such as wind. Putting the different resources in a variety of places also reduces the problem of variable input to a utility planner. During the Joint Review Panel hearings Hydro was complaining along these same lines, saying that it is hard to balance the system when you don't know when a windmill is going to produce power. I asked whether they had established a simple meteorological station near the wind farms we already have, Nope. River valleys don't have to be destroyed to do this.
And something the proponents of this disaster fail to take into account when they make these arguments is that this river valley is more valuable to the province as one of our most productive areas of farmland, wildlife habitat, and First Nations territory than as a dam. Hydro hasn't done a cost benefit analysis of Site C since '83. That says a lot right there.
I understand that Hydro is in abysmal financial condition, and that they and the government see the chance of buying cheap power and selling it back more expensively, as a way out of their mess. Whether it is solar from California or coal fired from Wyoming doesn't matter to them. But it is not unlike Stompin Toms song, The Consumer, saving money spending money we don't got. Google the lyrics. In the case of Site C we would be spending what maybe 15 Billion not counting unresolved court cases, and not counting the 40 Billion worth of interest we would pay, if Hydro can bet properly on interest rates this time.
And then there is the problem of dam security, whether or not the damn thing would last the projected 100 years in which all the costs would be eaten up by discounting. Whether or not the dam would survive the first big slide into the reservoir if it gets filled, or whether the town of Hudsons Hope would survive it. And that slide will happen, and more slides as well. And whether the dam will stand still long enough to get power out of it at all because of those risks that materialize, apparently out of nothing.