Power Procurement In British Columbia: Self-Sufficiency ... · Advanced Renewable Tariff (ART)....

PPoowweerr PPrrooccuurreemmeenntt IInn BBrriittiisshh CCoolluummbbiiaa:: SSeellff--SSuuffffiicciieennccyy TThhrroouugghh

AAddvvaanncceedd RReenneewwaabbllee TTaarriiffffss

Prepared for: The British Columbia Sustainable Energy Association

March 2007

ROYAL ROADS UNIVERSITY

Prepared by Thomas Vlcek with Maureen Cureton advising

February 28, 2007 British Columbia Sustainable Energy Association (BCSEA) Attention: Mr. Guy Dauncey

President, BCSEA Dear Sir: Subject: Advanced Renewable Tariffs in B.C. I am pleased to provide the attached report concerning electricity procurement and the applicability of Advanced Renewable Tariffs in British Columbia. After performing a situational analysis using available reference information and primary research, I am able to offer recommendations regarding the possible adoption of this policy instrument in British Columbia. Yours truly, Thomas Vlcek: Project Manager ARTs in B.C.

TABLE OF CONTENTS

1. INTRODUCTION 1

2. PROJECT PURPOSE 4

3. ASSUMPTIONS 4

4. APPROACH AND METHODOLOGY 5

RESEARCH FINDINGS 6

5. BC�S GROWING ELECTRICITY SUPPLY DEFICIT 6

6. BC LIBERAL GOVERNMENT AND BC HYDRO MANDATES 9

7. BACK GROUND � ELECTRICITY PRODUCTION IN BRITISH COLUMBIA 13

7.A. BC HYDRO, HERITAGE POWER 14 7.B. INDUSTRIAL PRODUCTION AND SELF-GENERATION 15 7.C. INDEPENDENT POWER PRODUCERS (IPPS) 16 7.D. FORTIS POWER 16

8. BRIDGING THE SUPPLY GAP � MEETING ELECTRICITY DEMAND IN BC 17

8.A. CONSERVING MORE: DEMAND SIDE MANAGEMENT (DSM) 17 8.B. BUILDING MORE 19 8.C. INCREASING IMPORTS/MARKET PURCHASES 20 8.D. CUSTOMER GENERATION AND NET-METERING 21 8.E. PRIVATE POWER PURCHASE - BUYING MORE FROM IPPS 22

9. THE COST OF POWER SUPPLY ALTERNATIVES IN BC 24

10. SUPPLY SECURITY: EXPANDING THE RESOURCE MIX 26

11. PRIVATIZATION OF SUPPLY 27

12. ENVIRONMENTALLY RESPONSIBLE SUPPLY 27

13. APPROACHES TO PROCURING POWER � QUOTA/TENDER VS. FEED LAW 28

13.A. HOW DO QUOTA AND TENDER MODELS WORK? 30 13.B. QUOTA/TENDER MODELS IN ACTION � THE NFFO AND ROC IN THE UK 30

14. INTRODUCTION TO ADVANCED RENEWABLE TARIFFS 31

15. QUOTA/TENDER VS. FEED-LAW & THE ADVANCED RENEWABLE TARIFF 32

15.A. WHICH METHOD IS LESS EXPENSIVE? 34 15.B. HOW MUCH CAPACITY HAVE THE MODELS DEVELOPED? 35

16. POWER DELIVERY AND PROCUREMENT IN BC 41

16.A. 2001/02 GREEN CALL FOR POWER 42 16.B. 2002 CUSTOMER-BASED GENERATION (CBG) CALL FOR POWER 43 16.C. 2002/03 GREEN CALL FOR POWER 44 16.D. 2004 VANCOUVER ISLAND CALL FOR TENDERS (VI CFT) 47 16.E. 2006 OPEN CALL FOR POWER 48

17. CRITICAL ISSUES: THE CFP TENDER PROCESS IN BC 55

17.A. LICENSING AND REGULATION 55 17.B. FINANCIAL HURDLES - CHALLENGES TO DELIVERY 57 17.C. EXCLUSION OF SMALL DEVELOPERS 57 17.D. TRANSMISSION EXPENSE/ECONOMIES OF SCALE 58 17.E. TECHNOLOGICAL DIVERSITY � AN ELECTRICITY MONOCULTURE 59 17.F. DELIVERY SHORTFALLS AND LIQUIDATED DAMAGES 60 17.G. PROJECT ATTRITION 60

18. NEW SUPPLY OPTIONS: CHALLENGES AND CHANGES 61

19. ADVANCED RENEWABLE TARIFFS IN ONTARIO 63

20. WHAT WOULD THE ADVANCED RENEWABLE TARIFF LOOK LIKE IN BC? 65

20.A. PROJECT/PORTFOLIO DESIGN 65 20.B. WHICH TECHNOLOGIES ARE INCLUDED? 66

21. PROJECTED COST OF ADOPTING ARTS IN BRITISH COLUMBIA 68

22. ALTERNATIVES AVAILABLE: RENEWABLE ELECTRICITY DELIVERY IN BC 73

OPTION 1: ADJUSTMENT OF BC HYDRO�S TENDER PROCESS 74 OPTION 2: ADOPTION OF THE ADVANCED RENEWABLE TARIFF IN BRITISH COLUMBIA 75

23. HOW WOULD ARTS ADDRESS CRITICAL ISSUES AND BENEFIT BC? 76

23.A. SIMPLICITY AND FLEXIBILITY 76

23.B. FINANCIAL SECURITY 76 23.C. PAY ONLY FOR GENERATION 77 23.D. ENCOURAGE TECHNOLOGICAL DIVERSITY 77 23.E. ENCOURAGE LOCAL, COMMUNITY AND DISTRIBUTED DEVELOPMENT 78 23.F. SUPPORT THE DEVELOPMENT OF LOCAL RENEWABLE INDUSTRIES 78 23.G. JOB CREATION 79 23.H. ELIMINATION OF ATTRITION 80

24. RECOMMENDATIONS AND CONCLUSION 80

BIBLIOGRAPHY 1

APPENDIX 9

EXHIBIT 1 - ACRONYMS AND DEFINITIONS 9 EXHIBIT 2 - RENEWABLE TECHNOLOGIES IN BRITISH COLUMBIA* 10 EXHIBIT 3 - EMPLOYMENT IN THE GERMAN RENEWABLES SECTOR 12 EXHIBIT 4 � BC ATTITUDE TO ELECTRICITY ALTERNATIVES 13 EXHIBIT 5 - INSTALLED ON-SHORE WIND CAPACITY IN EUROPE 2005 14

List of Figures Figure 1 - BC�s Electricity Supply Outlook 7 Figure 2 � BC Hydro Clean Electricity Targets and Results 11 Figure 3 - Cumulative Clean Energy Requirements vs. Forecast Supply 12 Figure 4 � British Columbia Generation by Fuel 13 Figure 5 � Western Electricity Coordinating Council Mix 21 Figure 6 � Cost of Alternate Sources of Capacity 25 Figure 7 � Market Price, Political Quantity, or Both? 29 Figure 8 - Wind Capacity and Generation in Germany 38 Figure 9 � Canadian Installed Wind Capacity 2006 39 Figure 10 � Solar Photo Voltaic Capacity and Generation in Germany 40 Figure 11 � Premium Paid for Advanced Renewable Tariffs in BC 70

List of Tables Table 1: BC Hydro Electricity Imports 8 Table 2: Customer Generation by Project Status (to April 2005) 22 Table 3: Percentage of Capacity by Resource Type 42 Table 4: Results of the 2001/02 Green Call for Power 43 Table 5: 2002 CBG Call Results 44 Table 6: 2002/03 Green Power Generation 46 Table 7: 2002/03 CFP by Technology Penetration 46 Table 8: VI CFT � Project Bids 48 Table 9: 2006 CFP Electricity Purchase Agreements 50 Table 10: 2006 CFP Energy by Resource Type 51 Table 11: Results of Key Phases of 2006 Call 53 Table 12: Share of BC Hydro EPA�s by Resource Since 2001/02 59 Table 13: Results of BC Hydro CFP Between 2001 and 2006 61 Table 14: OSEA Proposed Specific Prices 68

Acknowledgements

I would like to thank the British Columbia Sustainable Energy Association

(BCSEA) and its President, Guy Dauncey, for allowing me the opportunity to

research Advanced Renewable Tariffs. I wish to also acknowledge the effort of

project advisor Maureen Cureton whose guidance in research design and project

planning are evident throughout this paper. I also wish to thank noted author and

educator Paul Gipe, Danyel Reiche currently at Georgetown University, Pentti

Sjoman of Hydrotech Consulting and Steve Davis of IPPBC for granting me

personal interviews between September 2006 and January 2007.

I would also like to thank the Ontario Sustainable Energy Association (OSEA) for

the opportunity to attend its Standard Offer Contract Forum (SOC) in Toronto in

September of 2006. The opportunity to meet Paul Gipe, Danyel Reiche and

others helped me in my research.

Finally, Brenda Goehring at BC Hydro proved helpful in providing details around

the utility�s tender process and Green Power while Geza Vamos, Thomas

Hackney and Ron Williams provided information upon request.

Thank-you,

Executive Summary

British Columbia is enduring a power supply shortage that necessitated the import of 12.5% of its electricity requirements from Alberta and the United States in 2005. British Columbia�s current government has committed itself to return the province to energy self-sufficiency by 2016 and challenged the province�s largest producer and purchaser of power, BC Hydro, to ensure that 50% of new supply is delivered from certified �BC Clean Electricity� and non-nuclear sources. The province�s 2002 Energy Plan called for greater private investment to help deliver an affordable, reliable, and environmentally responsible supply of electricity for BC. In order to stem the persistent supply gap, BC Hydro has attempted to secure power from the private sector using a tender scheme known variously as Calls for Power (CFP) or Calls for Tender (CFT). Under the tender model, providers compete for Electricity Purchase Agreements (EPAs) designed to deliver to BC ratepayers the least expensive supply of electricity. To date, the performance of these tenders has been disappointing in terms of capacity developed and generation achieved. Uncertainty, complexity and the (in)frequency of calls, among other things, have resulted in high rates of project attrition and made an already precarious private and renewable electricity industry in BC more risky. The results of BC Hydro�s acquisition efforts coupled with growing demand pressures mean the utility will be required to continue the import of foreign, coal-fired power well into the next decade. Hydro�s growing reliance on imports has placed its goal of 50% additional supply from �BC Clean� energy in jeopardy as imported power fails to meet the criteria established by the BC government for this policy objective. In an effort to address its growing supply deficit, BC Hydro increased the award volume of its 2006 Call for Power from 2,500 GWh to over 7,100 GWh (a nearly 200% increase) and accepted an average price of $79.50, nearly 45% higher than the $55.00 maximum it demanded under its 2002 Green Call for Power. Hydro has achieved some success with its Power Smart conservation program and taken cautious first steps toward net-metering and self-generation but these policies will not be enough to stem a shortfall approaching 20,000 GWh by 2025. If BC Hydro is to fulfill the Liberal government�s commitment to energy self-sufficiency and �clean� electricity within the context of the 2002 Energy Plan, then it must consider alternative methods for procuring private power. One alternative employed in Europe and elsewhere for many years with remarkable results is the Advanced Renewable Tariff (ART). Advanced Renewable Tariffs are responsible for the development of large volumes of renewable capacity in Germany, Spain and Denmark and have recently been adopted in Ontario as part of the province�s Standard Offer Contract (SOC) program.

ARTs have been advanced as good energy policy because they pay only for generation (GWh), encourage competition and the development of private industry and renewable, community-based power. To date, no other mechanism has delivered as much renewable power as quickly as the Advanced Renewable Tariff. Financial analysis indicates that ARTs would cost a typical rate-paying BC family between $.049 and $.075 per kWh or, about $4.00 to $7.50 per month. Considering the drastic power shortage facing BC Hydro, the failure of the tender model to deliver contracted power, and their success abroad, it is in the interest of BC ratepayers, business and government to consider the Advanced Renewable Tariff as a possible solution for British Columbia�s electricity concerns.

Power Procurement and Advanced Renewable Tariffs in BC March 2007 BCSEA Consulting Project Page 1 of 81

1. Introduction

British Columbia has a long history of affordable and reliable electricity

generation. The province�s electricity industry is Canada�s third largest and

delivers a competitive advantage to business while serving as a source of pride

for British Columbians. However, recent developments including shortages of

supply and concerns related to security and the environmental impact associated

with this precious commodity require an examination of power generation in BC

and its alignment with the province�s current energy plan.

In November 2002, the provincial government introduced an energy plan with

four pillars meant to:

! ensure continued low electricity rates;

! ensure a secure and reliable supply;

! encourage private sector investment to create jobs and prosperity; and,

! ensure environmentally responsible development from non-nuclear

sources.1

Since the 2002 Energy Plan was introduced, British Columbia has experienced a

growing supply deficit requiring imports from Alberta and the United States. BC

Hydro, a Crown Corporation, is the province�s largest producer and purchaser of

electricity. If BC Hydro�s current load forecasts prove correct, this province faces

a potential electricity shortage of between 25-40% by 2025.2 British Columbia�s

current government has committed itself to return the province to energy self-

sufficiency by 2016 and challenged BC Hydro to ensure that 50% of new supply

is delivered from certified �BC Clean Electricity�. BC Clean Electricity refers to

�electricity generated from resources and facilities built in British Columbia that

1 BC Ministry of Energy, Mines and Petroleum Resources, �Energy for our Future: A Plan for BC,� November, 2002, p. 3. 2 BC Hydro 2006 Integrated Electricity Plan, �Challenges and Choices: Planning for a Secure Electricity Future�, March, 2006, p. 3.


have a lesser environmental impact relative to conventional generation

sources��3 This might include hydro, wind, solar heat, solar photovoltaic (PV)

biofuels, and other technologies which are considered as renewable energy

sources.

In its Throne Speech delivered in February of 2007, the government committed

itself to building on its environmental record by establishing targets and taking

action to significantly reduce greenhouse gases and address climate change.

While the government is preparing to introduce its replacement for the 2002

Energy Plan in early 2007, the recent throne speech sent clear indications that

these four goals will continue to serve as the basis for electricity policy and that

renewable energy technologies will be the dominant source of electricity supply in

this province in the future.4

In order to stem the supply shortage it faces while meeting government

objectives related to reliability, private investment and environmental

responsibility, BC Hydro has relied increasingly on the private sector. In its

attempt to secure power from private, Independent Power Producers (IPPs) who

typically generate electricity from renewable sources of energy, BC Hydro has

issued a number of tenders known as Calls for Power (CFP) or Calls for Tender,

and at present, it is only through this process that new electricity generation from

IPPs can be brought into the supply mix in most of British Columbia. While the

calls have grown in size and generated much interest within the private sector,

they have experienced high rates of project attrition and failed to deliver in terms

of supply, security and reliability.

Unless BC Hydro is able to rapidly arrange for the delivery of more electricity, it is

unlikely that it will meet the government�s stated objective of returning the 3 BC Clean Electricity Guidelines, BC Ministry of Energy, Mines and Petroleum Resources, released September 2005, http://www.em.gov.bc.ca/AlternativeEnergy/Clean_Energy_2005.pdf, accessed on-line, February 2007. 4 BC Government, �The BC Energy Plan: A Vision for Clean Energy Leadership,� BCMEMPR Web site, http://www.energyplan.gov.bc.ca/, accessed February 2007.


province to energy self-sufficiency in the next decade. Furthermore, BC Hydro

has already stated that it will likely miss the government�s earlier target of 50% of

new generation from BC Clean Energy by 2013,5 With BC Hydro claiming that it

is unlikely to meet its targets for renewable or clean energy supply under the

present tender system, it demonstrates the need for an examination of electricity

acquisition in BC and the consideration of alternative approaches to developing

new sources of reliable, affordable and renewable supply.

One method of government intervention that has led to the delivery of large

amounts of reliable, affordable and renewable energy in other jurisdictions is the

Advanced Renewable Tariff (ART). ART is a variant of electricity feed-law which

originated in Europe. It establishes a minimum payment, or tariff, for electricity

generated by private producers and distinguishes between different electricity

generation technologies, like wind and solar generation. Countries with feed-laws

or ARTs mandate that distributors allow private generators access to the power

grid. Therefore, suppliers of electricity can enter the market without waiting to be

selected through a tender process, as is the present situation in British Columbia.

The Advanced Renewable Tariff is used in some jurisdictions as a means of

support for the development of independent power production from renewable

energy sources. ARTs do not pursue the lowest electricity price as is done under

the tender, or CFP, model that BC Hydro currently uses. This is not to say that

the ARTs method is inherently more expensive than the tender method for

procuring electricity, only that its focus differs. In fact, ARTs have demonstrated

that they can actually deliver electricity that is less expensive than tender models.

Given the success of ARTs elsewhere, they merit examination in the context of

British Columbia. However, before considering their adoption, or that of any

policy alternative, it is important to understand why the current tender process in

BC has failed to meet the objectives laid out in the government�s 2002 Energy

5 �Report on the F2006 Call For Tender Process Conducted by BC Hydro,� http://www.bchydro.com/rx_files/info/info48009.pdf, accessed August 31, 2006, p.1.


Plan. What barriers face renewable developers in BC and how will ARTs address

them? Do factors exist in BC that support or challenge the adoption of ARTs in

this province? How much will ARTs cost and who will pay for them? Will the

adoption of Advanced Renewable Tariffs assist BC Hydro in its attempt to

engage the private sector? Will ARTs help BC Hydro achieve the government�s

reliability, and environmental objectives?

