Opinion: Site C: Truly awful economics

B.C. Hydro’s Site C project is going to leave ratepayers a $7-billion bill for power that can’t be sold for what it costs to produce.

The problem is B.C. Hydro’s demand forecasting. In 2007, when Site C was first reconsidered, Hydro asserted that load growth would be a steady two per cent a year. Its 2012 forecast, which was the justification for the project, said the same. British Columbia was supposed to be consuming 70 terawatt-hours per year by 2016-17. Instead we are consuming 60. The fact is that demand for electricity has been flat since 2005, and as prices rise, demand will continue to be flat even with an expanding economy.

With no domestic need for the electricity from Site C, the province has been pivoting from one illusory source of new demand to another. At first it was LNG, but even if that new industry materializes, it will use its own natural gas for almost all of its power requirements, just like almost every other LNG industry in the world. The province has tacitly admitted this, in the process allowing its own legislated greenhouse gas limits to be blown away.

Then it was a trade with Alberta: buy our clean, green Site C power, B.C. hinted, and we might allow you to build an oil pipeline to the sea.

But the delivered cost of Site C power in Alberta would be $140 to $160/MWh, depending on its ultimate destination, or double the cost of local production. Sounds like the old story: What we lose on each sale, we’ll make up in quantity.

The Alberta market is not for real, even if that province were to set a high price for greenhouse gases through some form of carbon tax. Realistically, all B.C. Hydro will be able to do with Site C power is sell it to the US, at spot market prices of $25 to $35/MWh. Under reasonable assumptions, the present value of twenty years of such sales would be about $1.6 billion, or 18 percent of the currently estimated $8.8 billion cost of the project. This leaves ratepayers with a stranded debt of $7.2 billion, for which they will get nothing.

Normally, when prices rise, consumers use less of a commodity. They buy LED lamps, insulate their homes, use gas for cooking and heating, and turn off the lights when they’re not using them. After 40 years of low real prices — so low that many consumers don’t even think about the price — we are now in a period of smartly increasing prices. So maybe B.C. consumers are unlike everyone else, and buy more as the price rises. That’s Hydro’s bet.

Even if this were true, or if everybody bought nothing but electric cars starting tomorrow, there would be two attractive new energy sources available to us. The cheapest is our entitlement under the Columbia River Treaty, some 1300 megawatts of capacity and more than 4,000 GWh of energy, bought and paid for long ago. At the moment, we sell it right back to the Americans at spot prices. If we accepted delivery instead, we would be acquiring power at less than a third of the $95 cost of Site C. In theory, the U.S. could turn off the supply with a rolling 10 years’ notice, but that’s unlikely, and if worst comes to worst, there would be plenty of time to build alternatives.

The other attractive new source is the portfolio of renewables put forward by B.C. Hydro in its environmental impact statement. The cost would be the same or less than Site C, and because the individual projects would be smaller, the initial losses of a big project that swamps the modest growth in demand would not occur.

Bottom line: B.C. Hydro is going hell for leather in pursuit of a wildly unprofitable project that will cost us, its owners, billions. And that’s without accounting for more “significant adverse environmental effects” than any project that has ever been approved before, nor for the further erosion of the treaty rights of the First Nations of the Peace.

Harry Swain, a former federal deputy minister of Industry Canada and Indian and Northern Affairs Canada, has no current relationship with either the federal or provincial government, except as a taxpayer. The views in this article are his own and not those of the Joint Review Panel, which he chaired and which has been defunct for two years.