On November 26, 2014, BC Hydro announced that it has amended its Standing Offer Program (SOP) rules to make existing generation no longer eligible for participation in the SOP. BC Hydro states that the amendment is in line with BC Hydro’s 2013 Clean Energy Strategy contained in its Integrated Resource Plan (IRP), which is focused on providing opportunities to the clean energy sector for new project development. It also specifically noted that the changes are in consideration of the fact that the SOP’s pricing is intended to reflect the costs associated with new, rather than existing, clean energy projects.
The amendment will also reinforce BC Hydro’s position with respect to the renewal of existing electricity purchase agreements (EPAs). As stated in the IRP, BC Hydro expects to negotiate a lower energy price upon the renewal of EPAs due to the fact that an independent power producer’s initial capital investment has been fully or largely recovered over the initital term of the EPA. In negotiating a renewal price, BC Hydro will consider the seller’s opportunity cost, the electricity spot market, the cost of service for the seller’s plant, and other factors such as the attributes of the energy produced and other non-energy benefits.
By making existing generators ineligible to participate in the SOP, BC Hydro has removed a potential offtake alternative for sellers with expiring EPAs, and strengthened its position that SOP pricing should not be considered in determining a seller’s opportunity cost in EPA renewal negotiations.
The updated SOP Program Rules can be found here.