2. Project Purpose

In order to minimize economic disruption and uncertainty while honouring its

commitment to affordable, private, renewable energy, the BC Government must

reassess the methods for private delivery it has employed to date. While the

growing electricity supply gap is an issue of major importance for the province, it

is not the specific focus of this research paper. The objectives of this research

paper are threefold: to assess the success of Hydro�s Call for Power process in

terms of price paid and the amount of renewable capacity developed; to gain an

understanding of best practices with respect to private, renewable power

procurement in other jurisdictions; and, to assess the applicability of one form of

electricity feed-law known as the Advanced Renewable Tariff (ARTs) as an

alternative to BC�s tender system for the purpose of encouraging the

development of affordable, reliable, private, renewable energy in BC.

3. Assumptions

This paper makes two assumptions in relation to power production in British

Columbia:

1. The current provincial government�s commitment to self-sufficiency in

terms of electricity generation by 2016 will be maintained, and


2. The provincial government�s commitment to acquire at least 50% of

additional supply from renewable, BC Clean Electricity sources will

continue.

Given the government�s 2007 Throne Speech commitments to Green House Gas

(GHG) reductions and Clean Electricity, these assumptions seem reasonable.

4. Approach and Methodology

This report examines the attempts of BC Hydro to procure renewable electricity

from private producers in British Columbia between 2001 and 2006 in the context

of the province�s 2002 Energy Plan. It begins with a current state assessment of

the electricity industry in the province before moving to an examination of

different methods of private power procurement and the encouragement of

electricity generation from clean and renewable energy sources in foreign

jurisdictions including Europe and Asia.

Data was assembled from a variety of sources including published literature,

independent investigation and primary research in the form of personal

interviews. Much of the information contained in this report relating to the private

tender process in BC is not available publicly and required investigation via the

internet and personal consultation. In many cases, collation, authentication and

verification of data was done via electronic mail and telephone. Subjects

interviewed include representatives of the private power industry in BC, scholars

and experts in the areas of renewable electricity production and government

policy. Assembled data was analyzed using financial and statistical tools in order

to evaluate the performance of current methods of private power delivery in terms

of the amount of electric capacity developed.


Given outcomes in other jurisdictions, the report concludes with an examination

of the Advanced Renewable Tariff (ART) as an option for the procurement of

renewable electricity in British Columbia.

Research Findings 5. BC�s Growing Electricity Supply Deficit

A vibrant economy coupled with a growing population has increased demand for

electricity in British Columbia. Energy consumption has been growing at an

average rate of 1.5 per cent per year over the last decade and this trend is

expected to continue.6 Using factors such as housing starts, GDP growth,

Demand Side Management (DSM) projections and weather predictions, BC

Hydro prepares regular load and peak demand forecasts. Forecasts are prepared

for each of the utility�s customer segments (residential, commercial and

industrial) up to 20 years in advance.7 Once the pieces are assembled, policy

and planning decisions are made based on the load forecast results.

Between March 2004 and March 2005 BC Hydro connected roughly 25,000 new

customers to its grid and a further 23,000 more in the 9 months to December

2005 while billed sales grew by 981 GWh over 2004.8 Furthermore, BC Hydro

estimates that BC�s electricity requirements will grow by between 25 and 45 per

cent over the next twenty years. This is roughly the equivalent of electricity

required to power 1.4 to 2.5 million additional homes.9

As Figure 1 demonstrates, BC Hydro generated excess electricity until 2001. In

that year, consumption of electricity in British Columbia began to outstrip supply.

6 The Pembina Institute, �Maximizing Energy Efficiency and Renewable Energy in British Columbia,� October 2006, p.11. 7 BC Hydro, �Electric Load Forecast 2005/06-2025/26,� December 2005, p.5. 8 BC Hydro, �BC Hydro Service Plan 2006/07-2008/09,� September 14, 2005, p.10. 9 BC Hydro , �Challenges and Choices, Planning for a Secure Electricity Future,� 2006 Integrated Electricity Plan, p.5, http://www.bchydro.com/rx_files/info/info43492.pdf, accessed October 2006.


While the graph does not include the savings resulting from conservation

initiatives, it does include the loss of 7,050 GWh resulting from the anticipated

closure of the Burrard Thermal power station. The result is a projected BC Hydro

shortfall of over 20,000 GWh by 2025.

Figure 1 - BC�s Electricity Supply Outlook

Source: BC Hydro, �2006 Integrated Electricity Plan,� (Vancouver: BC Hydro, 2006), p.3,

http://www.bchydro.com/rx_files/info/info43492.pdf, accessed October 2006.

5.b. An Energy Deficit Since 2001

As a result of the growing electricity shortfall mentioned above, British Columbia

has been forced to import power to meet its growing demand. Table 1 presents

the scale of BC�s electricity imports since 2001. As the table demonstrates, this

province was required to purchase 7,400 GWh of electricity in 2005, the largest


volume since imports began. Electricity imports are expected to continue for at

least the near term.

Table 1: BC Hydro Electricity Imports Year GW/h Imported2001 1,7002002 5,2002003 1,7002004 5,1002005 7,400

Source: Source: BC Hydro, �2006 Integrated Electricity Plan,� (Vancouver: BC Hydro, 2006), p.3,


Given the information above describing the demographic and economic pressure

on BC�s electricity supply, one would expect imports � as the primary method of

acquisition � to fluctuate in relation to demand. Put simply, the numbers in Table

1 should increase year over year in the absence of significant additional energy

capacity. However, this has not been the case. The fluctuations in energy imports

noted in the table above can be explained largely by the state of provincial

hydrology resources over time. In years when reservoirs are full BC Hydro is able

to meet demand. In years when water resources are scarce due to either low

rainfall or snow pack levels, demand necessitates increased levels of electricity

imports.

5.c. Ageing Infrastructure

In addition to growth in demand, British Columbia is facing similar costs and

concerns that most jurisdictions in North America face with regard to replacement

of ageing and increasingly inefficient infrastructure. Much of BC Hydro�s

generating capacity was built during the 1950�s and 1960�s with little additional

capacity added since. In addition to hydro power, BC Hydro relies on three

thermal plants burning natural gas to either provide firm energy or supply power

at times when peak demand cannot be met. The Burrard Thermal (950 MW) and


Prince Rupert (46 MW) generating stations are meant to supply short-term power

during outages while the Fort Nelson (47 MW) generating station is that area�s

primary source of supply. Recent upgrades to the Burrard Thermal plant have

reduced emissions but have failed to allay pollution concerns at the site. The

plant is relatively inefficient and more expensive to operate than either heritage

delivery or electricity imports. It is expected to be decommissioned early in the

next decade.10

As a crown corporation responsible for the delivery of �reliable power, at low cost

for generations,�11 BC Hydro must ensure security of supply for all British

Columbians, now and in the future. As demand for electricity in BC continues to

grow, the challenge becomes how to foster the generation of supply in a manner

consistent with government expectations and commitments. In its attempts to

address the growing supply shortage, BC Hydro needs to consider existing

government commitments to private investment in electricity supply, reliability,

affordability and environmental responsibility, as laid out in the current energy

plan.

6. BC Liberal Government and BC Hydro mandates

In its 2002 energy plan titled, �Energy for Our Future: A Plan for BC�, the British

Columbia government introduced a plan with four guiding principles:

! ensure continued low electricity rates;

! ensure a secure and reliable supply;

! encourage private sector investment to create jobs and prosperity; and,

10 Colleen Rhode, �Port Moody Expresses Concern Over Future of Burard Thermal Generating Plant,� City of Port Moody, http://www.cityofportmoody.com/City+Hall/News/2004/20040909MR-2.htm, Web site, accessed February 2007. 11 BC Hydro, �BC Hydro Service Plan 2007/08 to 2009/10,� company Web site, http://www.bchydro.com/rx_files/info/info51192.pdf, accessed February 2007.


! ensure environmentally responsible development from non-nuclear

sources.12

In addition to its long-standing commitments to the private sector and the

environment, the BC Liberal government pledged in its 2006 throne speech to

pursue new policies to return the province to energy self-sufficiency within the

coming decade.13 It is in the context of the 2002 energy plan and recent

pronouncements like the 2006 throne speech that BC Hydro must consider

methods to meet growing demand.

The challenge for policy makers is how best to address these potentially

conflicting commitments. Are they each of equal importance or is there a

hierarchy among them? Does the government�s desire to keep electricity rates

low over-ride environmental considerations? Does its commitment to the

development of private power supersede its commitment to security and

reliability? How can these commitments be realized given the complexity of the

electricity industry, escalating resource costs and the growing environmental and

reliability concerns government is facing?

BC�s Clean Electricity Commitment

In addition to its commitments related to electricity rates, reliability and private

investment, the BC government has pledged to minimize the environmental

impact of electricity generation in British Columbia. In accordance, BC Hydro has

committed to meet 50% of the province�s incremental demand growth by

2012/2013 with BC Clean Electricity. BC Clean Electricity is defined as energy

�from alternative energy technologies that result in a net environmental

improvement relative to existing energy production.�14 With respect to electricity,

12 �Energy for Our Future: A Plan for BC,� accessed October 2006. 13 BC Hydro, 2006 Integrated Electricity Plan, p. 3. 14 BC Hydro, �BC Hydro�s Annual Report 2006,� (Vancouver: BC Hydro 2006), p. 38, http://www.bchydro.com/rx_files/info/info46749.pdf, accessed October 2006.


BC Clean Energy may include hydro, wind, solar heat, photovoltaic (PV),

geothermal, tidal, wave, biomass, cogeneration, landfill gas and solid waste

technologies that meet strict criteria around their generation and development

(see Appendix for more detail on renewable technologies). BC Hydro considers

these to be clean energy projects built in British Columbia under supply

commitments made after November 2002.15

Growth in demand since fiscal 2003 has thus far caused BC Hydro to miss its

goal of 50% new capacity from BC Clean Energy sources. As Figure 2

demonstrates, the utility missed its target in 2005 by 14% and by 29% in 2006.

As incremental demand grows, the portion of clean energy required to meet the

50% target also climbs necessitating the acquisition of additional amounts of

clean energy.

Figure 2 � BC Hydro Clean Electricity Targets and Results

Source: BC Hydro 2006 Annual Report, p.39.

In addition to demand growth, planning and delivery constraints also effect the

generation of BC Clean Energy. High rates of project attrition and delays on the

part of Independent Power Producers have resulted in large amounts of

contracted power not making it to the grid. BC Hydro has indicated that meeting 15 BC Hydro 2006 Annual Report, P. 39.


its commitment by 2013 is not guaranteed, so is currently working on a plan to

address the potential shortfall.

Figure 3 reveals the degree to which BC Hydro is falling behind its requirements

for BC Clean power. If current trends continue, the utility faces a shortfall of over

5,000 GWh by 2013. To put this number in perspective, 5,000 GWh represent

approximately 10% of BC�s total annual electricity consumption. In terms of

contracted power and delivery, this shortfall suggests the need to evaluate the

impact of the current tender model and procurement activity in supporting the

introduction of new clean energy supply sources.

The province�s inability to foster the development of adequate supply of

renewable energy deserves investigation. If the current method of acquisition is

not delivering, alternatives need to be considered.

Figure 3 - Cumulative Clean Energy Requirements vs. Forecast Supply

Source: �Report on the F2006 Call for Tender Process,� accessed November 2006, p. 57.


Before investigating policy alternatives, we will examine the province�s energy

sector in order to appreciate the challenges facing BC Hydro and the macro

environment in which it operates.

7. Back ground � Electricity Production in British Columbia

BC�s power supply comes from a variety of sources, public and private. The

largest generator and electricity purchaser for the province is BC Hydro, a Crown

Corporation owned by the government of British Columbia. BC Hydro has a

mandate to maintain a reliable power supply to generations of British Columbians

at low cost. The company generates ninety percent of the province�s power

supply, ninety percent of which comes from 31 hydroelectric facilities throughout

the province (see Figure 4).16 BC Hydro also operates three natural gas-fired,

thermal power plants and purchases power on the open market through its

PowerEx subsidiary. It is regulated by the independent British Columbia Utilities

Commission (BCUC) which has responsibility for overseeing BC�s natural gas

and electricity utilities.

Figure 4 � British Columbia Generation by Fuel

Source: National Energy Board, �Outlook for Electricity Markets 2005-2006,� http://www.neb-

one.gc.ca/energy/EnergyReports/EMAElectricityMarkets2005_2006_e.pdf, accessed October 2006, p. 13.

16 BC Hydro Annual Report 2006, p. 2.


7.a. BC Hydro, Heritage Power

The 31 hydroelectric facilities that BC Hydro operates provide between 43,000

and 54,000 GWh of electricity annually from a system with an installed capacity

of 11,210 megawatts (MW).17 The bulk of this hydroelectricity comes from the

Peace and Columbia River systems and is delivered to customers via an

interconnected grid of about 18,000 kilometres of transmission lines and 55,000

kilometres of distribution lines.18 BC Hydro is among the lowest green house gas

(GHG) emitters in the North American electricity industry.19

BC Hydro was established in 1962, the result of a merger between the BC Power

Commission and BC Electric20. During the 1960�s and 1970�s the Crown

Corporation developed some of the largest hydroelectric projects in the world,

including those on the Peace and Columbia Rivers. Today, BC Hydro employs

approximately 4,200 employees who are responsible for delivering electricity and

related services to over 1.7 million customers in British Columbia. In April, 2003

the utility transferred 1,600 employees and contracted to international IT

consultant, Accenture, a number of service and �non-core� administrative duties

including payroll, customer service, accounts payable, and human resource

functions.21

In 2003 Hydro was divided into three lines of business (Generation,

Transmission, and Distribution) and a number of subsidiaries including Powerex

and Powertech labs meant to separate the utility into core business units.22 The

creation of the British Columbia Transmission Corporation (BCTC) in 2004 was

17 BC Hydro Service Plan, p. 9. 18 Ibid. 19 BC Hydro 2006 IEP, p. 5. 20 BC Hydro, �Company History,� BC Hydro company web site, http://www.bchydro.com/info/history/history1027.html, accessed January 2006. 21 BC Hydro, 2003 Annual Report, (Vancouver: BC Hydro, 2003), p. 6. 22 Ibid.


meant to encourage independent, �non-discriminatory�23 access to the province�s

electricity grid.

Under point 13 of the 2002 Energy Plan, the current government ceded the

development of additional electricity capacity in BC to the private sector and

restricted BC Hydro to the improvement of existing facilities.24 However, while BC

Hydro may no longer be the primary source of new supply, it remains responsible

for planning and acquisition albeit under the scrutiny of the BC Utilities

Commission (BCUC). This is a fundamental shift in the role of BC Hydro, one that

some suggest it may be ill-equipped to fulfill. Whether Hydro, via its request for

tender process, is capable of procuring the power British Columbia needs in the

manner mandated by government remains to be seen.

7.b. Industrial Production and Self-Generation

Besides BC Hydro, the province also has a number of large, industrial producers

including pulp mills and aluminum smelters which generate electricity to fulfill

their own production requirements. Alcan is the biggest, private producer in BC.

At its Kemano power station the company generates hydroelectricity and sells

excess power to BC Hydro under the terms of a power deal struck in 1990 and

amended in 1997. Critics claim the company is becoming increasingly reliant on

power sales to the detriment of both its aluminum operations and the company

town of Kitimat in which its smelter is located. In December of 2006, the BC

Transmission Corporation rejected a deal between BC Hydro and Alcan under

which Hydro agreed to purchase surplus electricity as not in the best interest of

the province�s customers. Hydro is appealing the decision at this time.

23 Ibid. 24 �Energy for Our Future: A Plan for BC,� accessed October 2006.


7.c. Independent Power Producers (IPPs)

The provincial electricity sector also includes 43 private providers. Known as

Independent Power Producers, IPPs generate over 7,000 GWh per year -

enough electricity to power 500,000 homes in BC. IPPs represent approximately

1,000 MW, or, 9% of the province�s total capacity.25 IPPs in BC consist of micro-

hydro, biomass, biogas and landfill gas. There is no wind or solar photovoltaic

(PV) power project operating in the province currently though eleven wind IPP

developers have registered interest in building 28 projects in BC with an

estimated capacity of over 3,000 MW.26

7.d. Fortis Power

Headquartered in Kelowna, FortisBC is the province�s only non-government-

owned utility, serving 99,000 customers in communities throughout South Central

BC including Kelowna, Osoyoos, Trail, Castlegar, Princeton and Rossland.27

Fortis also serves 49,000 customers through the wholesale provision of power to

municipal distributors in communities including Summerland, Penticton, Grand

Forks and Nelson. Fortis has four hydroelectric generating plants with a

combined capacity of 214 megawatts. The company employs 500 people and

maintains nearly 7,000 kilometres of power lines.28

Fortis Inc., the parent of FortisBC, purchased the natural gas distribution unit of

Terasen Gas for $3.7 billion in February of 2007.29 Terasen delivers natural gas

and propane to 900,000 customers in British Columbia � 95% of the province�s

natural gas customers.30

25 IPPBC, �Quick IPP Facts List,� IPPBC Web site, http://www.ippbc.com/, accessed November 2006. 26 Ibid. 27 FortisBC, company Web site, http://www.fortisbc.com/#, accessed October 2006. 28 Ibid. 29 CBC News, �Terasen Gas Sold to Fortis in $3.7B Deal,� Web site, http://www.cbc.ca/money/story/2007/02/26/terasen.html, accessed February 2007. 30 Ibid.


