BC Hydro May Need New Energy Sooner Than Anticipated
The Government of British Columbia has committed to reducing significantly greenhouse gas emissions, while protecting and strengthening the economic capacity of industry within the province. Recent policy statements, such as the December 2018 CleanBC Report (“CleanBC”) have signalled government’s intention to achieve both of these goals through the widespread electrification of industry, transportation, and buildings.
To achieve the hoped-for level of electrification – and, by extension, to achieve Government’s environmental goals – BC Hydro must ensure that the province has sufficient electricity generation to meet future demand. Unfortunately, and despite outward confidence on the part of the utility, it is increasingly unlikely that BC Hydro will have the electricity required to support both baseline provincial demand and the future demand growth driven by electrification. Changes to electric generation planning in BC will be necessary, as BC Hydro will need more electricity, and it will need it a lot of sooner than the utility thinks it will.
BC Hydro’s current position is that it will not require new capacity resources until 2021, and new energy resources will not be required until 2032. These forecasts come from the utility’s Fiscal 2017 to Fiscal 2019 Revenue Requirements Application, and include Site C (now under construction) and planned resources such as IPP renewals, resources from the Standing Offer Program, Revelstoke 6, and increased demand side management (“DSM”) measures.
Given that BC Hydro has not filed an IRP since 2013, these estimates (referred to as the Baseline Forecast) are the most recent and comprehensive ones available. However, in related filings, BC Hydro has somewhat amended its forecasts. As of its Site C Review in 2018, the utility is still anticipating that the three LNG plans includes in its load forecast (Tilbury LNG Phase 2, Woodfibre LNG, and LNG Canada) will proceed, however the resulting roughly 2,700 GWh of annual load from these plants will be delayed by several years.
The same 2018 report shows that BC Hydro expects, relative to the Baseline Forecast, 750GWh and 100MW of new load in the medium term (4-10 years) and 965GWh and 114MW of additional load in the long term (11-20 years). In the utility’s view, these figures do not change the timeline for new resource or capacity requirements in the province.
Government appears to agree with BC Hydro. CleanBC, for example, despite placing a strong emphasis for the need to electrify the province’s industrial economy, strikes a confident tone regarding the availability of generation to meet electrification targets. Specifically, the report states that:
“by 2030, the policies in this strategy will require an additional 4,000 gigawatt-hours of electricity over and above currently projected demand growth to electrify key segments of our economy… We can meet this increased electricity use with existing and planned projects.”
Given the commitment to electrification, this perspective seems to conflict with BC Hydro’s own forecasts. When compared with the utility’s projected post 2022 energy surplus, which itself relies on extremely optimistic DSM savings, there is only one year (2026) in which the forecasted surplus exceeds the 4,000 GWh increase contemplated by CleanBC.
The view that BC will not need new energy until 2032, which has become received wisdom within the Province, warrants careful review.
The first and greatest concern in BC Hydro’s Baseline Forecast is its reliance on DSM. BC Hydro published two energy forecasts in its Fiscal 2017 to 2019 Revenue Requirements Application. The first, which covers existing and committed resources, shows an energy deficit of about 2,350 GWh in 2022. The second forecast (the one showing BC Hydro in energy surplus until 2032) includes planned resources, such as IPP renewals, energy from the Standing Offer Program, and energy from Revelstoke 6. Critically, this second forecast also includes sharply higher levels of conservation than the utility currently achieves.
For example, in 2022 (the first year of an energy deficit in BC Hydro’s forecast using only existing and committed resources), DSM Plan savings are 926 GWh. In the forecast including planned resources, the DSM Plan savings jump by 3,423 GWh.
This sharp increase in DSM penetration must be viewed with caution. In recent years, BC Hydro has consistently failed to achieve even its more modest DSM targets. More concerning, the utility has slashed its 2020 DSM targets by 50 percent in its most recent Service Plan, a move that seems to contradict the utility’s hope for conservation-driven delays in the need for new generation investment. Worryingly, there is no available information to sufficiently explain how BC Hydro’s extraordinary targets are achievable.
There is reason to believe these over-optimistic targets were set in order to satisfy conservation requirements in the Clean Energy Act, or to create the outward appearance that Site C output was not fully “consumed” before the dam was in service. Regardless, reliance on DSM measures for creation of an energy surplus seems a risky plan for the Province.
Future demand from LNG load will be a critical determinant of the energy-load balance in BC moving forward. While BC Hydro’s Baseline Forecast does assume 2,700 GWh of LNG demand from the three previously mentioned projects, there is reason to believe that additional LNG load may well arise before 2032.
If (1) forecasted demand in the global LNG marketplace; (2) the relative costs and benefits of locating new supply projects in BC compared to other locales such as the US Gulf Coast; and (3) the expectation that it will be prohibitively difficult to advance new gas-driven facilities through required reviews are considered, it is highly likely that LNG projects will trigger additional electricity demand.
The shift from gas-driven to electrified LNG facilities, something triggered by changes to the BC Environmental Assessment Act and the federal Impact Assessment Act, and further supported by policy initiatives in CleanBC, will especially act as a catalyst to ensure that LNG projects currently in development will generate further demand for electricity before 2032. For example, any of the possible Chevron, Shell (Phase 2), or Steelhead LNG projects would consume virtually the entire annual energy output (5,100 GWh) of Site C, triggering an almost immediate demand for new generation.
As BC looks to a future of lower GHG emissions, LNG will not be the only industrial sector turning towards electrification. In the non-LNG portion of the oil and gas sector, for example, BC Hydro is forecasting demand of just 1,850 GWh per year over the next 20 years. This level of demand, however, does not comport with either the Province’s new focus on industrial electrification, or with private sector forecasts of the latent electrification demand in BC’s natural gas sector.
Clean Energy BC, for example, estimates that electrification of oil and gas upstream and transportation activities could increase electricity demand by as much as 7,500 GWh annually. BC Hydro has acknowledged, in what may be considered a conservative estimate, that it believes such electrification could result in an additional load of 6,700 GWh. Either way, the amount of electricity demanded by the oil and gas sector must represent a large incremental load if the CleanBC greenhouse gas emissions targets are to be reached. This demand has not been properly accounted for in BC Hydro’s Baseline Forecast.
Outside of the industrial sector, public policy directives will also drive up demand for electricity in BC. In the transportation sector, for example, the rise of electric vehicles will surely put pressure on BC Hydro’s supply. While forecast levels of demand beyond 2019 are not yet clear, Clean Energy BC has made speculative projections further into the future. Assuming broad electrification of cars, trucks, and buses, these estimates call for an incremental load of 6,500 GWh per year by 2030. Even if a scenario develops in which only passenger vehicles are broadly electrified, a non-trivial load projection of an additional 1,000 GWh per year by 2030 must be faced by BC Hydro.
Viewed collectively, it seems likely that BC Hydro’s claim that it needs no new energy before 2032 is based on excessive optimism about DSM, and a failure to align its forecasts with the electrification demand arising from industry and being pushed by both Federal and Provincial public policy to electrify the oil and gas and transportation sectors. If BC is to see: (1) another major LNG plant; (2) material electrification of the oil and gas and transportation sectors; and/or (3) traditional levels of DSM success, then new energy requirements beginning as soon as 2021 or 2022 are likely. Given this, BC Hydro’s sanguine position, and continued adherence to the oft-mentioned 2032 date for needing new energy, seem unrealistic. The utility is going to need more power, and sooner than it thinks.