Power Perspectives 2022 - British Columbia Regional Overview
In 2021, several long-awaited developments occurred that will lay the groundwork for BC’s energy future. With the completion of Phase 2 of its comprehensive review of BC Hydro and the release of its CleanBC Roadmap to 2030, the province has signalled its core energy priorities and outlined key measures to achieve them. Meanwhile, the submission by BC Hydro of a new integrated resources plan—its first in almost a decade— sheds new light on the province’s anticipated load-resource profile and implications for market participants, including independent power producers (IPPs).
COMPREHENSIVE REVIEW OF BC HYDRO
The BC government and BC Hydro released recommendations from Phase 2 of the Comprehensive Review of BC Hydro (Phase 2 Review) initiated in 2018. With a mandate to evaluate broad, transformational changes that are likely to impact the energy sector in coming years, and guided by input from a panel of external energy-industry experts, the Phase 2 Review focused on providing recommendations for how BC Hydro can accomplish the policy objectives laid out in the CleanBC plan, while taking into account the impact of factors such as emerging technologies, energy market trends, and the changing needs of BC Hydro customers.
Three sets of recommendations from the Phase 2 Review were released in the course of 2021:
Electrification and CleanBC Support
The first release, in July, set out recommendations to advance the electrification of BC’s economy (which remains almost 70% powered by fossil fuels) by electrifying industry, supporting clean tech and low-carbon hydrogen, and better integrating BC’s grid with neighbouring jurisdictions. These recommendations include, among others:
- developing a 100% clean electricity standard for the integrated grid;
- moving to a flat energy charge for industrial customers instead of the current two-tier rate, and developing a new CleanBC Industry Electrification Rate that offers a discount on BC Hydro’s standard industrial rates to new clean industries and industrial customers that transition from fossil fuels to clean electricity;
- applying to the British Columbia Utilities Commission (BCUC) to update the distribution extension portion of the electric tariff to accelerate connections and make their costs more predictable, as well as to repeal the Northwest Transmission Line tariff; and
- considering regulatory changes requiring BC Hydro and the BCUC to use an internal carbon price when evaluating programs and infrastructure investments.
In August, the Phase 2 Review released recommendations intended to keep electricity rates affordable, including, among others:
- implementing an optional discounted rate and measures to lower upfront costs to encourage households to switch from natural gas heating to electric heat pumps;
- considering the implementation of a means-tested program to provide support for low-income customers;
- developing a flexible rate option that would offer customers discounts for enabling BC Hydro to manage electricity demand for items such as electric-vehicle charging, hot water and electric baseboards, complemented by demand-side measure programs; and
- developing an optional rate to promote conversion of district energy systems from natural gas to electricity.
In September, the Phase 2 Review released recommendations intended to encourage adoption of electric vehicles, including, among others:
- introducing optional rates that offer residential customers reduced electricity charges in off-peak hours and incentivize employers to offer workplace electric vehicle charging;
- establishing a five-year plan for deployment of DC fast-charging (i.e., Level 3) stations and tasking BC Hydro subsidiary Powertech with exploring innovative technical options to reduce the cost of such stations; and
- developing an electrification/low-carbon fuels strategy for medium-and heavy-duty vehicles.
The recommendations from the Phase 2 Review were intended to inform both the ongoing evolution and implementation of the CleanBC plan and the BC Hydro IRP, as further described below.
In addition, in November 2021, the BC government, working with the First Nations Leadership Council and First Nations Energy and Mining Council, launched the Indigenous Clean Energy Opportunities (ICEO) engagement with First Nations, which will focus on identifying economic opportunities for Indigenous peoples arising from the Phase 2 Review, CleanBC and the BCUC Inquiry on Indigenous Utilities.
BC HYDRO FILES INTEGRATED RESOURCE PLAN
On December 21, 2021, BC Hydro filed its long-awaited 2021 integrated resource plan (IRP) – its first since 2013 – with the BCUC. Informed by government climate action targets, the electrical utility’s consultation with Indigenous peoples and the public, and forecasts regarding electricity demand and technological advancements, the IRP describes how BC Hydro intends to meet the electricity needs of the province over the next 20 years. Going forward, BC Hydro expects to complete an integrated resource plan every five years.
