Falling Costs of Renewable Power Make Site C Dam Obsolete, Says Energy Economist

The cost of renewable energy sources, such as wind and solar power, has dropped dramatically since the previous B.C. government decided to build the Site C dam and the B.C. Utilities Commission must look at updated figures when considering the megaproject’s future, says a prominent energy consultant.

Robert McCullough, who is recognized as a North American expert on hydroelectric issues, was asked by the Peace Valley Landowner Association and Peace Valley Environment Association to make a submission to the BCUC, using up-to-date figures and research.

His conclusion is that BC Hydro could meet the province’s power needs at a much lower cost than the projected $8.8-billion Site C price-tag, without supply risks.

“Alternatives to Site C have expanded in scale while declining precipitously in price since the studies submitted by BC Hydro in the environmental process,” McCullough wrote in his submission.

“Renewable prices have fallen by 74 per cent for solar and 65 per cent for wind since 2010 when the B.C. government announced it wished to pursue approval and development of Site C,” he said.

The report questions BC Hydro’s projections of the need for power and points out that the province’s LNG industry is unlikely to expand.

“We can conclude that most of the LNG terminals currently under consideration in B.C. won’t see the light of day. Thus, BC Hydro’s expected increase in consumption to electrify LNG facilities will not materialize,” said McCullough who agreed to a Q&A with DeSmog Canada. This interview has been edited for brevity and clarity.

DeSmog Canada: In your opinion, what is the best way forward with Site C?

McCullough: The day of the megaproject has passed. Policy inertia is present throughout the industry with stalled nuclear projects, shuttered coal plants and even operating nuclear plants closing. It isn’t that Site C is bad. The situation is simply that the alternatives have gotten so good. The best for ratepayers and the environment is a full stop.

Would the costs to the taxpayer be prohibitive?

If we stop now and the 25 per cent sunk cost estimate is correct, ratepayers will be able to utter a sigh of relief.

What has changed since the decision was made to go ahead with the project and why would BC Hydro be selling power at a loss?

The rapid decline in natural gas prices over the decade has driven prices to all time lows. The dramatic increase in solar and wind resources in California and the Pacific Northwest has also driven prices lower. Today, at certain times of the year, the competition is so intense that prices have even fallen below — producers will pay you to take power. BC Hydro did not forecast this — few did — but this is now the market we will face for many years in the future.

You point out problems faced by Manitoba Hydro and Muskrat Falls (Labrador). Why are the similarities not being taken into account by BC Hydro?

Canadian politics have always favoured quick employment bumps over economic efficiency… Within the utility there is enormous peer pressure to go along with a large project like this. For someone who has been a utility executive during a failing megaproject (the nuclear projects in the 1980s) it is frightening to face the sheer desire to go ahead at all costs. Manitoba Hydro and Nalcor Energy (Muskrat) have stayed on course long after any sensible business would have stopped and reconsidered.

You note the drop in solar and wind price, but would they be able to bridge any future gap in supply if Site C is cancelled? Is it possible to anticipate that prices will continue to drop?

Some of us are old enough to remember the incredible revolution when electronic calculators arrived. My first (1971) cost $450. This is equivalent to almost $3,000 today. It is hard to find one today — they are so inexpensive they come with our cell phones. The economics of assembly lines have enormous momentum. Wind and solar are assembly line technologies — the exact opposite of one-off projects like Site C. The cost reductions are dramatic and continuing to fall.

Some storage and reliability technology seems lagging. Would solar and wind produce steady, reliable power. If Site C is cancelled, could B.C. be looking at power shortages?

The Northwest Power Pool has an enormous capacity surplus. Load growth is effectively zero as new technologies like LED lighting have reduced lighting loads by 90 per cent. Our largest energy users — pulp and paper and LNG (potentially) are facing tremendous challenges. BC Hydro’s loads have been flat for a decade. To make their case for Site C, they are assuming a take-off into continuous sustained growth for the next 30 years.

You describe BC Hydro’s load forecasting as dangerously vintage. Could you explain?

BC Hydro is still forecasting rapid growth even though demand had been flat for many years. Pulp and paper — BC Hydro’s largest sector — is contracting as the Internet replaces paper in many markets. Three major paper plants have closed or announced major reductions in output just this summer. While 22 LNG export terminals have been announced in B.C. and Oregon, only one very small terminal — the smallest — looks viable. The very low price of landed LNG in Japan in recent years make it doubtful that even that terminal will be profitable.

You say Canadian Crown Corporations have a history of overbuilding and then relying on U.S markets to buy excess power?

Nothing new here. Quebec and Newfoundland are competing to sell energy to New England at a loss. Manitoba is facing massive rate increases to feed industry in Minnesota and Wisconsin. Site C is facing a terribly adverse energy market at Mid-Columbia.

And then there is the exchange rate?

My Magic 8-Ball says: “Don’t count on it.” This time my Magic 8-Ball is giving good advice — gambling $9-billion on our forecast of exchange rates is pretty rash.

What effect will Site C have on B.C.’s greenhouse gas emissions targets and, under the Clean Energy Act, what will that mean?

We tend to see the boreal forests as limitless resources, Sadly this is not true. Each of these megaprojects logs out massive amounts of sequestered carbon and then forms a lakebed for methane. I am not a climate scientist, but the loss of these forests should not be undertaken lightly.

   — — —

Meanwhile, a newly-released report by the auditing firm Deloitte LLP echoes many of the McCullough findings and concludes it would be cheaper to cancel Site C than to delay it. McCullough is planning to release a further report on Wednesday on implications of that findings.

Putting the megaproject on hold until 2025 would cost about $1.4 billion and scrapping it would cost about $1.2 billion according to the Deloitte report, which also concludes that BC Hydro overestimates demand for electricity by more than 30 per cent.

The Deloitte report has sparked a call from the Peace Valley Landowner Association and the Peace Valley Environment Association for immediate suspension of Site C construction.

“It’s time to stop throwing good money after bad,” said Ken Boon, PVLA president, adding that the report confirms that Site C is an unnecessary, costly dinosaur.

“We need to complete the Site C inquiry, but suspending construction is the financially prudent thing to do given the Deloitte findings,” Boon said in a news release.

BCUC will produce a preliminary report by Sept. 20, followed by public input, with final recommendations due in November.

Image: A sign opposing the Site C dam in the Peace River valley. Photo: Garth Lenz | DeSmog Canada

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