On December 16, 2014, the Province of BC made a Final Investment Decision to proceed with the development of Site C – an $8.335 billion dam project on the Peace River with the capacity to produce 1,100MW of electricity.
A Cheaper form of Clean Energy: The Province’s analysis, released together with news of its FID, concludes that Site C will be a cost-effective alternative to help meet future electricity demands in BC and in particular, will be cheaper than developing gas-fired plants operated by BC Hydro, or any alternative projects by Independent Power Producers.
A Landmark Major Project for BC:
Site C will be, in current dollars, the most expensive capital project ever undertaken by the Province and merits scrutiny and continuing review for that reason alone. But Site C is also interesting because it will, over the next few years, provide global insight into whether costs and construction schedules for major capital projects can be effectively managed.
Sticking to the Budget:
As for capital costs, the baseline budget for Site C increased from $7.9 billion (2010) to $8.335 billion (at FID), plus a special reserve of $440 million, for a total capital budget of $8.775 million. However, post-FID cost certainty can be an elusive goal for any major capital project. Site C in particular has significant hurdles to overcome if the established budget is to be met, including the likelihood of unpredictable legal challenges being mounted and seriously pursued by First Nations, environmental groups and other affected stakeholders. Whether or not the BC Government can keep the Site C project on track, on schedule and within the budget, there are likely to be lessons learned for other major capital projects in the difficult process of capital cost budgeting.
First Nations and Social License:
All eyes are focused on how the claims of affected First Nations will be dealt with – whether through negotiation or in litigation. The Tsilhqot'in case decided by the Supreme Court of Canada last June laid the legal framework as to how, and whether, incursions by government on First Nations interests can be justified as being in the public interest. Although a negotiated agreement with First Nations is the goal, Site C may be a project for which no deal can be reached, at any cost, such that the Tsilhqot’in ruling will be put to the test. Immediately following the announcement of Site C's FID, affected First Nations have uniformly and vehemently voiced firm opposition, including threats to be uncooperative on other BC projects, including LNG. Also, Site C will provide an excellent opportunity to observe the costs and the processes required to obtain the “social license” to build a project of this scope. Environmental groups, local landowners and First Nations have been preparing – some for years – to contest the construction of Site C. How, and to what extent the Courts will allow environmental groups and local landowners to re-litigate issues dealt with in the regulatory processes to date will be instructive for other major projects.
Major Projects in the Modern World:
A project of the magnitude and impact of Site C is extraordinarily difficult to develop in modern democratic societies having a legal and political culture designed to afford affected stakeholders an opportunity to litigate their grievances, and affect the outcome. Site C will almost certainly provide valuable insight into how demands for significant capital projects can be reconciled with powerful, and sometimes conflicting, stakeholder interests.