The filing of the final IRP followed BC Hydro’s extended “Clean Power 2040” engagement, which BC Hydro reports included input from more than 6,000 British Columbians through surveys and virtual engagement sessions and consultation with 85 Indigenous Nations, tribal councils and Indigenous organizations, which culminated in the public release of a draft of the IRP for comment in June 2021 and the subsequent preparation of the final IRP, which addresses some of the feedback received from interest groups and how it helped shape the final version of the IRP.
The IRP consists of three main components:
- Base Resource Plan: BC Hydro’s plans to meet the province’s projected electricity needs and address BC Hydro generating facilities that are approaching end of life by:
- increasing existing energy efficiency and conservation programs to achieve system-level capacity savings by:
- continuing and ramping up energy efficiency programs to achieve system-level capacity savings;
- pursuing voluntary time-varying rates supported by demand response programs and advancing an industrial load curtailment program to achieve approximately 220 MW and 100 MW of capacity savings, respectively, by fiscal 2030; and
- pursuing a combination of education and marketing efforts as well as incentives for smart-charging technology for customers;
- upgrading transmission capacity to the province’s South Coast; and
- renewing certain electricity purchase agreements (EPAs) with IPPs.
- Contingency Resource Plans: Details of alternative sources of electricity supply that BC Hydro could pursue should the province’s electricity needs exceed expectations or near-term actions fail to achieve anticipated results.
- Near-Term Actions: An overview of the near-term steps BC Hydro is taking to implement the Base Resource Plan and prepare for contingency scenarios.
Demand for Electricity
Since BC Hydro released its last integrated resource plan in 2013, the electricity needs of British Columbians have changed. The IRP reports that the province is seeing increasing customer demand for electricity driven by continued electrification activities, particularly in the transportation sector. Pointing to an uptick in the sale of electric vehicles coinciding with the passing of the Zero-Emission Vehicles Act (British Columbia), BC Hydro states that this increase is most evident in the Lower Mainland and Vancouver Island regions. However, this upward trend is offset by some of BC’s resource-based industries, in which economic factors are combining to cause declines in electricity demand.
BC Hydro forecasts that it will have sufficient energy and capacity to meet domestic need in the province until the early 2030s, at which time, with the benefit of up-to-date cost and system information, BC Hydro intends to choose from a variety of types of supply options to provide supplemental electricity, including developing new clean resources, utilizing EPAs with IPPs and expanding BC Hydro’s generation assets.
The IRP states that as of October 2021, BC Hydro was party to 123 EPAs with IPPs, approximately 70 of which will be expiring over the next 20 years (representing about 9,100 GWh of energy). As discussed further below, the BCUC had previously indicated that it would not be able to determine whether long-term EPA renewals were in the public interest until the IRP was filed, and as such, the IRP will be instrumental in informing EPA renewal decisions.
The IRP states that additional energy from the renewal of EPAs would be surplus to the province’s immediate needs but may be required later. Since most of BC’s power projects are expected to have a low cost of service, BC Hydro postulates that IPPs will want to continue operating and will be able to do so with market-price-based EPAs. Through such contracts, BC Hydro proposes to keep these facilities available for a time when their generation is necessary to meet electricity demand.
In accordance with the IRP, BC Hydro will offer “market-priced” renewal options to IPPs producing clean or renewable electricity pursuant to the 19 EPAs expiring within the next five years, which represent roughly 900 GWh of energy. In contrast, the renewal of natural gas EPAs is not assumed in the IRP’s Base Resource Plan. In particular, the IRP points to gas-fired IPP facilities McMahon and Island Generation as being two of BC Hydro’s biggest sources of greenhouse gas (GHG) emissions within its integrated system and states that BC Hydro does not intend to renew the applicable contracts for those facilities.
On December 23, 2021, the BCUC appointed a four-person panel chaired by Commissioner David Morton that will undertake a public regulatory review process to consider BC Hydro’s application for an order approving the IRP.
SITE C UPDATE
In July 2020, BC’s energy minister appointed former deputy finance minister Peter Milburn as a special advisor to conduct an independent review of BC Hydro’s 1,100-MW Site C Clean Energy Project (Site C) after BC Hydro reported concerns about project risks, construction delays and rising costs. A summary of Millburn’s report was made public in February 2021. It focused on four main areas: (i) governance and oversight; (ii) geotechnical issues; (iii) risks; and (iv) construction and claims management. The report contained 17 recommendations for Site C regarding these areas, all of which were accepted by BC Hydro and the BC government.