8. Bridging the Supply Gap � Meeting Electricity Demand in BC

As it states in its 2006 Integrated Electricity Plan (IEP), BC Hydro has three

options from which to choose in order to address demand: it can conserve more,

buy more from private producers, or build more.31 Other options not mentioned in

the IEP include increased reliance on energy imported from Alberta and the

United States, and is perhaps omitted because imports fail to meet the

government�s reliability, self-sufficiency and environmental goals for new power

supply.

8.a. Conserving More: Demand Side Management (DSM)

Demand Side Management (DSM) is a term used in the electricity sector for

conservation or efficiency as a means of freeing up supply to be used to satisfy

growing demand. DSM is an attractive option for BC Hydro because it aligns with

the government�s four main energy objectives. By helping British Columbians

reduce their consumption of electricity, the utility realizes the reliability,

affordability and environmental responsibilities laid out for it by government.

Power Smart has served as the cornerstone of BC Hydro�s efficiency and

conservation efforts since 1989. Through Power Smart initiatives like incentives

and support for industrial process improvements, commercial energy-efficient

building upgrades and residential use of efficient lighting, BC Hydro realizes

electricity savings of over 4,000 GWh, enough to power 400,000 homes.32 In

2006, BC Hydro benefited from an incremental savings of 1,957 GWh stemming

from its Power Smart program.33 The utility expects to realize cumulative savings

of 2,900 GWh in 2007/08 and 3,400 GWh in 2008/09. Moving forward, the BC

31 BC Hydro 2006 IEP, p. 5. 32 Ibid, p. 7. 33 BC Hydro Annual Report 2006, p. 35.


Government plans to off-set one-half of new electricity demand through

conservation by 2020.34

The utility is also looking to implement efficiency gains at existing facilities

through its Resource Smart program. BC Hydro claims additional or �restored�

gains from Resource Smart are approximately 1,700 GWh annually since the

program�s inception in 1988.35

Load Displacement and Peak Reduction

BC Hydro also practices load displacement by encouraging opportunities for

customer self-generation. Self-generation enables large consumers of electricity

to produce all or part of their own power, thereby reducing reliance on Hydro

capacity. Load Displacement projects must meet BC Clean standards in addition

to cost and energy savings thresholds. Peak Reduction refers to programs

designed to reduce demand at peak times of the day, in order to control capacity

requirements. At present BC Hydro has no programs to encourage peak load

reduction.

While they serve as affordable, clean and reliable alternatives for addressing

supply problems in BC, conservation, load displacement and peak load reduction

initiatives alone are not adequate to bridge the gap between electricity demand

and supply given the projected population and economic growth in British

Columbia. This paper will not explore these options further and will focus instead

on supply side options aimed at meeting supply needs in conjunction with the

government�s four main energy goals.

34 Ministry of Energy, Mines and Petroleum Resources, �The BC Energy Plan: A Vision for Clean Energy Leadership,� BC Government Web site, www.Energyplan.gov.bc.ca, accessed February 2007, p. 3. 35 BC Hydro, �Resource Smart,� BC Hydro Web site, http://www.bchydro.com/policies/demandgrowth/demandgrowth790.html, accessed November, 2006.


8.b. Building more

Another alternative outlined in the 2006 IEP is the development of new supply

through either further investment in the province�s heritage power assets or new

construction. BC Hydro has not developed any major new capacity since the mid-

1980s. BC Hydro has historically developed large hydro projects as a means of

delivering power, however, issues with this alternative include possible public and

community distaste for the environmental and aesthetic impact of development of

the mega projects BC Hydro is considering. BC Hydro recently cancelled plans to

dam the Peace River as part of its Site C project which would have involved

flooding thousands of hectares of land and forcing the relocation of those living in

the area.36 A recent survey conducted by BC Hydro indicates that large hydro

projects have, at best, lukewarm support in this province when compared to

alternatives like wind or run-of-river power (see Appendix for complete results).

BC Hydro could, in theory, consider developing large wind farms or solar PV

installations but it lacks the authority, under the 2002 energy plan and, at present,

lacks the expertise to do so.

In terms of alignment to the four goals mentioned earlier, mega hydro projects

are reliable and can produce affordable power, but they involve a level of

environmental impact that may no longer be acceptable to the residents of BC.

In addition to the possible lack of public support, the mega projects that BC

Hydro is contemplating typically involve long lead times of ten years or more.

This option, pursued in isolation, would do little to address the province�s

immediate and pressing electricity supply constraints. Furthermore, projects

undertaken by BC Hydro (large or small) occur in the public domain and do not

satisfy the government�s desire to encourage private investment eliminating this

option as a viable alternative.

36 CBC Company, �Hydro pulls plug on dam project, for now,� CBC Company web site, http://www.cbc.ca/canada/british-columbia/story/2005/12/08/bc_hydro-site-c20051208.html, accessed January 2007.


8.c. Increasing Imports/Market purchases

One option for addressing the province�s supply shortage that is not mentioned in

the 2006 IEP is the continued growth of electricity imports. This alternative places

the province�s energy supply in the hands of increasingly volatile spot power

markets and foreign or out of province producers, imperilling BC�s security and

economic development due to risk associated with price fluctuations and access

to supply. Furthermore, imported power typically comes from coal-fired power

stations in Alberta or the western United States. As concerns surrounding coal-

fired generation and resultant CO2 emissions grow, this may become an

increasingly unattractive source for BC financially and politically.

The source of much of British Columbia�s imported power originates in member

states of the Western Electricity Coordinating Council (WECC). The WECC is

made up of 14 US states and British Columbia and Alberta. As Figure 5

demonstrates, the council�s resource mix is largely made up of coal, gas and

nuclear sources which do not align with the environmental dictates of the 2002

Energy Plan.


Figure 5 � Western Electricity Coordinating Council Mix

Source: BC Hydro Company Web site, accessed February 2006.37

Public pressure on governments to reduce CO2 emissions and green-house

gases (GHG) could impact the price and supply of coal and gas-generated

power. Concerns surrounding nuclear energy safety and pollution could also

impact the price or availability of WECC imports. Due to their financial,

environmental and reliability shortcomings as well as the fact they fail to meet the

province�s mandate for increasing supply from private producers, do, electricity

imports are at odds with the government�s energy policy. Therefore, imports

should not be considered as a means of meeting the province�s current

challenges and should be discontinued as a means of meeting demand as soon

as practicable.

8.d. Customer Generation and Net-metering

Customer generation and net-metering are another option not explicitly

mentioned in BC Hydro�s Integrated Electricity Plan. This process involves

customers generating their own energy via solar, wind or other technologies, and 37 BC Hydro Company, �Characterizing Environmental Attributes of Non-Firm Market Imports,� BC Hydro Company Web site, http://www.bchydro.com/rx_files/info/info25853.pdf, accessed February 2006.


returning excess power to the grid. An electricity meter measures both

consumption and generation on site, allowing the utility to determine �net�

consumption. The customer either pays the difference or receives a credit in

cases where they use less than they supply to the grid. While BC Hydro is

experimenting with net-metering it has fewer than a dozen self-generators

enrolled in the program at this time.

Table 2: Customer Generation by Project Status (to April 2005)

Source: BC Hydro Net Metering Tariff � Rate Schedule 1289 Monitoring and Evaluation Report

Of these 16 projects, 2 are Hydro, 13 are solar Photo Voltaic and there is one

wind project. While this alternative has the potential to deliver private, affordable

and renewable power, it typically involves small generators and is thus not likely,

at this time, to deliver the volume of electricity BC Hydro needs. While private,

distributed power delivery through self-generation and net-metering may be a

beneficial, long-term solution for BC Hydro, it is not an alternative likely to remedy

the supply problems it faces in the short-term and will not be considered further in

the context of this paper.

8.e. Private Power Purchase - Buying more from IPPs

Another alternative for addressing BC�s energy needs outlined in the 2006

Integrated Electricity Plan is an increase in the purchase of electricity from

Independent Power Producers (IPPs). IPPs are attractive because they typically

generate clean electricity from renewable sources (in fact, the majority of IPP

power contracted by BC Hydro under recent tenders has been for BC Clean


Electricity). In addition to meeting the government�s clean or �environmentally

responsible� requirements, IPPs satisfy its commitment to private investment.

To date, BC Hydro has issued a number of Calls for Power (CFP) or Calls for

Tender (CFT) in order to purchase private power. Each call has been met with

growing interest and varying levels of success. The 2001/02 bid resulted in 16

signed projects, including one biogas and 15 small hydro projects. The 2002/03

bid also resulted in 16 projects: 14 micro hydro, one landfill gas and one wind

energy project. The 2006 bid resulted in 38 contracts to independent power

producers (IPPs) including 29 hydro, three wind, two biogas, two waste heat and

two coal/biomass projects.38

While the private sector has demonstrated a willingness to supply power, critics

suggest the price will be too high and may pose problems related to reliability or

�firmness� of delivery due to capacity factors for certain technologies (wind, solar

Photo Voltaic) that are typically lower than those achieved by hydroelectric

means. Others question the implications of placing an increasing share of the

province�s power generation in private hands. For their part, many IPPs are

critical of BC Hydro�s tender process. They point to high project attrition rates and

lack of technological diversity as indicators of a flawed process that leads the

utility to select inappropriate projects for electricity purchase agreements.39

In order to be considered as an alternative for meeting the government�s greater

energy commitments, the purchase of power from IPPs must demonstrate the

ability to deliver affordable, reliable and clean electricity. On this score, IPPs

stand up well in the context of the 2002 plan � they meet government

commitments to private investment and environmental responsibility through the

delivery of renewable energy. In terms of reliability, capacity concerns have been

overcome in other jurisdictions and it will be demonstrated later in this paper that,

38 Pembina Institute, �Maximizing Energy Efficiency and Renewable Energy in British Columbia,� p. 24. 39 Pentti Sjoman, interview by author, Burnaby, BC, December 7, 2006.


in most cases, the IPP project attrition mentioned earlier is largely a result of

Hydro�s tender process, not factors attributable to the IPPs themselves. This

paper will also examine the issue of affordability in the context of renewable

energy from IPPs.

9. The Cost of Power Supply Alternatives in BC

The bulk of power generated in British Columbia originates at hydro power

stations built decades ago. As this generating capacity is paid for, ratepayers in

BC are responsible primarily for electricity generation and transmission costs as

well as the cost of regular maintenance, upkeep and improvements to the

generation and transmission infrastructure. As a result of this heritage power

supply, residents and business in BC enjoy some of the lowest cost lowest cost

commercial, industrial and residential energy rates in North America.40

The costs of addressing the province�s current supply shortages will vary by

method chosen. Reducing the demand for electricity is the simplest and most

immediate method of addressing supply constraints in any jurisdiction. All

methods of power generation come with some economic or environmental cost.

By reducing our consumption of electricity, we mitigate the direct environmental

impact associated with building and generating new supply.

According to BC Hydro estimates, conservation and efficiency approaches

through Demand Side Management (DSM) are the lowest cost in comparison to

a variety of alternatives for increasing supply. Costs range between $32 and $76

per MWh.41 The challenge in British Columbia is encouraging electricity

conservation when rates are very low and DSM measures are voluntary. In

British Columbia, electricity supply requirements are increasing at such a rate

that DSM on its own is incapable of making up the deficit.

40 BC Hydro 2006 Annual Report, p. 41. 41 BC Hydro 2006 IEP, p. 6.


Figure 6 presents BC Hydro�s estimated cost of developing capacity for a number

of potential technologies in BC. It demonstrates the significant differences

between resource alternatives. While options such as natural gas and wind

generation could cost $75 per MWh or more, BC Hydro�s total cost of delivery is

only $20.18 per MWh by comparison. This is the blended total of hydroelectric

and thermal heritage supplies with IPP, imports and transmission expenses.

Once imports, thermal and IPP contracts are removed, hydroelectricity generated

by BC Hydro costs the utility only $5.81 per MWh in 2006.42 However, these

comparisons between BC Hydro and other resource/technology types are

misleading due to the utility�s large volume of heritage capacity. New, large-scale

projects, if introduced into the supply mix, would cost BC Hydro more than the

heritage delivery.

Figure 6 � Cost of Alternate Sources of Capacity

$25 $50 $75 $100 $125 $150 $175 $200Cost Range ($/MWh)

ConservationLarge HydroGeothermal

WindSmall HydroNatural Gas

CoalBiomass

Customer Generation

Resource Options

Source: Data courtesy of BC Hydro 2006 Integrated Electricity Plan, p. 6.

With heritage generation being so inexpensive relative to other sources of supply,

any acquisition approach Hydro pursues will cost more than its existing

42 BC Hydro 2006 Annual Report, p. 66.


generation costs, and electricity rates will be impacted as a result. According to

BC Hydro�s report on the results of the 2006 Call for Power:

Given the magnitude of BC Hydro�s growing energy needs, acquiring new supply from any source (whether from IPPs or the market), would likely have a material impact on future electricity rates.43

With respect to wind power generation in British Columbia, BC Hydro estimates a

price of $45-$194/MWh in its Integrated Electricity Plan (IEP) while the Canadian

Wind Energy Association (CanWEA) puts the price at between $60-$120/MWh

which is comparable in price with other, new supply resources.44 Interestingly,

the range in price for bids submitted as part of the 2006 Call for Power was

actually $71-$91/MWh.45 The cost of wind power can vary significantly depending

on the location of the project and access to reliable and consistent wind

resources suggesting that the wind projects awarded contacts under the 2006

CFP were located at very productive sites with excellent wind resources. It is also

worth considering that the pricing data referenced in the table is supplied by BC

Hydro.

The challenge for policy-makers is how best to acquire power that is affordable

while aligning with other policy objectives including private development and

responsible environmental stewardship.

10. Supply Security: Expanding the Resource Mix

One of the major benefits of supporting renewable electricity is that it can be

generated from a variety of sources, like wind, solar or tidal energies. This is

desirable because by diversifying the energy resources for electricity generation,

BC Hydro can mitigate potential disruptions due to external factors. One variable

43 �Report on the F2006 Call For Tender Process Conducted by BC Hydro,� p. 3. 44 CanWEA Company, Wind Energy Industry page, Company Web site, http://www.canwea.ca/frequently_asked_questions_wind_energy.cfm, accessed February 2007. 45 �Report on the F2006 Call�,� p. 47.


impacting the reliability of large and small hydro supplies in British Columbia is

hydrology. Hydrology refers to the condition of water levels used to power hydro

dams in BC. Water levels fluctuate with rainfall and snow pack levels. As

mentioned earlier, these variances have resulted in increased import

requirements in years when lower amounts of rainfall and snow pack

compromise hydro generation capacity.

11. Privatization of Supply

In addition to helping to mitigate supply risks and increasing reliability,

technological diversity also supports the government�s goal of increasing private

investment in the energy sector. By diversifying the electricity mix in this

province, BC Hydro would be supporting the development of renewable

industries and associated expertise.

The provincial government committed itself, under its 2002 Energy Plan, to

encourage more private investment and opportunity in the energy sector and has

maintained this commitment in the Energy Plan�s latest iteration, released in

February 2007. Private investment and development also help government meet

its environmental targets because most independent power producers rely on

renewable sources of energy like wind or solar power that generate the clean

electricity the government is seeking.

12. Environmentally Responsible Supply

The provincial government has expanded its level of environmental commitment

under its 2007 Energy Plan. The latest Energy Plan requires that all new, grid-

connected electricity generation will have zero net Greenhouse Gas Emissions.46

This stipulation will necessitate electricity generation from technologies using

only renewable energies like wind, wave, tidal, geothermal and others. As these

46 2007 Energy Plan, p. 12.


are typically the technologies used by independent producers, it makes sense for

government to adopt procurement policies that will help them develop

successfully.

13. Approaches to Procuring Power � Quota/Tender vs. Feed Law

When it comes to the markets for electricity, governments normally intervene in

one of two primary ways: by fixing quantities or market share, leaving competitive

forces to set the price; or, by fixing prices and leaving the quantity open.47

Under the tender model, employed until recently in the UK and currently the

method for assigning new IPP supply in British Columbia, the quantity of private

or renewable energy is determined through a political process and the price paid

is, in theory, set by market forces. In reality, the tender price is often capped at a

maximum price beforehand the Call for Power is made.

Under the second approach, a minimum price per unit of energy is determined,

grid access granted and long-term contracts lasting twenty years or more are

signed with suitable providers. The latter is typical of feed-laws, or minimum

pricing models. Note that the terms �feed-law,� �feed-in tariff� and �minimum

pricing� tend to be used interchangeably with the term �Advanced Renewable

Tariff� (ART). However, the major difference between ARTs and the others is that

ARTs involve a technology-specific tariff while the others simply involve a

minimum price and grid access. That is, a tariff is established to support a

specific technology, or group of technologies, such as renewable energy

technologies for electricity generation. The tariff is levied on all electricity

consumers, typically through their utility bill, and the monies are used to pay the

price guaranteed to the independent power producers.

47 Paul-Georg Gutermuth, �Regulatory and institutional measures by the state to enhance the deployment of renewable energies,� . P.207.


The tender or quota method is generally considered to be the more market-

oriented and competitive of the two (and by extension, better for consumers) but

this is not necessarily the case. Frede Hvelplund of Aalborg University in

Denmark suggests that quota systems typically establish both the price and

quantity of power delivered in the political arena (see Figure 7). BC Hydro�s 2003

Green Call for Power, which sought 800 GWh of annual electricity at a price no

higher than $55 per MWh, is one example of this strategy.

Figure 7 � Market Price, Political Quantity, or Both?

