Reassessing the Need for Site C
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Reassessing the Need for Site C Richard Hendriks Philip Raphals Karen Bakker April 2017 www.watergovernance.ca Reviewers: This report was independently reviewed by: Ian Goodman (President, The Goodman Group) Dr. Normand Mousseau (Professor, Université de Montréal and Director, Trottier Energy Institute) Dr. Mark Winfield (Professor and Co-Chair, Sustainable Energy Institute, York University) Publication Information: Copyright © Richard Hendriks, Philip Raphals, Karen Bakker. 2017. Cite this report as: Hendriks, R., Raphals, P. and K. Bakker (2017) Reassessing the Need for Site C. Program on Water Governance, University of British Columbia: Vancouver. Any part of this document may be freely reproduced for educational purposes without obtaining the permission of the copyright owners. No part of this document may be reproduced or used other than for educational purposes without the prior written permission of the copyright owners. This copyrighted document is not for commercial use or dissemination (print or electronic). Electronic Copy: Full report available at: https://watergovernance.ca/projects/sitec/ Version No. 02 www.watergovernance.ca EXECUTIVE SUMMARY The Government of British Columbia and its wholly owned utility, BC Hydro, have embarked on an $8.3 billion large-scale hydroelectric project at Site C on the Peace River in northeastern British Columbia. The Project is currently in the early stages of construction with a scheduled commissioning date of 2024. The purpose of this Report is to provide deeper insight to government, policy-makers, and the general public regarding the economics of the Site C Project.1 The Report addresses whether the Site C Project is past the “point of no return” from an economic perspective. The Report incorporates into our analysis several key changed circumstances since the initial comparison of the Site C Project with the alternatives was performed by BC Hydro in 2013. These include: a decline in the cost of the alternative resources to the Site C Project (including wind); a substantial reduction in BC Hydro’s forecasted need for electricity in 2024 and beyond; and an increase in the cost of the Site C Project. Our analysis: We analyze whether it would be economically preferable to a) complete, b) cancel or c) suspend the Project. We examine these three options in the context of different forecasts for electricity requirements, possible cost overruns in the Site C Project, different levels of conservation and efficiency, and a range of electricity prices in the electricity export markets. We also consider whether cancelling the Site C Project is preferable to suspending the Project. Our analysis considers that BC Hydro will have spent $1.87 billion as of June 30, 2017, and that cancelling or suspending the Project will entail additional construction cancellation, demobilization, and suspension costs. Our findings are: 1) The decision to approve the Site C Project in 2014 will cost ratepayers on the order of $1.4 to $1.7 billion dollars more than had an alternative portfolio of resources been pursued at that time. 2) Our analysis indicates that cancelling the Site C Project as of June 30, 2017 would save between $500 million and $1.65 billion, depending on future conditions. 3) Suspending the Site C Project is preferable to cancelling the Project by up to $350 million. Both cancelling and suspending are preferable to continuing with the Site C Project. Our recommendation is: Suspend the Site C Project, and refer the Project to the BC Utilities Commission for a full review. 1 The Program on Water Governance at the University of British Columbia has previously published several reports on the Site C Project: http://watergovernance.ca/projects/sitec/ www.watergovernance.ca i ABOUT THE AUTHORS Dr. Karen Bakker is Professor, Canada Research Chair, and Founding Director of the Program on Water Governance at the University of British Columbia (www.watergovernance.ca). The author of over 100 academic publications on water- related issues, Dr. Bakker has acted as an advisor and consultant to national and international organizations in North America, Europe, and southeast Asia for the past two decades. Richard Hendriks is the director of Camerado Energy Consulting, an Ontario-based firm providing environmental assessment, energy planning, policy analysis, and research services to clients across Canada. For the past two decades, he has been engaged in the planning and assessment of several large-scale hydroelectric developments, and provided testimony before regulatory bodies concerning their economic viability, environmental effects, socio-economic impacts and implications for Indigenous rights. Philip Raphals is cofounder and executive director of the Helios Centre, a non-profit energy research and consulting group based in Montreal. Over the last 25 years, he has written extensively on issues related to hydropower and competitive energy markets, and has appeared many times as an expert witness before energy and environmental regulators in several provinces. Dr. Karen Bakker acknowledges support from the Social Sciences and Humanities Research Council of Canada, and from the University of British Columbia. The authors are solely responsible for the report’s contents. The report does not reflect the views of the University of British Columbia or of the funder. www.watergovernance.ca ii TABLE OF CONTENTS EXECUTIVE SUMMARY ................................................................................................... i ABOUT THE AUTHORS .................................................................................................. ii 1. Introduction and Summary ..................................................................................... 1 1.1 Introduction ...................................................................................................................... 1 1.2 Methods and Sources ...................................................................................................... 1 1.3 Summary .......................................................................................................................... 2 2. Justification for the Site C Project ......................................................................... 5 2.1 Historical, regulatory and policy context .......................................................................... 5 2.1.1 Two Rivers Policy ...................................................................................................... 5 2.1.2 Clean Energy Act ...................................................................................................... 6 2.1.3 Climate Leadership Plan ........................................................................................... 8 2.1.4 Environmental assessment ....................................................................................... 9 2.2 Approval of the Site C Project ........................................................................................ 11 2.2.1 Environmental assessment decisions ..................................................................... 11 2.2.2 Final Investment Decision (FID) .............................................................................. 12 3. Revisiting future electricity needs ....................................................................... 13 3.1 Evolution of future electricity requirements .................................................................... 13 3.2 BC Hydro’s historical load forecasts of domestic requirements ..................................... 14 3.2.1 The factors affecting load forecasting ..................................................................... 14 3.2.2 “Optimistic” load forecasting .................................................................................... 15 3.2.3 F1992 to F2008 load forecasts ............................................................................... 17 3.2.4 F2009 to F2016 load forecasts ............................................................................... 19 3.2.5 Load forecasting summary ...................................................................................... 24 3.3 Collapse of BC Hydro’s 2012 Load Forecast ................................................................. 27 3.3.1 BC Hydro’s 2013 IRP .............................................................................................. 27 3.3.2 BC Hydro’s 2016 Revenue Requirements Application ............................................ 29 3.3.3 Implications of overestimating requirements ........................................................... 33 3.4 Low-carbon electrification .............................................................................................. 34 3.4.1 Low-carbon electrification in Canada ...................................................................... 34 3.4.2 Low-carbon electrification in BC .............................................................................. 42 www.watergovernance.ca iii 3.4.3 Implications of low-carbon electrification ................................................................. 53 3.5 Summary ........................................................................................................................ 53 4. Option: Continue development of the Site C Project ......................................... 55 4.1 Introduction .................................................................................................................... 55 4.2 Site C Project costs