Monday, July 19, 2010

Reward without risk for worthless surplus power

Checking up on Government
British Columbia's government believes less in free enterprise than in assisted activities for approved associates. Entrepreneurs saw potential for a private power generation industry in the province but didn't want to risk their own money. Instead, they arranged with the Liberal government for the public to accept all risks and guarantee substantial profits to the schemers.

This was done by designing long term (25-40 years) power purchase agreements whereby BC Hydro was obliged to purchase power at values well above current market with prices additionally sweetened by annual consumer price index (CPI) escalators. To ensure a need for additional suppliers, BC Hydro was prevented from developing its own new sources. Will McMartin of The Tyee describes irony in the situation:
It is impossible not to see irony in how the City of Edmonton has unleashed its publicly-owned utility, EPCOR (and its subsidiaries) to expand operations and generate profits across North America, while the Province of British Columbia -- under Gordon Campbell's BC Liberal government -- has stunted the growth of our publicly-owned utility, BC Hydro and Power Authority.

(Supporters of independent power production in this province often argue that BC Hydro staff do not have the skills needed to build and operate clean or green energy projects. Can it be true that Edmonton's public-sector possesses the requisite skill-sets, but British Columbia's does not?)

Clearly, Edmonton's elected officials have not been frightened by the financial "risk" associated with public-sector power generation, transmission and distribution -- the risk that Campbell, Jaccard and the IPPBC so loudly decry in our province.

Indeed, in BC Hydro's most-recent clean energy call, EPCOR and its related companies continue to seek profit-making opportunities in B.C.

On March 11, an EPCOR-related entity, CP Renewable Energy (B.C.) Limited Partnership won a new, long-term energy purchase agreement from BC Hydro for a wind farm near Tumbler Ridge.
BC Liberals mistrust the capitalist concept of competitive markets where rewards are associated with risks. Instead, they scrambled to eliminate energy investor downsides. That makes no sense in honest government. Of course, Campbell's government has been called many things, but not honest. Perhaps, the methodology is revealed. For some years, we were sold the concept of endless growth causing insatiable appetites for energy, leading to unrestrained demand and ever rising prices.

In 1980, oil was in short supply, line-ups formed at gasoline stations and pumps ran dry. Experts predicted that oil reserves would be exhausted by the turn of the century. Thirty year later, the end of oil is not in sight, except in the eyes of pessimists who have been predicting the demise of oil throughout their careers.

So it is with electricity. We remember frequent brown-outs in the USA although it turned out that the smartest guys in the room were playing games to manipulate prices. Nevertheless, deregulation and dishonesty meant higher prices and uncertain supply. Citizens were programmed to believe that energy prices would rise dramatically and power would always remain scarce.

That consumer conditioning presented a perfect opportunity for profiteers in British Columbia. However, while BC Hydro rushes to contract for more export capacity, there is already surplus electricity that cannot be absorbed in the Pacific Northwest.  Two giants, Babcock and Wilcox and Bechtel, have teamed to complete development of a small light water reactor, a modular 125 MW system that might be a power industry game changer during this decade. Another company, Hyperion Power Generation claims its refrigerator-sized Mini Power Reactor, capable of powering 20,000 homes, will be ready to license within a year. Japan and China are involved in advanced small scale nuclear generation programs. The BC Government is foolhardy to make 40 year purchase agreements with automatic price escalators. The only thing certain about these commitments is that they will create assured profits for the developers.

Today's excess electricity is likely to increase in the short run even without nuclear creating a new market in the USA. Ted Sickinger at The Oregonion writes Too much of a good thing: Growth  in wind power makes life difficult for grid managers:
During the last three years, the building boom spawned by green energy mandates in Oregon, Washington and California doubled the generation capacity of wind farms in the region. By 2013, it's expected to double again.

That seems like great news. Plenty of carbon-free energy with no fuel costs. Jobs. Property taxes.

In the real world, however, the pace and geographic concentration of wind development, coupled with wild swings in its output, are overwhelming the region's electrical grid and outstripping its ability to use the power or send it elsewhere.
BC Liberals assume the grid will take all of the surplus power capacity they plan to bring on stream. Because wind generated or run-of-river electricity cannot be stored, the public will be stuck with high cost off-peak power that has no value. That is the risk the private producers didn't want to take. BC Liberals took it instead and passed it to you and me, leaving the private producers with rewards without risks. The people stuck with the bills have no say.
Recommend this post

1 comment:

  1. Every time I read a post like this Norman, it makes me wonder how so many people could be duped into believing that these fools are best suited to manage our economy.

    ReplyDelete

Courteous and relevant comments are welcome. Please use a consistent screen name so other readers can connect your contributions.