BC Hydro’s New Clean Power Call: What it Means for the BC Power Industry
On June 15, 2023, the BC government announced that BC Hydro and Power Authority (“BC Hydro”) will be launching a new call for sources of renewable, emission-free electricity in the province of BC. More information about the announcement and the new call can be found in our recent blog post.
Concurrent with announcing the new call, BC Hydro filed its first signpost update (the “Signpost Update”) to the 2021 Integrated Resource Plan (the “IRP”) with the BC Utilities Commission (the “BCUC”). The Signpost Update, among other things, confirmed the need for new sources of clean or renewable energy in the province sooner than previously anticipated in the IRP. Clean or renewable energy, as defined in Section 1 of the Clean Energy Act (British Columbia), includes technologies focused on biomass, biogas, geothermal heat, hydro, solar, ocean, wind, biogenic waste, waste heat, and waste hydrogen. BC Hydro published a 2023 update to the IRP (the “IRP Update” and, together with the Signpost Update, the “2023 Updates”) to reflect the developments in the Signpost Update. The 2023 Updates come after BC Hydro sent a letter to the BCUC on March 23, 2023, anticipating the need to renew Electricity Purchase Agreements (“EPAs”) expiring after 2026, acquire new greenfield energy resources, and advance capacity resources such as transmission projects and utility-scale batteries.
The 2023 Updates focus on addressing forecasted electricity shortfalls in the coming decades. They emphasize the need to accelerate or extend the timing of existing near-term actions, including actions on energy efficiency, demand response, industrial load curtailment, EPA renewals, and utility-scale batteries. They also highlight the need for BC Hydro to acquire approximately 3,000 GWh of new clean or renewable energy from greenfield resources in the province as early as fiscal 2029 and approximately 700 GWh of new clean or renewable energy from existing resources prior to fiscal 2029. To address the rapid pace of change of BC’s energy transition, BC Hydro proposes to adopt a new “living” long-term resource planning cycle with regular BCUC filings that are better able to address the dynamic nature of the energy system as it evolves. Such filings, expected approximately every eighteen months following the BCUC’s decision on the IRP Update, would not be comprehensive but would target specific resources, inputs, options, and forecasts on a rolling basis.
The 2023 Updates mark a shift in policy from BC Hydro, which had previously maintained that the province would be in a position of surplus energy for multiple years owing in large part to demand-side management measures. Now that roughly 800 GWh of energy savings from demand-side management measures in fiscal 2021 and 2022 are integrated into historical data, they are no longer reflected as a new resource for future years. Increases in forecasted electricity demand, driven by global, national, provincial and local factors, and decreases in forecasted capacity owing to biomass fuel supply constraints, have attuned BC Hydro to the need for more clean or renewable electricity in the short and medium terms. BC Hydro now acknowledges that the failure of the IRP to allow for the earlier acquisition of new energy resources as needed was a weakness of the IRP.
What exactly the 2023 Updates mean for developers, producers, and purchasers of renewable energy is not yet fully known, but we can draw the following general conclusions:
1. Existing resources with EPAs expiring in the near to medium term will likely have an opportunity to renew their EPAs with BC Hydro
The 2023 Updates assume that EPAs expiring after 2026 will be renewed. BC Hydro has been active in renewing expiring EPAs through its EPA Renewal Program, entering into six new long-term EPAs representing approximately two-thirds of the total volume available from the 19 EPAs set to expire prior to April 1, 2026.
BC Hydro estimates that approximately 700 GWh per year of new energy is available from existing facilities that are already connected to the provincial grid but that are not selling this additional capacity to BC Hydro. BC Hydro anticipates that it can acquire this energy through bilateral negotiations with individual independent renewable or clean power producers (“IPPs”). BC Hydro expects such negotiations to form market-price based renewal options for existing IPPs with EPAs expiring in before April 1, 2026, and cost-effective renewals (which may include continuing market-priced based renewal offers) for IPPs with EPAs expiring after April 1, 2026.
In response to increased interest in prioritizing the renewal of EPAs for projects that benefit Indigenous communities or have Indigenous ownership, BC Hydro will consider Indigenous interests as they develop their approach to the renewal of EPAs after 2026.