Source: �Renewable Energy: Political Prices or Political Quantities�48

Minimum price scenarios or feed-laws as they are also known, fix the price

allowing the market to determine the quantity delivered to the grid.49 The result is

that under feed-in systems, at least one component of the generation equation is

left to market forces. One of the benefits often attributed to tender or quota

models is that they encourage competition among electricity suppliers. Others

dispute the myth of competition stemming from quotas as ephemeral because

the less expensive projects tend to fail. Danyel Reiche, a post doctoral fellow with

the Environment Policy Research Centre at Freie University in Berlin asserts that

feed-laws like the Advanced Renewable Tariff are more effective than quotas,

48 Frede Hvelplund, �Political Prices or Political Quantities: A Comparison of Renewable Energy Support Systems,� New Energy, May 2001, http://www.wind-works.org/FeedLaws/MinimumPriceSystembyFredeHvelplund_NE.pdf, accessed November 2006, p. 2. 49 Ibid.


subsidies or investment or tax incentives when it comes to delivering renewable

electricity.50

13.a. How do Quota and Tender Models Work?

As stated, the quota or tender processes are based conceptually on the notion of

competition for price. Under this model, the state utility sets aside a portion of

generation for private or renewable delivery. The intent is to have the electricity

market determine the price of delivery through a competitive bidding process

under the premise that quotas should deliver the lowest cost power to the grid.

Once the bids are in, the utility has the discretion to adjust bid prices based on

variables like location and green credit. Utilities like BC Hydro attempt to meet

their environmental mandates or quotas by purchasing clean electricity from

private producers and in some cases, additional credit is given to bids that are

willing to cede their environmental certification to the utility. The choice to adjust

prices is made in order to assemble a portfolio of bids that meet the specific

requirements of the initial call. While tenders do not always have a maximum or

ceiling price, utilities typically establish a range prior to issuing a call. Once prices

are adjusted, the utility awards energy purchase contracts. Successful

candidates then proceed to secure financing and meet the specific regulatory and

licensing obligations of the given jurisdiction within the time specified in the

contract signed with the utility.

13.b. Quota/Tender models in action � The NFFO and ROC in the UK

In the UK, renewables policy was supported by the Non Fossil Fuel Obligation

(NFFO) between 1990 and 1998. The NFFO relied on competitive bidding

between developers who submitted bids with prices at which they would be

willing to deliver energy. The Department of Trade and Industry (DTI) obliged

50 Danyel Reiche, ed., Handbook of Renewable Energies in the European Union (Frankfurt: Peter Lang Press, 2005), p. 47.


electricity companies to purchase renewable power under contract. Utilities were

reimbursed for the difference between the contracted and pool selling prices from

a Fossil Fuel Levy.51 The levy was similar to a feed-in tariff in that it was paid by

all consumers.

After 1998, the UK switched to a certificate model to support renewables known

as its Renewables Obligation Certificates (ROC). The British certificate model

relied on the market to encourage entry into the renewables sector by requiring

electricity suppliers to purchase a certain number of ROCs. Suppliers that did

not satisfy their requirement of power generated from renewable energy sources

(related to a fraction of their total energy supply) were forced to buy out their

obligation. ROCs are based on market principles as are the Renewable Portfolio

Standards (RPS) used in the United States. A shortage of renewable generation

increases the value of the certificate, encouraging market entry and a cost

reduction for further renewable production.52

14. Introduction to Advanced Renewable Tariffs

Jurisdictions in Europe including France and Germany have opted in favour of a

form of feed-law known as the Advanced Renewable Tariff (ART) for the purpose

of encouraging the development of renewable electricity generation. Under this

variant of feed-law, electric utilities are obligated to allow renewable energy

suppliers to connect to the electricity grid and the utility must purchase any power

generated by the renewables suppliers at fixed, minimum prices.53

The Advanced Renewable Tariff typically features long-term contracts with

technology and location-specific tariffs. The size of the tariff varies with the type

51 Lucy Butler and Karsten Neuhoff, �Comparison of Feed in Tariff, Quota and Auction Mechanisms to support Wind Power Development,� The Cambridge/MIT Institute, http://www.electricitypolicy.org.uk/pubs/wp/ep70.pdf, accessed December 2006, p. 3. 52Ibid, p. 4. 53 Janet L. Swain, �Policy Lessons for the Advancement & Diffusion of Renewable Energy Technologies Around the World,� International Conference for Renewable Energies, Bonn, January 2004.


of energy or technology being supported. Depending on project design, feed-laws

can also employ regressive tariff schedules whereby the size of the tariff declines

over time. Inflation protection and bonus payments to the suppliers for peak

power may also be included in an ART program. The intent of these financial

incentives is typically to encourage efficiency, cost savings and reliability

associated with a diverse portfolio of electricity from renewable energy sources

The tariff describes the minimum payment provided to producers and is borne by

all consumers or rate payers according to their level of use. There is no burden to

the state or provincial treasury as a result.54

15. Quota/Tender vs. Feed-law & the Advanced Renewable Tariff

Most jurisdictions procuring private power use either the tender, quota or feed-

law systems mentioned earlier. Recently, feed-in tariffs have been growing in

popularity with 41 countries or states relying on them in 2006. Although they are

used primarily in Western Europe and Eastern Europe, they are also found in

Asia (Korea, Thailand), the Middle East (Israel), Central America (Nicaragua),

and North America (Prince Edward Island, Ontario and Washington State).55

Obligation or quota mechanisms are slightly less common with 38 jurisdictions

employing them. They have been the favoured model in the USA under the

Renewable Portfolio Standards (RPS) model. Other jurisdictions include:

! Renewable Obligation � RO (U.K., Sweden, Italy, Belgium, Poland)

! Renewable Portfolio Standard � RPS (USA)

! Mandatory Renewable Energy Target (Australia)56

54 Paul-Georg Gutermuth, �Regulatory and Institutional Measures by the State to Enhance the Deployment of Renewable Energies: - German Experiences,� Solar Energy, Volume 69, Number 3, 2000, p. 207. 55 REN21 Global Status Report 2006 Update, p.23. 56 Lemaire, �Regulaory Practices in Europe,� slide 9.


In addition to their broad application, the feed-in mechanism enjoys broad

political appeal. Feed laws have been advocated by movements on all sides of

the political spectrum. In Germany they have the support of the Green, Socialist

and Conservative parties. Elsewhere, feed-in tariffs enjoy the support of Spain�s

Socialist party and France�s conservative RPR. In Canada, feed-in tariffs have

the support of the country�s Green and New Democratic parties federally and the

Ontario and Manitoba Liberal parties as well as Ontario�s provincial Green�s.

Despite their broad political appeal, the BC government has yet to consider ARTs

or make any public declaration concerning their use in BC.

Beyond the political realm, Feed-laws enjoy the support of a number of influential

Canadian Non-Governmental Organizations including:

! David Suzuki Foundation

! Sierra Club of Canada

! Pembina Institute

! Canadian Wind Energy Association

! World Wildlife Fund � Canada

The organizations above support ARTs on the basis that they are more effective

at fostering the development of large volumes of clean, renewable, reliable and

community-based electricity than other methods of procurement.

In order to determine which model works best for delivering renewable energy -

the feed-law or quota/tender model, factors including installed capacity, level of

technological diversity and price paid per unit of generated electricity need to be

considered. In other words, how much capacity has a given model produced and

how much does the generated power cost?


15.a. Which Method is Less Expensive?

Supporters of the tender system suggest that it encourages competition and pulls

down prices for renewable energy. But does this system really minimize the price

paid by consumers? The German Wind Energy Association or, Bundesverband

Windenergie (BWE), examined the experience of several EU countries using the

quota approach and concluded that these models may not necessarily cut prices

for energy consumers. In a comprehensive comparison of quota and minimum

price models, the BWE suggests that minimum pricing models actually produce

wind power less expensively than their quota alternative.57 For example, in 2003,

despite having better wind resources, quota countries Italy and the United

Kingdom paid 13.0 and 9.6 Euro cents per KW/h respectively versus 6.4 Euro

cents per KW/h in both Greece and Spain where a tariff was in place.58 The

quota prices are significantly higher than the minimum prices paid in tariff

countries.

In their comparison of German feed-in tariffs and the British quota system, Butler

and Neuhoff also conclude that the price of wind power in Germany may actually

be less expensive than that acquired under the UK�s competitive Renewables

Obligation Certificates (ROCs) policy once one accounts for differences in wind

speed.59 Their premise is that the lower nominal price under the ROC was the

result of prime, high wind spots being developed first. Higher wind speeds in the

UK make it less expensive to produce one unit of electricity than in Germany.

However, in Germany, a country without the natural wind resources found in the

UK, poorer, less profitable sites were developed under the country�s feed law.60

As the best UK wind sites are developed, the cost of developing wind will

inevitably increase making German prices increasingly inexpensive by

57 German Wind Energy Association (BWE) Company, �Minimum Price System compared with the quota .model � effectiveness and Efficiency,� Company web site, http://www.ontario-sea.org/ARTs/quotavsminpriceEurope.pdf, accessed January 2007, p. 2. 58 Ibid., p. 3. 59 Butler and Neuhoff, p. 7. 60 Ibid.


comparison. The BWE study concludes that �minimum price systems [such as

ARTs] are on average better priced than quota models.�61

15.b. How Much Capacity Have the Models Developed?

Britain used the Non Fossil Fuel Obligation (NFFO) between 1990 and 1998.

During this period only 30 percent of power contracted under this tendering

system was actually built (960 of 3,270MW). Of the 933 contracts awarded, just

over 400 were operating in 2004.62 Reiche cites �planning and approval

bottlenecks and social local opposition� as the primary reasons for the difference

between contracted and delivered supply.63 This conclusion is rejected, however,

by Butler and Neuhoff who suggest:

The rationale for the structure of the NFFO was that it retained significant elements

of the market, whilst providing support for renewable generation. It was expected

that competition amongst developers would drive down the price of renewable

energy close to the pool price. Section 2 and 3 confirmed that the prices of awarded

contracts indeed fell significantly, but that the selected projects were frequently not

economically viable. Developers in Germany, by contrast, have not been subjected

to the same pressure to submit low prices.64

In other words, the bid prices looked attractive but the projects were never

developed because it was not financially feasible for them operate at heritage

prices.

One of the problems with the tender or quota model is that it is known to suffer

from high rates of attrition as we�ve seen in BC. One possible explanation for the

high rates of attrition under tender models could be that in an attempt to secure

61 German Wind Energy Association (BWE), �Minimum Price System compared with the quota .model � effectiveness and Efficiency,� p. 3. 62 Reiche, p. 297. 63 Ibid. 64 Butler and Neuhoff, p. 23.


scarce or infrequent contracts, developers submit bids that are too low. Faced

with the prospect of no revenue and the uncertainty of not knowing when the next

call will occur, independent power producers submit bids that may be overly

optimistic or financially unfeasible. In this sense, the tender model may be too

competitive. Once a project fails, the utility is left to deal with the resulting loss of

planned capacity and generation.

In France, the National Energy Plan, EOLE 2005, produced only 115 MW of the

500 MW contracted for delivery under their tender system in 2005.65 The

program used the unit cost of electricity as its primary selection criteria, choosing

the lowest bidders to which to award contracts. There is very little information

available in the English literature on the EOLE plan but its results in France, in

terms of new power supply, have been described as �simply dismal�.66

As the 30% build rates in the British and French examples demonstrate, tender

and quota models have failed to deliver significant supply of renewable energy in

countries using them. More disappointing for those advocating their use is that

they have failed even to meet the specific targets, as experience under the British

NFFO or French EOLE schemes demonstrates. Britain�s results in terms of

installed capacity under its new ROC model do little to close the production gap

between the UK and other European countries. The initiative has thus far failed to

significantly expand the production of renewable energy in England and Wales,

and in Ireland the system has done little for the development of wind power.67

In contrast to quota and tender models which have largely failed to deliver

significant renewable energy supply, the use of feed-in tariffs in Europe has

resulted in the dramatic development of wind, solar, biomass and other forms of

renewable energy. In relatively little time, countries like Germany, Spain, France

65 Energy Research Centre of the Netherlands, ERC Company Web site, http://www.renewable-energy-policy.info/relec/france/policy/bidding.html, accessed January 2007. 66 Reiche, p. 47. 67 Ibid.


and Denmark have achieved remarkable success in terms of sustainable power

delivery through use of Feed laws.

Feed law was first used in the United States under its Public Utilities Regulatory

Policy Act (PURPA) of 1978. The policy was similar to contemporary feed-laws in

that it paid a minimum price and guaranteed grid access to qualifying generators.

Where PURPA differed from the German or Danish feed laws was in the

determination of the tariff. European systems typically base the size of their tariff

on the retail price of electricity or the cost of technology. In contrast, PURPA

based pricing on the wholesale cost of fossil-fuel to the utility.68

PURPA is credited with the development of 12,000 MW of geothermal, small

hydro, bio-power, solar thermal and wind power capacity during the 1980�s.69 By

the early 1990�s a combination of falling natural gas prices, growing nuclear

capacity, the cancellation of tax incentives, and loss of renewable energy

research and development funding resulted in a decline in the renewable energy

industry in the U.S.

Today Germany serves as the best example of ARTs in action. Beginning in

1991 it entered the electricity market with its Electricity Feed Act, but it was under

its revised 2000 Renewable Energy Sources Act, or, EEG, that it realized

dramatic results. It has become the world leader in installed capacity in wind and

solar Photovoltaic (PV) technologies. In the case of wind power, Germany

reached installed capacity of over 16,000 MW generating approximately 25,000

GWh in 2004.70 Germany added an additional 1,800 MW in 2005, and now

68 Erci Martinot, Ryan Wiser, and Jan Hamrin, �Rnewable Energy Policies and Markets in the United States,� http://www.resource-solutions.org/lib/librarypdfs/IntPolicy-RE.policies.markets.US.pdf, accessed January 2007. 69 Ibid. 70 Dr.Xavier Lemaire, �Regulatory Practices in Europe: An In-Depth Treatise,� Powerpoint Presentation slide 59, Sustainable Energy Regulation Network, March 6, 2006.


represents nearly one third of total world�s built capacity for electricity from wind

power.71

Figure 8 - Wind Capacity and Generation in Germany

Source: Dr. Xavier Lemaire, �Regulatory Practices in Europe,� slideshow.

By comparison, Canada added 776 MW of capacity in 2006 for a total installed

wind capacity of 1,460 MW. While Canada�s installed wind capacity doubled in

2006 (see Figure 9), the country still has less than 10% of the German total.72

There is no commercial wind power generation in British Columbia at this time.

71 Renewable Energy Policy Network for the 21st Century, �Renewables: Global Status Report, 2006 Update, http://www.ren21.net/globalstatusreport/issueGroup.asp, accessed December 2007, p. 4. 72 CanWEA Company, �Canada�s Current Installed Capacity,� CanWEA Company Web site, http://www.canwea.ca/images/uploads/File/Installed_capacity_English-January_2007(1).pdf, accessed February 2007.


Figure 9 � Canadian Installed Wind Capacity 2006

Source: CanWEA Web site

In terms of solar photovoltaic (PV) development, Germany has performed better

than many countries, including European Union countries with greater natural

capability such as Italy and Greece. Germany installed 837 MW of Photo Voltaic

(PV) capacity in 2005, securing its position as world leader with 57% of total PV

capacity.73

73 Solar Buzz Company, �2006: Annual World Solar Photovoltaic (PV) Industry Report,� http://www.solarbuzz.com/Marketbuzz2006-intro.htm, accessed January 2007.


Figure 10 � Solar Photo Voltaic Capacity and Generation in Germany


The country still relies on coal, nuclear and natural gas for much of its electricity

but has made steady progress in growing the share of renewable energy. In fact,

Germany has doubled its share of renewable energy in terms of domestic

electricity generation from 4.6% to 10.2% between 1999 and 2005 alone. The

benefits realized include 83 million tons in reduced CO2 emissions and the

creation of thousands of skilled jobs in the renewable energy sector.74 In order to

continue the momentum behind renewable energies, Germany has mandated

that Renewable Energy Sources (RES) constitute at least 12.5% of consumption

by 2010 and 20% by 2020.75

The use of feed-law in Germany has coincided with the rapid development of

large volumes of renewable electricity from a variety of sources of energy. Given

the importance of these criteria to government and policy-makers in British

74 Danyel Reiche, �Germany�s Renewable Energy Sources Act,� Powerpoint presentation, Standard Offer Contract Financing and Implementation Forum, September 21, 2006, Queen�s Park, Toronto, ON. 75 Reiche, p. 21.


Columbia, it is worth assessing the results of recent procurement initiatives in the

province against similar criteria.

16. Power Delivery and Procurement in BC

Since the early 1990�s, BC Hydro has sought private power as a means to

address shortages of supply. BC Hydro uses the tender model to procure the

private electricity it requires. In British Columbia, the tender process begins when

BC Hydro sets aside a volume of generation (GWh) for which it will accept bids.

BC Hydro adjusts bid prices for things such as green and location credits which

account for environmental impact and proximity to the transmission grid. BC

Hydro then compares the bids, assembles a desired portfolio of projects and

awards Energy Purchase Agreements (EPA) at a set price under contracts

ranging between 20-40 years. The process is meant to be fair and competitive.

BC Hydro has increasingly relied on the private sector to supply the renewable

electricity it needs to meet BC Government commitments related to reliability and

the environment. Historically, the state of private power development in BC has

tended to rely on the government of the day. BC experienced a brief surge in IPP

activity between 1989 and 1991 but momentum stalled out under an NDP

government that ideologically did not support private power purchases.