In February 2021, the BC government also announced its decision to complete construction of Site C, concluding that cancelling the project would impose at least a C$10 billion burden on provincial taxpayers or ratepayers, excluding the cost of replacing the lost energy and capacity Site C would have provided to meet the province’s future electricity needs. The BC government confirmed that the capital cost estimate for Site C had increased to C$16 billion from BC Hydro’s previous estimate of C$10.7 billion, attributing the increased costs to the COVID-19 pandemic and the foundational enhancements required to address previously identified geological risks. The foundational enhancements are expected to be completed by 2023. In October 2021, BC Hydro completed Site C’s roller-compacted-concrete program, a key component of Site C’s design. The BC government has extended the expected project completion date by one year, to 2025.
Site C continues to face litigation challenges. In an ongoing civil action, West Moberly First Nations allege the project unjustifiably infringes their Treaty 8 rights. West Moberly are seeking an injunction against operating the Site C dam, an order to remove the dam, and damages, including the payment of all revenues earned on the existing Peace River dams. In April 2021, the BC Supreme Court ordered BC Hydro and the BC government to release undisclosed Site C financial and safety documents to West Moberly First Nations, including the full copy of the final Milburn report, which will nonetheless remain unreleased to the public. The trial is expected to begin in March 2022.
The 2021 decision in Yahey v. British Columbia (discussed in more detail in the litigation section of this publication) found that the cumulative effects of a number of different industrial activities authorized by the province in the traditional territories of the Blueberry River First Nations infringed the latter’s Treaty 8 rights. The Yahey decision, which the BC government did not appeal, is likely to be referenced prominently in the West Moberly action. BC Hydro has expressed the view that the Yahey decision is unlikely to affect the issuance of provincial permits required for Site C because the project is already approved and under construction, though it has acknowledged that the ruling could affect the timing of permit issuance.
CLEANBC PLAN UPDATE
In 2021, the BC government continued its roll-out of CleanBC, the province’s ambitious climate action plan to reduce provincial GHG emissions to a legislated target of 40% below 2007 levels by 2030.
Major developments in 2021 included the launch of the CleanBC Roadmap to 2030 (Roadmap), a plan that accelerates certain measures to transition away from fossil fuels in response to new emissions projections that demonstrated a need to take stronger action, faster, to meet BC’s GHG targets.
Citing as a central pillar BC’s abundant supply of clean and affordable hydroelectric power, the Roadmap sets out actions across a number of “pathways”, including:
- increasing the price of carbon pollution to meet or exceed the federal benchmark beginning in 2023, with financial supports through a climate action tax credit;
- doubling the target for renewable fuels produced in BC to 1.3 billion litres by 2030;
- introducing requirements for new industry projects to have enforceable plans to reach BC’s legislated and sectoral targets and net zero by 2050;
- implementing stronger regulations that the BC government states will nearly eliminate industrial methane emissions by 2035;
- completing a comprehensive review of the oil and gas royalty system (the first in 30 years) to ensure it aligns with BC’s climate goals and provides a fair return, with outcomes to be released in February 2022;
- introducing new requirements to make all new buildings zero-carbon by 2030;
- accelerating adoption of zero-emission vehicles (ZEVs) to represent 26% of new light-duty vehicles
- by 2026 and 100% by 2035 and developing new ZEV targets for medium- and heavy-duty vehicles in line with California targets;
- completing BC’s “Electric Highway” by 2024 and targeting 10,000 public electric vehicle charging stations by 2030;
- accelerating the shift toward active transportation and public transit (30% by 2030; 40% by 2040; 50% by 2050);
- implementing a 100% Clean Electricity Delivery Standard for the BC Hydro grid;
- increasing clean fuel and energy efficiency requirements; and
- supporting innovation in areas such as clean hydrogen, the forest-based bioeconomy and negative emissions technology.
The Roadmap includes rebates for new heat pumps and plans to attract new businesses looking for clean power. It also encourages using low-carbon building materials in construction, such as mass timber. The BC government expects the measures set out in the Roadmap to reduce GHG emissions sufficiently to hit the province’s GHG 2030 reduction target and set the course for the province to fulfill its net-zero goal by 2050.