2. New resources will be acquired by BC Hydro, creating opportunities for project proponents to build new capacity
The 2023 Updates disclose a need for BC Hydro to acquire approximately 3,000 GWh of energy from greenfield facilities in the province which can achieve commercial operation as early as fiscal 2029. Because the 3000 GWh estimate is subject to uncertainty, BC Hydro estimates that it would meet any additional capacity needs through market imports as a stop-gap measure until further resources could come online in the province. This suggests the potential for more than the currently anticipated 3000 GWh of power to be procured by BC Hydro in the medium to long term, subject to economic conditions.
The new BC Hydro call is also set to include $140 million for the BC Indigenous Clean Energy Initiative to support Indigenous-led projects, some of which may not otherwise be competitive owing to their smaller size. This suggests the potential for projects with significant Indigenous ownership, leadership, or equity participation to secure EPAs under the new call. BC Hydro will design the new call process in consultation with Indigenous groups, and will establish a new task force to provide strategic advice by, among other things, focusing on Indigenous ownership opportunities and consulting Indigenous experts.
3. New utility scale battery storage capacity will open a new market in BC
BC Hydro expects to add up to 50MW of additional utility-scale battery storage capacity to the grid as early as 2027 and up to 500MW of additional battery storage capacity by 2030. Although the 2023 Updates provide few details regarding such storage upgrades, this goal marks the potential for BC Hydro to make significant investment in the battery technology sector, open new procurement programs with significant opportunities for storage solutions providers, or both.
4. Transformation of the energy system will necessitate coordination between assets and balancing of portfolios
The 2023 Updates underscore the need for BC Hydro to flexibly adapt the provincial electricity system to meet the dynamics needs of the ongoing energy transition. This will likely require BC Hydro to assess all resources and technologies on a strategic, portfolio-scale basis to ensure the provincial grid is clean and has adequate redundancy, firm capacity, transmission, storage, and optionality while keeping costs to consumers low. BC Hydro is thus likely to be selective in its procurement of new energy, and is expected to require proponents to show the specific benefits of their proposed projects, such as location, cost, technology, storage potential, generation capacity, generation profile, peak seasons, site- and technology-specific risks, etc. It is anticipated that greenfield wind assets will be cost competitive in many circumstances. Transmission constraints across the province are also expected to necessitate generation and storage capacity near load centers, such as the lower mainland, the southern interior, Vancouver island, and the north west industrial corridor.
5. Upgrades to the BC Hydro grid are expected to continue
With the addition of new storage capacity, intermittent generation technologies such as wind and solar, and new redundancy projects, BC Hydro will likely be required to invest in a bigger and smarter grid to optimize flows and match supply with demand in real time. A critical element in such grid improvement is transmission capacity. In the 2023 Updates, BC Hydro reiterates its goal of continuing to advance the Prince George to Terrace Capacitor Project to maintain its earliest in-service date of fiscal 2028. BC Hydro also discusses the potential for targeted updates to future transmission options with long lead times including a second northwest transmission line and Vancouver Island transmission reinforcement project No 2. Smart grid solutions are also expected to form part of BC Hydro’s grid upgrades, as both new and incumbent grid technologies come to take greater prominence in large-scale management of dispersed and complementary renewables.
In sum, while the details of the new BC Hydro call for power are still being developed, it nonetheless presents clear opportunities for participants in the BC renewables sector. McCarthy Tétrault will continue to monitor developments in this space to better advise our clients on their strategic issues and business objectives.
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McCarthy Tétrault’s Power Group has been actively involved in all aspects of electricity project development in every province in Canada. In British Columbia, our Power Group has intimate knowledge of the power industry and has had extensive involvement on behalf of both developers and lenders in a variety of project contexts. Our experience encompasses all stages of the project life-cycle including: project partnering, including a broad range of joint venture structures, including with Indigenous groups; private and Crown land acquisitions; environmental and permitting matters; negotiations with BC Hydro and related utility regulatory matters; indigenous law matters; project financing; and acquisition and sale transactions. Our depth and experience in the B.C. power market are perhaps best evidenced by the fact that we have been engaged as counsel – whether to an original developer, an acquiror, a joint venture partner or a lender – in relation to over 20 of the 27 renewable energy projects awarded electricity purchase agreements by BC Hydro in its last large-scale power procurement process, the 2008 Clean Power Call.