In 2002, the province�s Liberal government signalled its commitment to both

private sector generation and renewable (BC clean) energy. Since that time, BC

Hydro has presented four, increasingly substantial, Calls for Power (CFP). With

each successive call, BC Hydro has attracted more interest from the province�s

burgeoning Independent Power Producers (IPPs). BC Hydro�s 2006 call netted

bids from 37 bidders to build 53 separate projects.76 The growing interest for

tenders by the private sector represents substantial potential capacity which will

76 BC Hydro 2006 Call for Power, p. 2.


prove critical if BC Hydro is going to meet its electricity needs in a manner that

satisfies the current government�s four energy objectives mentioned earlier.

While BC Hydro has requested bids for private power purchase going back to

1989, this paper covers only the four most recent calls (2002 CBG, 2003 Green

Call, 2004 VI CFT, and the 2006 Open Call) as these are the ones falling under

the current government and its 2002 Energy Plan. Each successive call has

increased in complexity, thoroughness and the volume of power sought and the

pending 2007 Call for Power is expected to continue this trend. A synopsis of

each call follows:

16.a. 2001/02 Green Call for Power

BC Hydro�s 2001 Green Call for Power resulted in Energy Purchase Agreements

(EPA) for 23 projects. The Green Call sought electricity generated by projects

that were renewable, socially responsible, licensable (meeting all regulations),

and environmentally responsible. In terms of technological diversity, the call

consisted almost entirely of small hydro projects with over 97% of awarded

volume and just under 3% attributed to the lower mainland�s landfill gas project.

Table 3: Percentage of Capacity by Resource Type

After four projects were cancelled, Hydro was left with the 19 contracts, 16 of

which are included in Table 4 below. Overall, the results of the call are quite good

with all but four achieving the Commercial Operation Date (COD) of July 2005 or

sooner. The Fitzsimmons Creek project in Whistler has been placed on hold by

the developer (Ledcor) while it re-evaluates project costs and the impact of

current energy prices. The Siwash Creek project is under development and


expected to reach COD in 2007. The status of the Tete Creek and Tsable River

projects is not available on either the BC Hydro web site or the World Wide Web.

EPA details for three projects have been withheld at the request of the IPPs � the

status of these projects is unknown at this time.

Table 4: Results of the 2001/02 Green Call for Power

N/A � Generation figures (GWh) not available.

While data is not available for all projects awarded EPA for the 2002 Green Call,

12 of 14 projects for which information is available were completed on time. Of

the 177.5 MW of capacity contracted in 2001, 166.7 MW is in operation and

under contract today.

16.b. 2002 Customer-Based Generation (CBG) Call for power

The 2002 Customer-Based Generation call sought non-utility generation to meet

BC Hydro�s anticipated load growth. The call�s aim was 800 GWh of generation

and it drew submissions for 37 projects totalling 980 MW of capacity and 6,800

GWh of annual generation. Thirty seven projects submitted Qualification

Submissions of which 2 signed contracts representing a total of 245 GWh


annually. Considering the terms of the 2002 CBG called for 800 GWh, the results

of the 2002 CBG are disappointing.

Table 5: 2002 CBG Call Results

Project Type Location Capacity (MW)

Energy (GWh/year Project Status

Riverside Forest Products Biomass Armstrong 20.00 120 COD July 2003SeeGen Municipal Waste Solid Waste Burnaby 125 COD July 2003

Information courtesy of BC Hydro

16.c. 2002/03 Green Call for Power

The 2002 Green Call for Power (CFP) was the second to solicit solely green or,

BC Clean, electricity. Its objectives included:

! Purchase of up to 800 GWh per year of green power

! Generation on line by September 30, 2006

! Transparent, competitive process

! Low transaction costs � standardized contracts lasting 10-20 years

! Ceiling price of $55 per MW/h to reflect long-term energy price

! Firm energy and capacity supply to meet domestic load growth.

Once bids were received, the qualifying tenders had their bid price adjusted to

include allowances for:

- natural resource adjustment

- Green Power Generation (GPG) adjustment

- area location adjustment

- bulk location adjustment

The purpose of the adjustments is to level bids by adjusting for specific technical,

financial and environmental criteria. Some projects involve greater lines losses


from electricity travelling over distances for which the utility must account. The

adjustments may also be used to calculate any necessary transmission

enhancements required to allow the grid to accommodate additional load

volumes. Finally, some projects may be given greater environmental credit as a

result of some technologies being naturally cleaner than others. Once

adjustments were completed, the bid prices were compared in light of the stated

$55/MWh maximum.77 The final step involved BC Hydro ranking the adjusted

bids, selecting suitable candidates and awarding Electricity Purchase

Agreements (EPAs).

Results of the 2002/03 Green Call

BC Hydro received 70 Qualification Statements encompassing hydroelectric,

biomass, landfill gas, solid waste, wind, waste heat, coal bed methane and wave

technologies, expressing interest in the 2002/03 Green Call. Thirty of these

projects were �pre-qualified� as eligible to participate in the tender process. Hydro

presented Energy Purchase Agreements (EPA) to the sixteen bidders below.

Table 6 includes the status of these projects as of December 31, 2006. Of the

sixteen projects awarded EPAs, two have been withdrawn (including the lone

wind development), twelve remain in progress. Only two projects, the China

Creek hydro station and the Vancouver Landfill gas expansion have successfully

made the September 30, 2006 Commercial Operation Date (COD).

77 BC Hydro, �2002/03 Green Power Generation Call for Tenders Bidders� Meeting,� Powerpoint presentation - April 30, 2003, http://www.bchydro.com/rx_files/info/info5006.pdf, accessed January 2007, p. 24.


Table 6: 2002/03 Green Power Generation

In terms of technological diversity, the 2002/03 call was very limited. As

demonstrated by Table 7, nearly 90% of the award volume was dedicated to

small hydro projects. Less than 10% of the call�s volume was awarded to wind

power projects and less than 1% to Delta�s landfill gas development. If the

Holberg Wind cancellation is considered, small hydro projects represent more

than 99% of the 2002/03 call. While, this satisfies the BC government�s demand

for renewable energy supply, the reliability of supply can be compromised without

a diverse mix.

Table 7: 2002/03 CFP by Technology Penetration

Controversy surrounds the Holberg Wind project�s withdrawl from the 2003 CFP.

As the first wind project to sign a contract with BC Hydro, Holberg was closely


watched. Proponents of the development withdrew from their Hydro deal citing

financial concerns around the $55/MWh purchase price, escalating construction

costs and revised wind results indicating weak to moderate wind resources on

site. The Cypress Creek project was withdrawn purportedly as a result of

climbing construction costs and uncertainty surrounding anticipated Federal

funding. Synex International Inc., the developer of Cypress Creek, and BC Hydro

agreed to terminate the EPA in November of 2006, three years after the original

EPA was signed. The developer�s press release of December 19, 2006 suggests

that the company is simply holding out for better pricing terms.78 Indeed, Synex

International Inc. signed three additional EPA�s under the 2006 CFP.

The results presented in Table 7 demonstrate a very high project attrition rate. Of

the 501 MW of signed capacity, only 7.45 MW were on-line by the COD. In terms

of generation, the two projects represent only 40 GWh, or 2.25% of the 1,762

GWh expected.

16.d. 2004 Vancouver Island Call for Tenders (VI CFT)

In November of 2003 BC Hydro received expressions of interest for the

development of 23 projects on Vancouver Island under the utility�s VI CFT. BC

Hydro sought between 150-300 MW in new capacity from projects greater than

25 MW for delivery by May 2007. In April of 2004 Hydro short-listed or, pre-

qualified, 11 bidders for participation in phase two of the tender process. Of

these, six parties submitted bids in August 2004.

78 Synex International Inc. Company, �Cypress Creek Project Update,� Company Web site, http://www.stockhouse.com/news/news.asp?newsid=4854583&tick=SXI, accessed January 2007.


Table 8: VI CFT � Project Bids

Bidder Name Type Location

Calpine Industrial Cogeneration Natural Gas Campbell RiverDuke Point Power LP Natural Gas NanaimoENCO Power Company Natural Gas NanaimoEPCOR Power Development Natural Gas LadysmithEPCOR Power Development & Calpine Industrial Natural Gas NanaimoGreen Island Energy Ltd. Biomass Gold River

On November 3, 2004, BC Hydro awarded an Energy Purchase Agreement to

the Duke Point Power Limited Partnership. The Duke project involved a 252 MW

gas-fired power plant on Vancouver Island. The Duke Point project was cancelled

by BC Hydro in June of 2005 in the face of public concern over green house

emissions and concerns that the continuing appeals process would make timely

completion unlikely.79 The failure of the VI CFT leaves Vancouver Island with

mounting energy concerns and nothing to show for years of hearings and millions

of dollars spent by the proposed gas developer and the utility.

16.e. 2006 Open Call for Power

BC Hydro�s F2006 CFP was issued on December 8, 2005 and called for 2,500

GWh/year from large projects (10 MW or more) and 200 GWh/year from small

projects (less than 10 MW). By April 2006 Hydro had received 61 tenders form 37

bidders for 53 separate projects. After assessment review, 48 were sent to

evaluation phase. Bid prices were adjusted to reflect green credits, hourly firm

energy, and transmission/connection costs. Adjusted bid prices (ABP) were then

used to design an optimal portfolio of projects.80

79 BC Hydro Company, �Continued Appeals Force BC Hydro to Abandon Duke Point Power Project,� http://www.bchydro.com/news/2005/jun/release24839.html,, Web site, accessed February 2007. 80 BC Hydro F2006 Open Call for Power, p. 1.


On July 27, 2006, Hydro announced contracts to 38 new IPP projects for 6,471

GWh/year of energy from large projects (10 MW or more) and 654 GWh/year

from small projects. At that time Hydro also awarded an EPA for 226 GWh/year

to the Brilliant Expansion Power Corporation (BEPC) a subsidiary of Columbia

Power Corporation (CPC) for the Brilliant 2 Expansion project bringing the total

volume awarded to over 7,000 GWh/year.81 The 7,350 GWh awarded as part of

the 2006 call nearly tripled the volume originally requested.

81 BC Hydro F2006 Open Call for Power, p. 2.


Table 9: 2006 CFP Electricity Purchase Agreements

Source: BC Hydro 2006 Call Report.


The call�s original target volume of 2,500 GWh/year was increased to 7,125

GWh/year based on a revised, mid-load forecast. The rationale for expanding the

call volume was threefold:

! greater than expected potential supply/demand gap

! allowance for attrition/outages

! greater technological diversity

The 2006 load forecast for F2011/2012 is 3,000 GWh/year higher than forecast

at the time of the 2006 call. Based on its experience with IPP, Hydro allows a 25-

40% buffer for attrition and delivery outages. According to Hydro, the expanded

call volume also allows for greater technological diversity (biomass,

coal/biomass, waste heat, water and wind) and mitigates reliance on water

resources which are susceptible to fluctuations in hydrology resulting from

changes in snow pack and rain.82 However, as Table 10 shows, roughly 40% of

the 2006 CFP�s generation is supplied by small hydro power continuing the

heavy reliance on hydro of prior calls. If the large and controversial Princeton and

Wapitit coal/biomass projects are removed from the mix, hydro represents over

56% of the call award volume.

Table 10: 2006 CFP Energy by Resource Type

82 BC Hydro F2006 Open Call for Power, p. 35.


Even with the higher award volume, a 1,300 GWh deficit exists for 2011 based

on BC Hydro�s mid load forecast.83 Despite the pending deficit, Hydro chose to

approve only those projects that passed its conformity review, mandatory

requirements and risk assessment processes.

According to Hydro, it operates in a �cost-effective� versus lowest cost mind set.

Some cost-effective considerations of the accepted projects include the following

risks and benefits:

! the awarded EPA�s reduce but do not eliminate the supply gap in 2011

! long-term, fixed contracts mitigate market uncertainty

! no transmission constraints or jurisdictional risk outside BC

! wide variety of technologies mitigate hydrology risk/uncertainties

! staggered process for permit approval minimizes development risk

! large supply of firm energy from a variety of resources

! Socio-economic, community-based projects result in benefits to

numerous areas.

Hydro completed a review of the Call for Power process in August of 2006. The

review compared the CFP process to acquisition activities practiced elsewhere in

Canada including Ontario, Quebec, Nova Scotia and Prince Edward Island (PEI)

and the US, Pacific Northwest (PNW). The review found the CFP to be in

alignment with industry norms in terms of contract price.84

Tender options

The 2006 CFP allowed for various tendering options including:

! Split bids for larger projects

83 BC Hydro F2006 Open Call for Power, p. 2. 84 �Report on the F2006 Call�,� p. 47.


! Term flexibility � 15, 20, 25, 30, 35 and 40 year terms available for

bidders to choose from, meant to allow greater flexibility and greater

number of bidders.

! COD (start date) flexibility � between Oct 1, 2007-Nov 1, 2010.

Additional terms to entice bids included caps on liability, hourly firm option and

the possibility of assigning green attributes to Hydro for credit.

Table 11: Results of Key Phases of 2006 Call

Source: BC Hydro 2006 CFT Report85

Cost of 2006 call is in line with the results of a similar call for tender conducted by

Puget Sound Energy (PSE) in 2006. The bid price range in Washington State

increased by 40-70% over all supply source types except hydro which moved 20-

25% higher between 2004 and 2006 RFP�s.86

2012 is the first full year of deliveries for the 2006 EPA�s. Average cost of new

supply at the plant gate in 2007 dollars is $79.50/MWh. Hydro�s current cost of

production is $33.10/MWh meaning a first year rate impact of 8.1% which

85 BC Hydro F2006 Open Call for Power, p. 45. 86 BC Hydro F2006 Open Call for Power, p. 48.


diminishes over time relative to inflation, growth of domestic load and BC Hydro�s

overall revenue requirement increases.87 The reason that the $79.50 cost of new

supply results in a rate impact of only 8.1% is due to its relatively small amount in

relation to BC Hydro�s large quantity of heritage generation.

New electricity supply prices will always differ from BC Hydro�s current supply

cost as the utility�s heritage assets produce power less expensively by

comparison. As electricity demand grows, Hydro will need to acquire capacity

from other sources which will always impact rates. However, critics of the 2006

CFP suggest the price paid to private producers is far too high. According to John

Calvert, an economist at Simon Fraser University and known proponent of public

power, the price BC Hydro paid as a result of the 2006 call is exorbitant. He

argues it leaves British Columbia ratepayers on the hook for $15.6 billion

between now and 2041 as a result.88

In order to put the 2006 CFP prices in perspective, Calvert compares them to the

utility�s 2006 Integrated Electricity Plan (IEP) which pegged the cost of delivery

from the Site �C� dam on the Peace River at $42 per MWh. Another alternative,

coal, which Calvert accepts as risky and undesirable, would cost between $48-50

per MWh.89 Even more alarming for Calvert and other advocates of public power,

is his contention that by securing financing for IPPs�, BC ratepayers, through the

EPA process, are guaranteeing their financing but receiving �no assets, no price

protection�and no guarantee that the energy will not be exported in the future.�90

Projects awarded EPA�s under the 2006 Call are currently working their way

through the licensing and regulatory process. According to investigation of the

Provincial government�s Environmental Assessment Office (EAO) website, a

87 BC Hydro F2006 Open Call for Power, p. 52. 88 John Calvert, �BC Hydro�s Energy Purchases from Private Power Developers: Do We Want the $15.6 Billion Price Tag?,� Ashlu Creek Company Web site, http://www.ashlu.info/pdfs/The_Legacy_of_Private_Power.pdf, accessed December 2006, p.1. 89 Ibid., p. 3. 90 Ibid., p. 4.


number of the EPA-awarded projects are under review. Further details regarding

progress of the 2006 projects are unavailable at this time.

17. Critical Issues: The CFP Tender Process in BC

In fiscal 2006 BC Hydro had 7,039 GWh under contract in the form of EPA�s

constituting an expenditure of $425 million.91 Independent power purchase

currently represents more than 12% of BC Hydro�s electricity portfolio, the bulk of

which is generated from clean sources. . Yet, little has been done to address the

barriers in the tender process relating to remuneration, regulation, licensing and

transmission. Given the important role played by providers of private and

renewable power, and the potential impact on price, reliability and environmental

impact of new electricity supply in BC, it is critical to ensure the government

provides an appropriate mechanism for attracting and supporting new power

supply from renewable IPP sources.

17.a. Licensing and Regulation

One of the major challenges facing private producers of renewable energy is the

complexity of the CFP and licensing processes in BC. In order to qualify for an

EPA, potential bidders must be price competitive, renewable, socially

responsible, and exert low environmental impact. Potential EPA�s must also meet

BC Hydro�s Mandatory and Risk Assessment criteria. Criteria consist of business

issues like creditworthiness, financial capacity, site acquisition, fuel supply and

other requirements surrounding permitting, and First Nations and community

consultation. This means that for a run-of-river project in BC to be built, it requires

not only financial feasibility but also the attainment of over 50 permits, licenses,

reviews and approvals including:

91 BC Hydro, �BC Hydro 2005 Resource Expenditure and Acquisition Plan (2005 REAP),� (Vancouver: 2005), http://www.bchydro.com/rx_files/info/info21467.pdf, accessed January 2007, p. 1-4.


! Water Licence Application ($5,000)

! Crown Land Application ($3,500)

! Interconnection Study (BC Hydro and/or BCTC)

These applications are of course in addition to the 100 plus page Power

Purchase Agreement from BC Hydro and involve at least 14 federal, provincial,

local and aboriginal agencies including:

! Environment Canada

! Fisheries and Oceans Canada

! Land and Water BC (LWBC)

! BC Ministry of Environment

! BC Ministry of Forests

! BC Ministry of Highways

! BC Agricultural Lands Commission, etc.92

In the case of wind power generation, the process is similar. Wind projects in BC

must prepare:

! Land Tenure Application ($530)

! Windfarm Application ($3,500)

! Interconnection Study (BC Hydro and/or BCTC)

This process is expensive, unpredictable and can take years to complete. The

process is complex but whether or not it is more complicated than other

Canadian or European mechanisms for new power acquisition merits further

investigation. Understanding how this process works vis-à-vis other jurisdictions

would be helpful before making any decisions in this regard.

