Readers following renewable power development opportunities for independent power producers ("IPPs") in Western Canada will know that on July 27, 2009, the British Columbia Utilities Commission (the "BCUC") rendered its decision regarding BC Hydro’s 2008 Long Term Acquisition Plan ("LTAP"), finding the LTAP not to be in the public interest. This BCUC decision was considered somewhat surprising in light of provincial clean energy policies and was viewed as potentially chilling for IPPs awaiting announcements from BC Hydro with respect to 2008 Clean Power Call bids.
In this decision, the BCUC rejected BC Hydro’s request to reduce its reliance on the Burrard thermal natural gas-fired power plant, from 6,000 to 3,000 GWh/year, and instead found that for planning purposes Burrard should be relied on for 5,000 GWh/year of power generation. The BCUC did not endorse any specific acquisition target for the 2008 Clean Power Call, under which BC Hydro had sought approval to enter into electricity purchase agreements ("EPAs") for up to 2,100 GWh/year net (3,000 GWh/year gross) in new renewable power generation. The BCUC declined to endorse BC Hydro’s proposed acquisition target for two reasons; first, it decided that the Burrard thermal plant could be relied on for 5,000 GWh/year and was not satisfied that there was a supply-side gap, and second, based on the information provided in the 2008 LTAP, the BCUC was not satisfied that BC Hydro had taken all reasonable steps to reduce demand as much as possible through demand side measures ("DSM"). From the BCUC’s perspective, the 2008 Clean Power Call and its proposed acquisition of 2,100 GWh/year of net new renewable power generation was unnecessary in the context of its public interest mandate.
Naturally, this BCUC decision was, and continues to be, controversial in light of the Government of British Columbia’s express commitments to reduce greenhouse gas emissions by 33 per cent by 2020 and 80 per cent by 2050, and to generate at least 90 per cent of the province’s energy from clean or renewable sources. Notwithstanding the provincial policy direction to reduce greenhouse gases and develop renewable power generation, the BCUC had found reliance on the Burrard plant for near full capacity for planning purposes to be in the public interest. The BCUC decision did not suggest that the Burrard plant would necessarily operate 24/7, but did indicate that Burrard should be counted on to supply 5,000 GWh/year if necessary, such as in critically low water years.
On one hand many viewed the BCUC’s analysis as reasonable, yet on the other hand the implications from a provincial policy perspective were unclear. The BCUC decision also created considerable uncertainty regarding the fate of Clean Power Call awards. On October 28, 2009, in a widely anticipated move to add certainty for IPPs and respond to public criticism, the Government of British Columbia issued a Directive stating that, effective immediately, the BCUC must exercise its powers in accordance with the directed criterion that BC Hydro is to rely on the Burrard thermal plant for no more than 900 MW of capacity and zero GWh of firm energy per year, instructing the BCUC to ignore the Burrard plant for all but emergency back-up use in order to maintain consistency with the province’s climate action objectives.
In light of this Directive, BC Hydro is now left with a generation shortfall of up to 5,000 GWh/year. In the 2008 LTAP, BC Hydro had only sought BCUC approval to acquire 2,100 GWh/year of net new clean power generation because it planned to rely on the Burrard facility for 3,000 GWh/year. As a result of the Directive however, BC Hydro may not rely on the Burrard facility for any firm energy, effectively creating a potential supply/demand gap approaching 5,000 GWh annually. While we note that this supply gap is expected to be tempered by reduced demand due to the recent economic downturn, in the absence of Burrard the gap - for long term planning purposes - remains significant and will presumably be filled by renewable power projects proposed by IPPs.
Although the 2007 Energy Plan requires that BC Hydro acquire 50 per cent of its incremental resource needs through DSM by 2020, it is possible that much of the remaining gap will be met by BC Hydro awarding EPAs to projects proposed under the 2008 Clean Power Call and the Bioenergy Call for Power. Furthermore, the success of DSM hinges largely on influencing consumer behaviour which can be notoriously resistant and slow to change. Therefore, without ignoring other factors impacting IPPs, the recent Directive underscores the fact that renewable energy projects with commercial operation dates achievable in the next few years will be an attractive option for BC Hydro in the short term.
That said, without the benefit of an approved LTAP, each EPA awarded by BC Hydro will now be subject to individual scrutiny by the BCUC pursuant to section 71 of the provincial Utilities Commission Act which requires that the BCUC consider a number of factors and determine whether each EPA is in the public interest. Had the 2008 LTAP been approved, the BCUC would be precluded from considering certain key factors on an individual EPA basis, including whether BC Hydro has effectively reduced demand for new generation by first taking all cost-effective DSM measures. In the absence of BCUC approval of the 2008 LTAP, each new power project must demonstrate that the electricity acquired thereunder is more cost-effective than DSM. This additional scrutiny could be a considerable factor in slowing project approval processes and exposing individual projects to intervenors at section 71 BCUC hearings.
At the timing of writing this article, BC Hydro has communicated its intent to announce EPA awards for the Clean Power Call before year end, and now has the opportunity to award EPAs for up to 5,000 GWh/year, provided it considers such power to be cost-effective. While, generally speaking the Directive has created optimism among IPPs regarding the number of EPAs which may be awarded, successful projects are now likely to face an increased hurdle at section 71 hearings, which may lead to a scenario going forward where relatively cost effective and short lead time projects have a near term advantage to the extent they can demonstrate an ability to help fill the gap sooner than competing DSM.
In the meantime, despite the very specific nature of the Directive, this Directive is seen as a deliberate signal that the public interest in British Columbia involves reductions in greenhouse gases, less reliance on thermal power generation, and investments in clean power.