An Electrification Plan Part 5: Specific Policy Actions: Making Electrification Work
INTRODUCTION
This series of posts proposes a comprehensive electrification Plan, assembled with four component policy parts. The first two policy actions in this Plan served to build a model for electrification.
The broad framework is established by creating a Special Electrification Zone (“SEZ”), within which development shall be guided by a specific electrification plan (the NWEP).
The creation of a Northwest Power Authority (“NWPA”), which is to be owned by First Nations, develops functional structure and puts in place the necessary managerial components needed to capture the economic, environmental, and reconciliatory benefits of electrification.
As previously discussed however, adequate electrification policy will not just build an organizational framework, but also account for the supply and demand considerations of a move towards broad-based electrification. The third policy action of the Plan accomplishes this and works to ensure that industry receives the requisite supply assurances.
POLICY ACTION #3: DEPLOYMENT OF THE HERITAGE ASSETS
Broad-based electrification within the SEZ will require the complex alignment of loads (electricity customers) and generators, both over time (that is, on varying development schedules) and in the moment (that is, the on-going balance of the electric system).
Accomplishing this in the SEZ will require a defined call on the capacity of the Heritage Assets, at least for a period of time. Likely, this action will create a trading opportunity cost. To the extent this occurs, the beneficiaries of electrification can fund the foregone BC Hydro revenue. This will happen in two ways. First, in a narrow sense, it can be achieved through payments to BC Hydro by customers and suppliers in the SEZ. Second, and more broadly, this will come from all British Columbians, who collectively benefit from the achievement of economic, environmental, and First Nations policy goals.
Specifically, deploying the Heritage Assets will address supply side considerations by working to negate capacity concerns in an electrified system. In a scenario in which the Heritage Assets are used, the door is opened to using new clean, but intermittent generation options such as wind, non-storage hydro, and limited solar as energy options. That is, use of the dams allows the Province to further their GHG reductions by pursuing clean energy generation options with far greater flexibility than if new capacity resources needed to be added precisely in conjunction with clean but intermittent generation resources.
The manner in which the Heritage Assets could be utilized in an electrical system capable of meeting steady industrial demand while employing intermittent generation resources is described as follows:
When intermittent generation is at a level greater than or equal to the steady industrial demand, the dams can be turned down, and water is stored for later use or used for trading opportunities.
When intermittent generation is insufficient to meet industrial demand, the dams can be turned up, and stored water is used meet industrial load.
Evaluating this policy proposal requires careful consideration of the current use of BC Hydro’s Heritage Assets. In fact, they are already being used to lower power costs, improve renewables integration, and reduce GHGs. Unfortunately, these policy goals are most notably being achieved in furtherance of American policy objectives, through Powerex’s April 2018 decision to join the California Independent System Operator’s Western Energy Imbalance Market (“EIM”).
The EIM has been of enormous benefit to California and the US Northwest: 715,000 MWh of avoided renewable energy load curtailments; 306,000 tonnes of avoided CO2e emissions; and more than USD$400 million in economic benefit, all between 2015 and 2018 Q2.
Powerex’s benefits have been far less meaningful: just USD$2.27 million In Q2 2018 (its first quarter since joining). The benefit for the EIM as a whole in that period was USD$71.21 million.
Deploying the Heritage Assets to achieve policy goals in the Northwest BC SEZ (as described earlier in the Plan) would represent shifting their benefit-creation potential to Canadian interests and using our resources to create material benefits for British Columbians rather than those in other jurisdictions.
Importantly, this proposed re-directing of Heritage Asset flexibility does not need to happen ahead of private-sector investment decisions and associated electricity purchase commitments, so it imposes no immediate cost or risk to the Province in terms of lost trading potential.
POLICY ACTION #4: CONCESSION AGREEMENT
BC Hydro is facing substantial upward pressure on rates moving forward, as Site C costs and the repayment of deferral account balances come into these rates. This trend will sharply constrain the utilities’ capital budget.
Given this fact, the Plan calls for Government to consider using a concession model (or related form of public-private partnership) within the SEZ, whereby private funds are used to develop the public infrastructure in return for the private-sector firm securing revenue rights over a number of years. In addition, there are significant Federal First Nations infrastructure and clean energy programs that could reduce the cost of the concession model.
Specifically, the concession model policy would be developed as follows:
To help fund the NWEP, BC should work with affected First Nations and interested private-sector firms, to monetize the value of existing BC Hydro wires assets in the Northwest through a long-term concession agreement, or similar. New wires infrastructure built as part of the NWEP will be publicly owned, likely through BC Hydro, but will be funded by the concession holder, and added to the concession agreement.
The concession holder will enter into an inter-utility agreement with BC Hydro for the purposes of enabling support for the NWEP from BC Hydro’s Heritage Assets.
Collectively, these four related specific policy actions constitute the Plan. Adopted together in Northwest British Columbia, these actions will serve to create a successful system of electrification that is workable for all of First Nations, Government, and industry. Such an electrification solution, one that is acceptable to all parties, is the only path towards achieving the goals of First Nations reconciliation, GHG reductions, and economic development.