The BC government also announced BC Hydro’s C$260- million low-carbon Electrification Plan on September 28, 2021, the implementation of which it projects will result in an additional 3,100 GWh of load and reduce GHG emissions by 930,000 tonnes per year by the end of fiscal 2026. The Plan includes initiatives designed to encourage the transition from the use of fossil fuels to clean electricity to power homes, businesses, industries and vehicles, particularly in three key areas: buildings, transportation and industry. Specific measures include up to C$13 million in “top-up” rebates for residential heat pumps, up to C$3,000 per household, and expanding public charging infrastructure for passenger electric vehicles to 325 charging stations across the province and twinning all single charging stations. In addition to allocating approximately C$190 million for new incentives, energy studies and other programs, BC Hydro plans to spend approximately C$50 million to attract new customers, including new clean tech and hydrogen production facilities, seeking to power their businesses with clean electricity.
BC HYDRO RATE APPLICATION
In August 2021, BC Hydro filed its Fiscal 2023-2025 Revenue Requirements Application with the BCUC, requesting an annual average bill increase of 1.1% for the next three years—consisting of a decrease of 1.4% in 2022, and increases of 2% and 2.7% in the following two years. The BCUC’s review of the application is expected to be completed in the first half of 2022.
In 2021, the BCUC continued to give effect to its position that it could not determine whether most long-term EPAs are in the public interest until BC Hydro filed an updated and approved integrated resource plan.
The BCUC approved two new EPAs in 2021. Consistent with its approach to EPA renewals in 2020, on March 30, 2021, the BCUC approved an EPA with a three-year renewal term effective January 1, 2021, for the Coats hydroelectric generating facility on Gabriola Island. BC Hydro cited the short-term nature of the agreement as a factor in favour of the project’s approval in its filing. An EPA with a 20-year term and a further 10-year BC Hydro option for the Hluey Lake hydroelectric facility was also approved by the BCUC in March 2021. Specific factors that made the long-term nature of this project acceptable to the BCUC included the fact that the rural area of Dease Lake covered by the EPA is not connected to the grid and BC Hydro’s only other alternative for supplying electricity to the area is diesel generation.
On May 7, 2021, the BCUC also released its final order in respect of the Walden North Hydro project, a 16 MW facility located near Lillooet. BC Hydro had issued a notice of termination for its EPA renewal for Walden North Hydro, relying instead on its original EPA and a related forbearance agreement (Forbearance Agreement). However, in June 2020, the BCUC concluded that the Forbearance Agreement constituted an amendment to the EPA and was required to be filed with the regulator. In its final order, the BCUC determined that while it had the ability to make a declaration on the enforceability of the Forbearance Agreement, the original EPA was outside of its jurisdiction, having been entered into prior to September 2001. Therefore, while the BCUC panel was critical of the EPA as providing “apparently unnecessary” energy, it determined that the EPA, modified by the Forbearance Agreement, is in the public interest, as compared to the original EPA.
As discussed above, BC Hydro filed its final 2021 IRP with the BCUC in December 2021. If approved, the IRP will inform the BCUC’s evaluation of renewal applications for existing EPAs, including those with longer renewal terms.
WHAT TO WATCH FOR IN 2022
Site C on Trial: The Final Hurdle?
As noted above, the trial of the West Moberly First Nations’ injunction claim against the Site C dam is expected to begin in March 2022, with a view toward ensuring that a decision is rendered prior to the flooding of the dam’s reservoir. Site C has to date weathered a number of lawsuits and other challenges—this lawsuit may be the last and most significant, particularly in light of the 2021 decision in Yahey and its implications for the development of large projects in British Columbia.
Long-Term EPA Renewals
With the submission by BC Hydro of its IRP late in 2021, the BCUC is expected to have all the information required to make a determination regarding the long-term renewal of a number of EPAs that expired over the last several years. Although context-specific, these renewals will provide important information regarding the economics facing IPPs in connection with expiring EPAs.
Coming Soon: Energy Storage?
While the province’s electricity infrastructure has been predicated on the significant storage capacity of BC Hydro’s legacy hydroelectric facilities, the province may soon look to alternative sources of storage capacity. British Columbia is already home to three operating electrochemical energy storage projects, as well as a significant planned pump hydro storage project. While BC Hydro notes that utility-scale (over 15 MW) battery technology is still relatively early-stage and expensive, one of the near-term actions proposed in the IRP as part of BC Hydro’s contingency resource planning is to integrate and study utility-scale battery resources on a pilot basis, in recognition of the expectation that battery costs will drop and capabilities increase over coming years. BC Hydro cites a preference for utility-scale batteries for storage due to short lead times, small size, high energy effciency and scalability.