92 IPPBC, �Permits, Licences, & Approvals List for Run of River Power Projects in BC,� http://www.ippbc.com/media/Permits.pdf, Web site, accessed January 2007.


17.b. Financial Hurdles - Challenges to Delivery

A major failing of the tender process in BC is its emphasis on lowest price which

presents a barrier to small power producers, limiting the development of

technologically diverse new supply, and contributing to high rates of project

attrition. As discussed earlier, price is only one of the four pillars of the current

Energy Plan and while important, should be considered only in relation to the

plan�s other objectives. Achieving the government�s reliability, investment and

environmental objectives may involve more than seeking the least expensive

methods of supply.

Assessing the results of CFP in BC is difficult because project information is

typically confidential and not publicly available. Based on the cancelled projects

for which information is available, financial issues tend to be the most significant

barriers. In the case of the Holberg Wind development, the 2002 Green Call�s

$55/MWh ceiling left little room to absorb the impact of escalating construction

costs and revised wind projections. Financial concerns were also at least partly

responsible for the cancellation of the Fitzsimmons Creek project from the 2001

Green Call and the Cypress Creek Hydro project under the 2002 Green Call. Of

particular concern with respect to Cypress Creek is the developer�s renunciation

of its 2002 EPA in anticipation of more favourable, future pricing terms.

17.c. Exclusion of Small Developers

While BC Hydro gives credit to projects with favourable location and

environmental attributes, its EPA decisions are based largely on price. The cost

of requirements like interconnection and permitting grow per unit of energy as

projects decline in size. As a result, small projects are not able to realize the

economies of scale that their larger competitors can. This limits opportunities for

significant competition under the tender process which ultimately costs

ratepayers.


As the information in section 14 demonstrates, the average capacity of

successive calls has grown from 11 MW in 2001 to 31 MW in 2002 and 40 MW in

2006 indicating either consolidation of private power production in BC or the

emergence of a number of major developers like Ledcor, Synex, Canadian Hydro

Developers Inc. and others. Indeed, the American experience has been similar in

terms of wind power development. In the US, the competitive bidding process

has concentrated nearly one-half of the country�s wind capacity in the hands of

Florida Light and Power, a subsidiary of the State utility93 which also owns

nuclear and gas-fired generating stations in addition to its wind turbines.

17.d. Transmission Expense/Economies of Scale

Another issue that can hinder the participation of private and renewable providers

under BC�s tender process is the uncertainty and cost surrounding transmission

and interconnection. Under the current CFP process, BC Hydro adjusts bid prices

to include the costs of incremental and regional transmission differences. The BC

Utilities Commission (BCUC) provides the Cost of Incremental Firm Transmission

(CIFT) that BC Hydro uses as the basis for this adjustment. The CIFT assesses

grid capacity and reinforcement expenses for four regions, Lower Mainland,

Northern Interior, Southern Interior and Vancouver Island.

The effect of the transmission adjustment is to apply related expenses at the

project level rather than spreading them over the greater grid. The problem with

this is that as projects get smaller or farther away, transmission expenses

become more expensive per unit of energy generated. According to IPPBC,

considering transmission-related expenses in this manner discriminates against

small projects.

93 Paul Gipe, �Electricity Feed Laws Power European Renewables,� Solar Today. http://www.oregon.gov/ENERGY/RENEW/Wind/OWWG/docs/GipeSolarTodayReaders_ForumND03.pdf accessed February 2007, p. 58.


Small developers are further discouraged by the difficulties associated with

securing project financing. Whereas large developers are more likely to possess

cash or equity financing prior to being awarded an Electricity Purchase

Agreement (EPA), small developers rely on the contract for collateral. Absent an

EPA, lending institutions are less likely to extend credit to small developers.

17.e. Technological Diversity � an Electricity Monoculture

By focusing primarily on price, BC Hydro effectively prevents the commercial

development of a number of innovative and renewable technologies like solar

Photo Voltaic, tidal, wave and, until recently, wind power. As a result, British

Columbia lags other parts of the world in terms of technological diversity of

electricity supply from renewables.

As Table 12 demonstrates, the majority of EPA�s signed by BC Hydro are for

small hydro or run-of-river projects. Hydro projects account for over 81% of the

projects signed and represent 64% of call capacity (MW) going back to the 2001

Green CFP.

Table 12: Share of BC Hydro EPA�s by Resource Since 2001/02

At this time, BC has no wind, solar Photo Voltaic or tidal generation despite their

successful deployment elsewhere. Given significant potential for these electricity

resources, due to environment and natural conditions in British Columbia, this


suggests that the regulatory and market conditions are significant barriers to the

development of these technologies in this province.

17.f. Delivery Shortfalls and Liquidated Damages

BC Hydro�s 2006 CFP specified a monthly firm bid for large projects meant to

encourage uninterrupted supply. Providers under the 2006 call face damages

should they fail to meet the utility�s 90% monthly firm requirements. Interveners to

BC Hydro�s call process contend that the liquidated damages provision penalizes

IPPs (specifically those for wind) by forcing them to price the risk resulting from

liquidated damages into their bids.94

The 2006 CFP also offered a controversial $3/MWh firming premium for large

suppliers willing to commit to hourly firm pricing. The reason that BC Hydro

supports this premium is on the grounds that the utility incurs costs when it

encounters supply shortfalls. Under BC�s tender system, this $3/MWh premium

needs to be factored into all bids to ensure competitiveness. This places

suppliers of electricity from renewable energy sources like wind and solar PV at

an immediate disadvantage because their generation can be intermittent. Critics

of this item suggest that BC Hydro�s large hydro storage system enables it to

buffer itself against delivery interruptions making it an unnecessary burden for

larger IPPs.

17.g. Project Attrition

As the data presented in section 14 above illustrate, the tender process in British

Columbia lends itself to high attrition rates in terms of the volume of contracted

power that is actually developed. While exact figures are hard to determine in

British Columbia due to privacy and non-disclosure issues, it is not unreasonable

94 Hearing before the British Columbia Utilities Commission, �BC Hydro 2006 IEP and Long Term Acquisition Plan,� Evidence by Robert M. Fagan, October 10, 2006.


to estimate BC Hydro�s attrition rate since 2001 at nearly 33% of contracted

capacity. In addition to pure attrition (projects that will never reach COD),

overdue projects (those missing contracted COD) need to be considered. Late

projects result in unanticipated shortfalls of electricity supply, and require BC

Hydro to acquire power from alternate sources including imports.

Table 13: Results of BC Hydro CFP Between 2001 and 2006

As table 13 shows, more than 78% of EPA-awarded projects either fail to make

COD or fail outright. Under the details of its 2006 Call for Power, Hydro operated

under an assumed attrition rate of between 25 and 40% - an assumption that can

do little to instil confidence in either parties to the bidding process or those reliant

on it for power.

The fact that BC Hydro allows for high rates of project failure further suggests a

flaw in the tender process as practiced in BC.

18. New Supply Options: Challenges and Changes

British Columbia is facing a serious and imminent electricity supply shortage.

Given the present Government�s commitment to acquiring 50% of new capacity

from �Clean� energy sources, the likely public resistance to the development of

traditional, large-scale hydro facilities of the 1950�s and 1960�s, the important but

inadequate impact of DSM, and growing domestic security and reliability

concerns, BC Hydro has few options other than private power purchase at this

time.


If the scope of the 2006 CFP is any indication, the utility has recognized this and

is serious about introducing significant amounts of private power to the electricity

grid in British Columbia. Early indications are that the size of the pending 2007

CFP will also be large indicating a continued reliance on the purchase of private

power for some time.

Once the lone provider of electricity in the province, BC Hydro has been

relegated to the maintenance of heritage assets, managing conservation (through

Power Smart), and overseeing the tender process for new private power supply.

Aside from the regular consultations undertaken concerning the design of each

Call for Power, few changes have been made to mechanisms for acquiring

electricity from IPPs in since 2002. The Provincial government has placed a lot of

responsibility for satisfying growing demand on the shoulders BC Hydro and

more directly, on IPPs in BC. However, it has yet to revisit the regulatory

frameworks under which they operate, despite mounting evidence that the

present process is unable to support present and projected growth requirements.

BC Hydro�s Call for Power process has not delivered either the total new

generation capacity necessary to meet BC�s present and growing electricity

demands, nor has it resulted in 50% of the new electricity generation to be

sourced from renewable energy, as is the government�s target. Given the

irregularity of calls for power in the tender process, the varying size of the quotas

on each call, the focus on lowest price at the expense of other policy objectives,

and the regulatory uncertainties, BC Hydro has made a financially risky private

power industry even more uncertain.

If IPP is the only practical alternative for both short-term alleviation of the supply

shortage facing BC and the acquisition of renewable energy then the provincial

government must consider policies that drive BC Hydro strategies and better

support generation and acquisition of private and renewable energy supplies for

electricity generation in this province. Because of its demonstrated inability to


meet governmental commitments to ratepayers, the private sector and the

environment, the continued use of the tender model needs to be reconsidered. It

is not the only option available for procuring electricity, therefore, the provincial

government and BC Hydro need to examine alternative methods capable of

delivering large amounts of renewable electricity to the grid quickly. Given its

success in other jurisdictions, one such policy alternative to consider for British

Columbia is the Feed-law, or, more specifically, the Advanced Renewable Tariff.

19. Advanced Renewable Tariffs in Ontario

While feed laws and Advanced Renewable Tariffs have been successfully

implemented in other parts of the world, the first jurisdiction in Canada to adopt

ARTs was Ontario (it should also be noted that PEI adopted a simple, fixed tariff

in 2005). In March 2006, Ontario adopted ARTs in the form of a Standard Offer

Contract (SOC) program which has been described by the renewable energy

sector as, �the most progressive renewable energy program in 20 years in North

America.�95 The consideration of SOC for Ontario was based on concerns

regarding the safety of nuclear energy and pollution attributed to the province�s

coal-fired power stations. The government of Ontario committed to closure of the

coal-fired power stations (responsible for 20% of the province�s electricity) and

mandated the provision of 10% of the province�s electricity supply from

renewable sources by 2010.96

The decision to adopt Standard Offer Contracts in Ontario was not made without

significant public consultation and analysis. After eighteen months of hearings

and consultations the Ontario Sustainable Energy Association (OSEA) presented

a paper titled �Powering Ontario Communities: Proposed Policy for Projects Up to

10 MW�, which recommended SOC�s as an alternative to the traditional tendering 95 Alternative Energy News, �Ontario Buys Solar Electricity form Homeowners,� Alternative Energy, Website, http://www.alternative-energy-news.info/ontario-buys-solar-electricity-from-homeowners/, accessed February 2007. 96 Paul Gipe and Bernard Chabot, �North America�s First Electricity Feed Law: Standard Offer Contracts in Ontario, Canada,� Dewi Magazine, August 29, 2006, p.13.


process as a means of securing community-based, distributed generation.97 Key

tenets of the program include 20 year guaranteed contracts with no limit on the

total capacity developed under the program (though individual projects were

capped at 10 MW).

In addition to retiring its coal-fired plants, it is anticipated that SOC�s will lead to

the realization of secondary benefits for Ontario including:

! Improved efficiency through reduced line losses

! Improved reliability and stability of the electricity system

! Increased rural investment

! Creation of skilled jobs

! Cleaner air

! Greater public acceptance of renewable energy

! Increased tax revenue

! Policy flexibility in meeting renewable objectives.98

Since the announcement of the SOC program in early 2006, there have been 240

applications for grid connection for wind projects alone.99 The Ontario Power

Authority recently released the contracts though there are no specifics in terms of

participation available at this time.

The anticipated benefits listed above fit well within the context of BC�s current

Energy Plan commitments. Elements like cleaner air, rural investment, efficiency

and reliability, if realized, certainly align with the BC government�s stated

objectives for new energy supply.

97 Paul Gipe, Deborah Doncaster and David MacLeod, �Powering Ontario Communities: Proposed Policy for Projects up to 10 MW,� prepared for the Ontario Sustainable Energy Association, p. 5. 98 Ibid., p. 11. 99 Paul Gipe and Bernard Chabot, p. 13.


20. What Would the Advanced Renewable Tariff look like in BC?

As mentioned earlier, Advanced Renewable Tariffs are in place in many unique

jurisdictions around the world. While they are employed to achieve the same end,

namely to facilitate market penetration of renewable sources of electricity, they

are flexible enough to be adjusted to accommodate regional and local

characteristics. The common elements of program and contract design are

outlined below.

20.a. Project/Portfolio Design

The criteria for qualification under ARTs can be set locally. The key components

of a typical feed-in system may include:

! 20 year contracts

! No program cap, but can include project size limits

! Location-specific tariff for encouragement of sites with less intense

resource potential

! Technology-specific tariff, such as premium pricing for types of

renewable energy resources

! Declining Tariffs for new contracts

! Inflation Adjustment

The type of power sought can be determined locally and encouraged through the

size of the tariff. Jurisdictions with capacity in one area or technology may opt to

support the development of another type of electricity resource or location in

another area, and can use pricing (through the tariff) to attract the appropriate

market interest.


20.b. Which technologies are included?

Typically, the tariff is offered to sources of energy deemed renewable and which

policy makers wish to support. In BC these could include hydro, wind, Photo

Voltaic, solar thermal, biomass, biogas, geothermal, wave, and other renewable

technologies.

Which technologies would be appropriate for tariffs in BC? It depends on the

particular requirements and motivations of those adopting the program. If the

intent is to broaden the penetration in the provincial market mix for many

renewable resources, all technologies could be considered. It is important to

remember that different technologies come with different cost profiles. Depending

on the particular resource and the level of maturity of the industry serving it, costs

can vary significantly.

Given its excellent, untapped resources, and the existence of a mature market for

hardware, wind is a prime candidate for the feed-in tariff in BC. The province has

over 5,000 MW of potential capacity which could be developed quickly using an

ART scheme.

Solar photovoltaic (PV) is another technology that is enjoying rapid growth world-

wide. Though more expensive than wind per unit of energy to generate, the cost

of this technology is decreasing and it is appropriate for many different

applications. British Columbia enjoys roughly 6,000 MW of potential solar

capacity.100

Given its long coast line, BC could also attempt the development of its 2,225 MW

of tidal capacity with ARTs.101 Tidal power is more expensive than wind or micro

100 British Columbia Sustainable Energy Association, �Huge green power reserves can fuel jobs, economy,� http://www.bcsea.org/media/051121-taskforcerelease.asp, Web site, accessed January 2007. 101 Ibid.


hydro power but it has been estimated to be the province�s largest source of

long-term power generation.102

It is evident there are a number of potential sources of power that regulators can

consider, including small hydro projects which have already attracted interested

developers through the tender process. The next step in determining pricing and

program terms for ARTs would involve assessing the desirability of each

technology within a given location and determining the appropriate size of

technology and location-specific Tariffs.

20.c. How are Advanced Renewable Tariffs determined?

The key component of minimum pricing models, such as ARTs, is the size of the

tariff expressed in dollars per kilowatt-hour ($/kWh). According to Bernard

Chabot, an economist with the French Ministry of Energy, the best way to

encourage the development of renewable energy technologies is to provide

private investors with a �fair and sufficient� profitability.103 By this it is meant that

the tariff is to reflect prevailing technology prices and available resources. There

are essentially two ways in which pricing can be determined: either as a

percentage of the retail price of electricity or fixed prices. The first method is

problematic because in areas like Ontario and BC the retail rate is kept artificially

low by generation from long-lived heritage assets (or for political reasons). The

second method requires determining the price that will encourage development.

Chabot�s Profitability Index Method (PIM) is typically seen as the standard for

fixed price systems. This model determines the ratio between the Net Present

Value (NPV) of a project and the required initial investment. Its aim is to calculate

the price needed to meet target profitability before taxes.104

102 Ibid. 103 Bernard Chabot, P. Kellet and B. Saulnier, �Defining advanced wind energy tariff systems to specific locations and applications: lessons from the French tariff system and examples,� http://www.ontario-sea.org/ARTs/France/ADEME%20advanced%20wind%20energy%20tariffs%20Chabot.doc, accessed February 2007. 104 Ibid.


Once the Profitability Index is determined it is applied to anticipated installed

costs for various technologies and the tariff is calculated. The Ontario

Sustainable Energy Association (OSEA) tariff schedule adopted as part of

Ontario�s SOC is found below. Note the declining value of the tariff after year 6

from $0.133 to $0.069 in years 16-20 based on yield (for wind) and meant to

encourage efficiency. By accounting for resource intensity, the SOC ensures that

less productive project sites are profitable and more productive sites do not profit

excessively. The support of less productive sites is desireable because it

encourages the geographic disbursement of supply beyond prime locations. By

promoting the dispersal of renewable electricity generation, we further enhance

reliability and security. Tariffs can be re-evaluated regularly and adjusted as

needed.

Table 14: OSEA Proposed Specific Prices

Data courtesy of OSEA

21. Projected Cost of Adopting ARTs in British Columbia

The purpose of the tariff is to cover the cost of production and provide a

�reasonable� return to producers.105 Government sets power prices paid to private

producers in the form of a technology and location-specific tariff. Tariffs are

105 Chabot, Kellet and Saulnier, p. 1.


adjusted regularly and may or may not include inflation protection. The inflation

adjustment in Europe ranges from zero in Germany 60% in France. Ontario has

opted for a 15% inflation adjustment as part of its SOC. Contracts typically last 20

years but, as with the size of the tariff, are negotiable. The value of the tariff

typically declines over time with the intent that a declining contract will encourage

efficiency and cost reduction on the part of providers.

In order to assess the impact of ARTs on electricity prices in British Columbia it is

necessary to determine the potential premium to be paid for renewable energy as

a result.

Put simply, if BC ratepayers currently pay an average price of 7.5 cents per kWh

for electricity and the ARTs tariffs average 11.5 cents per kWh, the premium paid

is 4 cents per kWh. It is also necessary to consider factors like BC Hydro�s rate

structure and the potential cost savings realized through reduced imports. Ideally,

any price comparison between ARTs and alternate methods of power

procurement would also account for non-monetary external costs like pollution

and Green House Gas (GHG) liability.

In order to establish the premium paid for the renewable tariff, the average price

of BC Hydro�s alternative supply and the price of the renewable tariff are

required. Hydro has quoted the $79.50 /MWh (or about $0.08/kWh) it paid under

its 2006 CFP as its average price for incremental supply. However, the utility

recently decided on an $88 /MWh reference price as part of its 2007 Economic

Screens review and it is this price that will serve as the cost of this section�s

marginal supply.106 As the cost for development of renewables in BC can be

assumed to be similar to that in Ontario, the OSEA tariff price remains relevant

and will be used in combination with the BC Hydro reference price as the basis of

the pricing analysis that follows.

106 Screens review � tom hackney.


Applying the BC Hydro reference price and the OSEA average tariff, Figure 11

demonstrates the costs attributed to developing half, or 2,500 GWh, of BC�s

potential wind capacity over a period of 6 years. If development were to begin in

2010, BC could, theoretically, attain 11% market penetration from renewables by

2015. In 2015 (year 6 on the graph), the Advanced Renewable Tariff adds

$0.0493 to the kWh cost of electricity in BC. The present value of the tariff,

assuming the same 8% discount rate used by Hydro under the 2006 CFP, falls to

$0.031 in the sixth year. Expressed in 2006 Canadian dollars, the tariff premium

represents an annual rate increase of just over $49.00 for a typical household

consuming 10,000 kWh of electricity annually.

Figure 11 � Premium Paid for Advanced Renewable Tariffs in BC British Columbia Premium Cost for Wind Generation with Advanced Renewable Tariffs

Assumptions:Tariff Price ($CAD/kWh) $0.133 Reference Price ($CAD/kWh) $0.088 Premium Cost ($CAD/kWh) $0.045 Total BC Consumption (TWh/year) 60Capacity Factor 30%

New Cumulative Premium Premium Cost/Capacity Capacity Generation Penetration Cost Total Consumption

Year MW MW TWh % $ $/kWh2010 250 250 0.7 1% 30,000,000 $0.00050 2011 300 550 1.4 2% 65,000,000 $0.00108 2012 400 950 2.5 4% 112,000,000 $0.00187 2013 450 1400 3.7 6% 166,000,000 $0.00277 2014 500 1900 5.0 8% 225,000,000 $0.00375 2015 600 2500 6.6 11% 296,000,000 $0.00493

894,000,000

Summary: ARTs premium will cost British Columbia ratepayers ~0.49 ¢/kWh in 2015.This works out to about $49 for a typical household consuming 10,000 kWh annually.

*Adapted from work done by Paul Gipe for OSEA.

To put these numbers in perspective, BC�s Hydro�s subsidiary, Powerex spent

$396 million in 2005 and $343 million in 2006 to help the utility meet its domestic


load requirements.107 By comparison, the discounted cost of the full $0.133 tariff

program would cost BC ratepayers a total of $550 million at the end of year six.

While rates can be expected to rise slightly with the introduction of the ARTs,

increases will be mitigated by downward price pressure on renewable

technologies equipment and operation. Rate increases may be further offset by

reductions in pollution-related expenditures and energy imports. In BC, the

government committed itself in its 2007 Throne Speech to carbon neutrality for all

new and existing electricity generation. One of the immediate implications of this

policy is that non-renewable sources of power, like thermal and coal plants,

would be required to purchase carbon off-sets or carbon sequestration systems

making electricity from these energies more expensive. This is significant

because it likely rules out the development of new coal or natural gas plants in

BC. By implication, renewable sources of electricity will be in even greater

demand to help British Columbia meet its growing electricity needs.

The potential benefits associated with Advanced Renewable Tariffs will come at

a cost to BC ratepayers. As the cost of the tariffs is spread among all BC Hydro

customers, ARTs will impact domestic electricity rates. However, rate increases

themselves do not invalidate ARTs in terms of the provincial government�s four

goals under the 2002 Energy Plan, because implementation of ARTs has the

potential to achieve better results than the tender model when it comes to

reliability, the encouragement of private investment and environmental

commitments.

The Cost of Supporting Clean Electricity from Renewables

Present day inexpensive rates for electricity resulting from heritage infrastructure,

while great for BC Hydro customers, do little to spur the development of

alternative sources of supply. The implication for renewable resource suppliers is

107 BC Hydro 2006 Annual Report, p. 66.


that new electrical generation projects will result in significant incremental cost

when compared to heritage hydroelectric sources of supply. Furthermore, oil,

natural gas, coal and even large hydro projects do not pay for their external

costs. A study funded by the European Union determined that the cost of

producing electricity from oil or coal would double if external factors such as

health and environmental damages were considered.108

In a study published in February 2006, the Federal Ministry for the Environment,

Nature Conservation and Nuclear Safety in Germany assessed the cost

associated with supporting renewable energy through the country�s Renewable

Energy Sources Act (RES). It found that generation, transmission and marketing

made up the bulk of electricity costs between 2001 and 2004 and that these

components were also largely responsible for fluctuations in consumer prices

during that period � not the RES.109 The development of renewable electricity

supply in Germany did not significantly impact the price consumers paid. In fact,

the support of renewable energy under the RES Act resulted in an increase to the

typical monthly residential electricity bill of only �1.40 between 1998 and 2005,

or, about 3% of the total.

The authors subtracted the spot market price of electricity from the average price

paid in tariffs to determine the additional cost of generation attributable to the

RES. They then multiplied the result by the volume of generation covered by the

RES to arrive at the total additional cost (�2.4 billion) then spread the cost over

total electricity consumption. For a typical German household consuming 3,500

kWh annually, the result is an additional expense of �19.60, or, �1.63 per

month.110

108 European Commission Report, �New Research Reveals the real costs of Electricity in Europe,� http://ec.europa.eu/research/press/2001/pr2007en.html, Web site, accessed January 2007. 109 Bernd Wenzel, �What Electricity from Renewable Energies Costs,� Federal Ministry of Environment, Nature Conservation and Nuclear Safety, February 2006, http://www.bmu.de/files/pdfs/allgemein/application/pdf/electricity_costs.pdf, accessed January 2007, p. 3. 110Ibid, p. 4.


In another comprehensive study of the cost of renewable energy, Germany�s

Federal Ministry for the Environment, Nature Conservation and Nuclear Safety

found the additional cost of renewable to be less than �2.00 per month for a

typical household consuming 3,500 kWh of electricity.

Once the various environmental and social costs are factored in to the power

generation equation, the price paid for electricity from non-renewable sources

grows considerably. Progressive government analysis always considers the real

or, total, cost of all power supply alternatives by factoring the costs of

externalities associated with electricity generation into the equation. For example,

while electricity generated by burning coal may prove financially less expensive

than wind or solar PV generation, it involves numerous hidden, excavation and

emission-related environmental and health costs that may serve to make it

ultimately more expensive. As the Ministries of Health, Environment and Energy

ultimately have shared goals for the health and economic and social well-being of

the residents of this province, they should coordinate policies such that all

implications are considered.

What price or value should the province and provincial energy consumers place

on clean, renewable energy supply in British Columbia? Quantifying these

benefits would provide another guide for the pricing of ARTs by way of their

support for renewable energy resources for electricity generation, and justify a

modest premium if it is offset by other environmental and societal benefits.

22. Alternatives Available: Renewable Electricity Delivery in BC

It has been demonstrated that British Columbians are facing a serious shortage

of domestically-produced, clean electricity in the near term. As the information

presented earlier demonstrates, the tender, Call for Power process has not been

effective in delivering adequate supplies of reliable, affordable, private and

renewable electricity. The British Columbia Utilities Commission (BCUC) and


those tasked with overseeing the delivery of electricity need to determine what

the most appropriate mechanism for meeting the province�s goals for energy

resources and the demand requirements. Within the context of this research

paper, the BCUC and BC Hydro have two alternatives from which to choose:

1. Revitalize or adjust the tender process to alleviate the concerns of

developers of private renewable energy resources for electricity, in order

to better align it with government commitments under the 2002 Energy

Plan, or,

2. Replace the Call for Power, tender approach to electricity acquisition with

an Advanced Renewable Tariffs program, as a means of facilitating more

rapid develop of new supply from IPP of clean, renewable energy sources,

and to support development consistent with the current Energy Plan.

The status quo is not an option that either the BCUC or BC Hydro can pursue

because it conflicts with current government policy, and is not adequately

supporting growing demand requirements. The two alternatives mentioned

above, however, merit careful consideration.

Option 1: Adjustment of BC Hydro�s Tender Process

Addressing the issues which have prevented the tender process from delivering

electricity for BC would require significant enhancements of the CFP tender

model. This approach would involve distinguishing the specific characteristics of

the CFP process that have prevented success from those criteria associated with

tender models specifically. Elements of the tender model will be difficult to

eliminate as they are systemic issues, unique to the tender method of delivery.

These include: the high level of unpredictability associated with size and timing of

tenders, as well as the excessive planning and preparation required to present

bids, the resulting high rates of project attrition, and the CFP�s inability to

encourage the development of a diversity of renewable technologies.


Other aspects of the tender process failure are specific to the Call for Power

model that BC Hydro has developed. These include: regulatory and licensing

requirements, the disproportionate burden of transmission expenses, the punitive

effect of firm capacity commitments placed on renewables and issues related

specifically to the design of Electricity Purchase Agreements. The Call for Power

process can be adjusted with input from IPPs and other stakeholders, though this

has been standard procedure for some time. BC Hydro has engaged IPPs

through its iterative �IPP Dialogue Sessions�111 held prior to the issuance of Calls

for Power. Nonetheless, the consultation approach has proven ineffective as a

number of the critical issues and shortcomings of the CFP are themselves by-

products of the tender model.

The likelihood that BC Hydro or the BCUC could so revamp the tender process in

BC that it achieves desired results is questionable because the model is

fundamentally flawed. It is a process that has failed when measured against each

of the BC Energy Plan�s four tenets. Continued use of the tender model in BC will

delay further the delivery of reliable, affordable, private and renewable electricity

leaving government commitments unfulfilled.

Option 2: Adoption of the Advanced Renewable Tariff in British Columbia

Based on the research presented throughout and their success in promoting the

development of renewable electricity in other jurisdictions, the adoption of the

Advanced Renewable Tariff is the favoured alternative. ARTs are more likely

than the tender method to deliver the increasing volume of renewably-sourced

electricity supply required to meet growing demands in British Columbia by

addressing the critical issues presented earlier in a manner consistent with the

four tenets of the current Energy Plan. It is the design of the program that

111 BC Hydro company, �Designing the 2007 Call for Power,� Web site, http://www.bchydro.com/info/ipp/ipp48319.html, accessed February 2007.


determines which technologies are developed and the extent to which they

benefit the society and the economy.

23. How Would ARTs Address Critical Issues and Benefit BC?

The greatest benefit to BC of the Advanced Renewable Tariff is its ability to

quickly deliver renewable electricity that meets the government�s four Energy

Plan objectives. But will it work in BC? While it is impossible to say with certainty,

it is evident that ARTs (or any policy alternative) can succeed only by addressing

the challenges that independent power developers face under the present tender

method. Unless it can ameliorate the financial and planning concerns that result

in uncertainty for private developers, ARTs will do no better than the current

system. So how would a well-designed feed-in tariff system in BC ensure the

delivery of affordable, reliable, renewable private electricity? A discussion of

possible benefits follows:

23.a. Simplicity and Flexibility

Advanced Renewable Tariffs are transparent and easy to administer and enforce

relative to the tender model. Once tariffs are established, governments need only

perform regular adjustments to pricing and terms, which they can do with the help

of research organizations, industry and bureaucratic input. Absent the uncertainty

of when (or if) new opportunities to bid on power will present themselves to

private producers (as is the case with the current tender process), one can

reasonably expect a stronger and more competitive industry sector for private,

renewable energy supply.

23.b. Financial Security

The minimum payment of the Advanced Renewable Tariff combined with long-

term contracts would make securing project financing easier for IPPs. Twenty


year contracts offer lending institutions a level of security against which they can

back projects. In Germany private banks have offered low interest loans to

developers and even taken to lobbying the Bundestag in favour of continuing the

country�s feed law as they did in 2001.112

Under tender models, there can be significant costs associated with project

planning and bid preparation that may not be required under the ARTs model and

which present a level of financial risk that some developers may be unable to

afford. Developers under a tender model also devote significant time to the

preparation of bids which may not be successful. Developers working within a

minimum pricing, or ARTs, framework can, conceivably, devote these resources

toward innovation and developing power less expensively. Elimination of these

barriers can strengthen the competitiveness and success of IPPs, and thus better

support security and reliability of supply.

23.c. Pay only for Generation

Advanced Renewable Tariffs do not lead to the boom and bust cycles associated

with tender or quota methods of procurement. Unlike tax credits and other

incentives, ARTs pay only for power delivered to the grid avoiding the high

volatility common to tender or certificate models.

23.d. Encourage Technological Diversity

Tender models, with their pursuit of lowest price, lead to the development of the

lowest cost technologies or sources of supply. In BC, the tender model has

worked well for some technologies and discriminated against others. The

development of micro or run-of-river hydro is progressing with over 1,400 MW of

capacity in operation. This technology typically makes up 90% of the generation

tendered in each recent BC Hydro CFP. But to date, BC, a jurisdiction with some

112 Sawin, p. 14.


of the world�s best wind resources is without an operating wind farm. This despite

the fact that last year Canada doubled installed wind capacity to over 1,460

MW.113

Contrary to tender models with their pursuit of lowest-possible electricity prices,

Advanced Renewable Tariffs can be tweaked or adjusted to account for

developments in technology or resource intensity. As a result, ARTs have

fostered the development of diverse technologies simultaneously in the countries

that have adopted them and could be expected to do the same in British

Columbia.

23.e. Encourage Local, Community and Distributed Development

ARTs help to level the playing field for generators of varying size. To date, many

projects operating under the CFP process have been developed by large

companies and corporations. Provided they can deliver at the tariff price, ARTs

allows businesses equal opportunity to participate, regardless of size or market

capitalization. The result of distributed generation is that it allows for investment

from a greater number of participants.

23.f. Support the Development of Local Renewable Industries

Minimum pricing models have been credited with the development of significant

renewable energy industries in the jurisdictions in which they have been adopted.

Those countries with high levels of renewable capacity tend to have companies

which produce the hardware to support it. Denmark�s Vestas, Germany�s

Enercon and Nordex, and Spain�s Gamesa are three of the world�s largest

producers of wind turbines and equipment, each situated in countries that have

113 CANWEA website.


embraced ARTs. In fact, these three countries account for 80-90% of the

European Union�s installed wind capacity.114

Japan, the world�s number two in solar PV with nearly 40% of world capacity, is

home to some of the biggest producers of photovoltaic cells and panels. Sharp,

Kyocera and Sanyo are among a number of Japanese companies responsible for

50% of world production of PV equipment.115

China recently adopted ARTs and is becoming a major player in the manufacture

and assembly of wind turbines and PV cells. In 2005, the country more than

tripled its production of solar PV cells from 65 to 200 MW. The country�s Harbin

Electric machinery Co. developed a 1.2 MW wind turbine for which it claimed full

intellectual property rights, a first for a Chinese firm.116

Ancillary, or spin-off economic benefits through new industry and technology

development, is not one of the BC government�s criteria for decision-making

around incremental energy supply. However, these are benefits are worth

considering when evaluating ARTs, and they further support the province�s

commitment to energy self-sufficiency and job creation.

23.g. Job Creation

The rapid development of capacity under feed-in systems has been associated

with job creation. In addition to the labour required to plan and build projects,

maintenance and operation are required afterwards. In cases where hardware

production occurs, additional employment is created in design, delivery and

114 Reiche, p. 47. 115 REN21, Global Status Report 2006 Update, p. 7. 116 Ibid.


manufacture. There are currently over 170,000 Germans employed in the

country�s renewable sector and that number is expected to grow to 300,000.117

Job creation is also not among the BC government�s criteria for decision-making

around new energy supply. However, it is another potentially significant benefits

worthy of consideration when evaluating ARTs.

23.h. Elimination of Attrition

If regulatory barriers persist, these can dissuade new IPPs from entering the

marketplace. However, unlike the tender process, attrition is not generally a

problem with respect to feed-law because the system pays only for electricity

generated. In fact, one of the concerns raised with feed-law is that by leaving the

quantity of power open, it will result in too much generation for which rate payers

will be responsible. However, if the value of the tariffs is calculated carefully and

prices are adjusted regularly, over-supply can be prevented. Furthermore, while a

program cap is not recommended, limits can be placed on individual project size

as another means of preventing over-development.

Compared to tender models, ARTs offer transparency, simplicity and

predictability. Whether or not the benefits presented above are realized in BC will

depend on local circumstances and the details of the program�s design.

24. Recommendations and Conclusion

The evidence presented in this research paper demonstrates the shortcomings of

BC Hydro�s Call for Power (CFP) tender process due to its inability to secure

electricity self-sufficiency for BC and failure to support a minimum 50% share of

117 �Graphics and Tables on the development of renewable energy sources in Germany in 2005,�Federal Ministry for the Environment, Nature Conservation and Nuclear Safety, http://www.bmu.de/english/renewable_energy/downloads/doc/37730.php, Web site accessed February 2007.


incremental supply from BC Clean Electricity sources. The CFP tender process

has failed to adequately support the BC government�s commitments under the

province�s 2002 Energy Plan and to deliver affordable, reliable, private (or

independent) sources of electricity supply that are environmentally responsible.

The tender process is unlikely to deliver the electricity supply required as part of

the stricter commitments made under the government�s 2007 Energy Plan related

to self-sufficiency, reliability, affordability and environmental responsibility.

This paper also demonstrated the ability of Advanced Renewable Tariffs to

quickly deliver large volumes of new, affordable and renewable electricity

throughout Europe. It also provided evidence of the benefits attributable to ARTs

in supporting industrial development, community engagement, and investment,

transmission efficiency and reliability, and pollution reduction.

After examining the likelihood of two alternatives (tender process status quo with

adjustments and Advanced Renewable Tariffs) for enabling British Columbia to

achieve the four key goals of the province�s 2002 Energy Plan and new

commitments made as part of its 2007 iteration, this paper encourages British

Columbia Hydro to consider the adoption of the Advanced Renewable Tariff for

the purpose of securing private and affordable electricity from renewable energy

sources in British Columbia.

Given its potential to develop new, clean energy supply from independent power

producers in BC, it is recommended that BC Hydro and the British Columbia

Utilities Commission (BCUC) make resources available for further investigation of

the applicability of Advanced Renewable Tariffs in British Columbia. This may

include cost analysis for both direct and indirect financial impacts of renewable

energy supply, engagement of stakeholders in reviewing options and outcomes,

and consideration of, at the minimum, the policy alternatives outlined herein.

Power Procurement and Advanced Renewable Tariffs in BC BCSEA Consulting Project

Bibliography

Primary Sources:

Davis, Steve. Interview by author. Burnaby, BC, December 13, 2006.

Gipe, Paul. Interview by author. Burnaby, BC, November 20, 2006.

Reiche, Danyel. Interview by author. Burnaby, BC, January 19, 2007.

Sjoman, Pentti. Interview by author. Burnaby, BC, December 7, 2006.

Secondary Sources:

British Columbia Ministry of Energy, Mines and Petroleum Resources.

�Energy for our Future: A Plan for BC.� November, 2002.

British Columbia Ministry of Energy, Mines and Petroleum Resources.

�The BC Energy Plan: A Vision for Clean Energy Leadership.� BC Government

Web site, www.Energyplan.gov.bc.ca, accessed February 2007.

British Columbia Ministry of Energy, Mines and Petroleum Resources. �BC

Clean Electricity Guidelines.� Released September 2005.

http://www.em.gov.bc.ca/AlternativeEnergy/Clean_Energy_2005.pdf, accessed

on-line, February 2007.

BC Government. �The BC Energy Plan: A Vision for Clean Energy

Leadership.� BCMEMPR Web site, http://www.energyplan.gov.bc.ca/, accessed

February 2007.


BC Hydro. �Report on the F2006 Call for Tender Process Conducted by

BC Hydro.� http://www.bchydro.com/rx_files/info/info48009.pdf, accessed August

31, 2006.

BC Hydro. �Electric Load Forecast 2005/06-2025/26.� Vancouver, BC,

December 2005.

BC Hydro. �BC Hydro Service Plan 2006/07-2008/09: Reliable power at

Low Cost for Generations.� September 2005.

BC Hydro, �Challenges and Choices, Planning for a Secure Electricity

Future,� 2006 Integrated Electricity Plan,


BC Hydro, �BC Hydro Service Plan 2007/08 to 2009/10,� company Web

site, http://www.bchydro.com/rx_files/info/info51192.pdf, accessed February

2007.

BC Hydro, �2002/03 Green Power Generation Call for Tenders Bidders�

Meeting,� Powerpoint presentation - April 30, 2003,

http://www.bchydro.com/rx_files/info/info5006.pdf, accessed January 2007, p. 24.

BC Hydro. �BC Hydro�s Annual Report 2006,� Vancouver: BC Hydro,

2006, http://www.bchydro.com/rx_files/info/info46749.pdf, accessed October

2006.

BC Hydro. �Resource Smart,� BC Hydro Web site,

http://www.bchydro.com/policies/demandgrowth/demandgrowth790.html,

accessed November, 2006.


BC Hydro. �Characterizing Environmental Attributes of Non-Firm Market

Imports.� BC Hydro Company Web site,

http://www.bchydro.com/rx_files/info/info25853.pdf, accessed February 2006.

BC Hydro. �Company History.� BC Hydro company web site,

http://www.bchydro.com/info/history/history1027.html, accessed January 2006.

BC Hydro. �BC Hydro 2005 Resource Expenditure and Acquisition Plan

(2005 REAP).� Vancouver: 2005,

http://www.bchydro.com/rx_files/info/info21467.pdf, accessed January 2007.

BC Hydro. �Designing the 2007 Call for Power,� Web site,

http://www.bchydro.com/info/ipp/ipp48319.html, accessed February 2007.

BC Hydro. �Continued Appeals Force BC Hydro to Abandon Duke Point

Power Project.� Web site, June 17, 2005.

http://www.bchydro.com/news/2005/jun/release24839.html, accessed February

2007.

British Columbia Sustainable Energy Association, �Huge green power

reserves can fuel jobs, economy,� Web site November 21, 2005.

http://www.bcsea.org/media/051121-taskforcerelease.asp, accessed January

2007.

Butler, Lucy and Karsten Neuhoff. �Comparison of Feed in Tariff, Quota

and Auction Mechanisms to support Wind Power Development.� The

Cambridge/MIT Institute, December 21, 2004.

http://www.electricitypolicy.org.uk/pubs/wp/ep70.pdf, accessed December 2006.

Calvert, John. �BC Hydro�s Energy Purchases from Private Power

Developers: Do We Want the $15.6 Billion Price Tag?.� Ashlu Creek Company


Web site, http://www.ashlu.info/pdfs/The_Legacy_of_Private_Power.pdf,

accessed December 2006.

Canadian Wind Energy Association (CanWEA). Wind Energy Industry

page, Company Web site,

http://www.canwea.ca/frequently_asked_questions_wind_energy.cfm, accessed

February 2007.

CBC News. �Terasen Gas Sold to Fortis in $3.7B Deal.� Web site.

http://www.cbc.ca/money/story/2007/02/26/terasen.html, accessed February

2007.

CBC News. �Hydro pulls plug on dam project, for now.� CBC Company

web site. http://www.cbc.ca/canada/british-columbia/story/2005/12/08/bc_hydro-

site-c20051208.html, accessed January 2007.

Chabot, Bernard, P. Kellet and B. Saulnier. �Defining advanced wind

energy tariff systems to specific locations and applications: lessons from the

French tariff system and examples.� Ontario Sustainable Energy Association

Website.http://www.ontariosea.org/ARTs/France/ADEME%20advanced%20wind

%20energy%20tariffs%20Chabot.doc, accessed February 2007.

Energy Research Centre of the Netherlands. ERC Company Web site.

http://www.renewable-energy-policy.info/relec/france/policy/bidding.html,

accessed January 2007.

European Commission Report. �New Research Reveals the real costs of

Electricity in Europe.� European Commission Website.

http://ec.europa.eu/research/press/2001/pr2007en.html, accessed January

2007.


Federal Ministry for the Environment, Nature Conservation and Nuclear

Safety. �Graphics and Tables on the development of renewable energy sources

in Germany in 2005.� Web site

http://www.bmu.de/english/renewable_energy/downloads/doc/37730.php,

accessed February 2007.

FortisBC. Web site, http://www.fortisbc.com/#, accessed October 2006.

German Wind Energy Association (BWE) Company. �Minimum Price

System compared with the quota .model � effectiveness and Efficiency.�

Company web site, http://www.ontario-sea.org/ARTs/quotavsminpriceEurope.pdf,


Gipe, Paul. �Electricity Feed Laws Power European Renewables.� Solar

Today.http://www.oregon.gov/ENERGY/RENEW/Wind/OWWG/docs/GipeSolarT

odayReaders_ForumND03.pdf accessed February 2007, accessed January

2007.

Gipe, Paul and Bernard Chabot. �North America�s First Electricity Feed

Law: Standard Offer Contracts in Ontario, Canada.� Dewi Magazine, August 29,

2006.

Gipe, Paul, Deborah Doncaster and David MacLeod. �Powering Ontario

Communities: Proposed Policy for Projects up to 10 MW.� May 2005. Prepared

for the Ontario Sustainable Energy Association.

Gutermuth, Paul-Georg. �Regulatory and Institutional Measures by the

State to Enhance the Deployment of Renewable Energies: - German

Experiences.� Solar Energy, Volume 69, Number 3, 2000.


Hearing before the British Columbia Utilities Commission. �BC Hydro 2006

IEP and Long Term Acquisition Plan.� Evidence by Robert M. Fagan, October 10,

2006.

Hvelplund, Frede. �Political Prices or Political Quantities: A Comparison of

Renewable Energy Support Systems.� New Energy, May 2001. Web site,

http://www.windworks.org/FeedLaws/MinimumPriceSystembyFredeHvelplund_N

E.pdf, accessed November 2006.

IPPBC. �Quick IPP Facts List.� IPPBC Web site, http://www.ippbc.com/,

accessed November 2006.

IPPBC. �Permits, Licences, & Approvals List for Run of River Power

Projects in BC.� Web site, http://www.ippbc.com/media/Permits.pdf, accessed

January 2007.

Lemaire, Dr. Xavier. �Regulatory Practices in Europe: An In-Depth

Treatise.� Powerpoint Presentation slide 59, Sustainable Energy Regulation

Network, March 6, 2006.

Martinot, Eric, Ryan Wiser, and Jan Hamrin. �Rnewable Energy Policies

and Markets in the United States.� Resource Solutions Web site,

http://www.resourcesolutions.org/lib/librarypdfs/IntPolicyRE.policies.markets.US.

pdf, accessed January 2007.

�Ontario Buys Solar Electricity form Homeowners.� Alternative Energy.

Website, http://www.alternative-energy-news.info/ontario-buys-solar-electricity-

from-homeowners/, accessed February 2007.

Pembina Institute. �Maximizing Energy Efficiency and Renewable Energy

in British Columbia.� October 2006.


Reiche, Danyel, ed. Handbook of Renewable Energies in the European

Union. Frankfurt: Peter Lang Press, 2005.

Reiche, Danyel, ed. Handbook of Renewable Energies in the European

Union II. Frankfurt: Peter Lang Press, 2005.

Reiche, Danyel. �Germany�s Renewable Energy Sources Act,� Powerpoint

presentation, Standard Offer Contract Financing and Implementation Forum,

September 21, 2006, Queen�s Park, Toronto, ON.

Renewable Energy Policy Network for the 21st Century. �Renewables:

Global Status Report, 2006 Update.� Web site,

http://www.ren21.net/globalstatusreport/issueGroup.asp, accessed December

2007.

Rhode, Colleen. �Port Moody Expresses Concern Over Future of Burard

Thermal Generating Plant.� City of Port Moody,

http://www.cityofportmoody.com/City+Hall/News/2004/20040909MR-2.htm, Web

site, accessed February 2007.

Solar Buzz Company. �2006: Annual World Solar Photovoltaic (PV)

Industry Report.� Web site, http://www.solarbuzz.com/Marketbuzz2006-intro.htm,


Swain, Janet L. �Policy Lessons for the Advancement & Diffusion of

Renewable Energy Technologies Around the World.� International Conference for

Renewable Energies. Bonn, January 2004.


Synex International Inc. Company. �Cypress Creek Project Update.�

Company Web site,

http://www.stockhouse.com/news/news.asp?newsid=4854583&tick=SXI,


Wenzel, Bernd. �What Electricity from Renewable Energies Costs.�

Federal Ministry of Environment, Nature Conservation and Nuclear Safety.

February 2006,

http://www.bmu.de/files/pdfs/allgemein/application/pdf/electricity_costs.pdf,


Wikipedia. Renewable Energy page. Web site.

http://en.wikipedia.org/wiki/Renewable_electricity, accessed February 2007.


Appendix Exhibit 1 - Acronyms and Definitions

ARTs � Advanced Renewable Tariffs CFT � Call for Tender CFP � Call for Power

DSM � Demand Side Management EEG � German Feed law EPA � Electricity Purchase Agreement GHG � Green House Gas

IEP � Integrated Electricity Plan IPP � Independent Power Producer NFFO � Non-Fossil Fuel Obligation NPV � Net Present Value

PURPA � Public Utility Regulatory Policies Act (1978) ROCs � Renewables Obligation Certificate RPS � Renewable Portfolio Standard SOC � Standard Offer Contract

WECC � Western Electricity Coordinating Council

Kilowatt (kW) � one thousand watts Megawatt (MW) � one million watts

Gigawatt (GW) � one billion watts Terawatt (TW) � one trillion watts


Exhibit 2 - Renewable Technologies in British Columbia* Hydroelectricity

Hydroelectricity is electricity obtained from dammed water used to drive a turbine.

British Columbia has significant hydroelectric capacity built during the 1950�s and

1960�s that, together, makes up what is frequently referred to as �heritage power�.

Hydroelectricity is often classified as small or large based on project size. It is

generally considered to be renewable despite the disruption it can cause to

ecosystems and river environments.

Run-of-River Hydroelectricity (Micro Hydro)

Natural river flow or elevation drops are used to drive turbines which generate

electricity. These projects divert a small amount of water away from the stream to

the powerhouse via a pipe called a penstock.118 Diverted water is returned further

downstream with, normally, minimal disruption to flow or water levels. Run-of-

river projects are typically smaller than dammed hydro projects and are often

referred to as small or micro-hydro.

Wind Power in British Columbia

Wind power is created through the conversion of kinetic (wind) energy into

electrical energy by turbines with a number of rotating blades.119 While there are

no commercial wind facilities operating in British Columbia at this time, BC is

blessed with some of the world�s best wind resources. The province�s potential

capacity for wind development has been estimated at over 5,200 MW.120 The

2006 CFP granted EPAs to three projects representing 325 MW installed

capacity.

118 IPPBC website, accessed January 2007. 119 Wikipedia, Wind Power page, Web site, http://en.wikipedia.org/wiki/Wind_power, accessed February 2007. 120 IPPBC, January 2007.


Solar Photovoltaic (PV) Energy

This technology uses photovoltaic panels made of silicon to convert solar energy

into electricity. The high cost of silicone and solar cell inputs make this

technology expensive relative to other renewable sources. British Columbia has

no commercial PV projects at this time although there are a number of private

and public systems in operation.

Biogas in BC

Biogas power plants use biogas to generate electricity. Biodegradable waste

such as sewage treatment sludge, food or farm waste undergoes anaerobic

digestion producing fuel which is used to drive generators.121 There are a number

of biogas operations under contract with BC Hydro including two landfill gas

projects in the lower mainland. The province�s significant agricultural sector

makes this technology attractive for future development.

Biomass in BC

Biomass involves the use of living biological matter as fuel. In the context of BC it

includes specific types of wood and crop waste from forestry and agricultural

processes. There are a number of biomass facilities operating in BC and four

projects representing 380 MW granted EPA as part of the 2006 CFP.

Geothermal in BC

Geothermal technology uses the earth�s heat to generate electricity. Steam or hot

water from the earth drive a turbine which spins a generator producing

electricity.122 British Columbia has exceptional geothermal potential and recently

BC Hydro began accepting bids for the development of Meager Creek near

Pemberton. Western GeoPower Corp. intends to develop Meager Creek as the

country�s first commercial geothermal electricity facility.

121 Wikipedia, Biogas page, Web site, http://en.wikipedia.org/wiki/Biogas, accessed February 2007. 122 Wikipedia, Geothermal page, Web site, http://en.wikipedia.org/wiki/Geothermal_heating, accessed March 2007.


Tidal

Energy achieved by capturing energy contained in moving water due to tides.123

BC has potential for many projects throughout Georgia Strait. There are no

commercial tidal installations in the world at this time.

* Renewable technology information courtesy of Wikipedia Web site.

Exhibit 3 - Employment in the German Renewables Sector

Soure: German Wind Association (BWE).

123 Wikipedia, Tidal Power page, Web site, http://en.wikipedia.org/wiki/Tidal_energy, accessed March 2007.

Biomass36 %

Wind energy41 %

Solar energy16 %

Geothermalenergy

1 %

Hydropower6 %

Employees in the renewable energysources sector in Germany in 2004

Total: approx. 157,000 jobs

Sources: BMU publication "Renewable energy sources in figures - national and international development", Status: May 2006

In 2005 already 170,000 employees,

figure set to rise.


Exhibit 4 � BC Attitude to Electricity Alternatives

Source: October 2005 Survey of BC Hydro Customers courtesy CANWEA.


Exhibit 5 - Installed on-shore Wind Capacity in Europe 2005


0

2000

4000

6000

8000

10000

12000

14000

16000

1995 1997 1999 2001 2003

MW

Denmark

Germany

Italy

Netherlands

Spain

UK

Power Procurement In British Columbia: Self-Sufficiency ... · Advanced Renewable Tariff (ART)....

Documents

Transcript of Power Procurement In British Columbia: Self-Sufficiency ... · Advanced Renewable Tariff (ART)....