LNG Reduces GHG Emisions

In early February the Canadian Environmental Assessment Office released a report on the Woodfibre LNG facility.  According to that report greenhouse gas (GHG’s) emissions amount to 129 kilo tones/year from the project and approximately 790 kilo tones/year from upstream activities.  My internet search indicates that the total amounts to about 1.5% of annual greenhouse gas emissions in British Columbia.

The published report does not attempt to calculate downstream emissions.  If the LNG replaces coal, it would reduce GHG’s as natural gas has about half the GHG’s as coal for the same amount of energy.  With a total LNG output of 2.1 megatonnes the GHG emission reduction can be calculated using the ration of the molecular weights of methane and CO2.   By these calculations, the emission reduction would be about 5.8 megatonnes per year or roughly 6 times the total GHG emissions of the plant and the upstream activities associated with producing the natural gas.

Exporting LNG from BC will very likely have a very favorable impact on global GHG emissions.

Daniel Potts, Retired, West Vancouver (604) 913-0600

Posted in Electric Power | 8,201 Comments

The Myth of Clean Energy Jobs

Many “Clean Energy” think-tanks, the Pembina Institute in particular, tout clean energy jobs as justification for developing clean energy as part of the energy supply portfolio in BC.  On May 14, 2015 the Vancouver Sun had an article on a Pembina Institute report on the expansion of jobs in the clean energy sector.  While I have no reason to quarrel with the numbers reported by the Pembina Institute, I would quarrel with the implied conclusion that the development of the Clean Energy industry has resulted in a net increase of 14,100 jobs in BC.

Counting only direct and indirect jobs in the Clean Energy industry ignores the huge impact the clean energy acquisition polices have had on the cost of electric power in BC and the current and future job losses such cost increases will cause.  While wholesale prices of electric power in Western North America have stabilized at less than $30 per Mega-watt hour (MWh) BC Hydro is paying very high  prices, often over $100/MWh, under long term contracts with producers of renewable power.  These increased costs result in higher rates for electric power and reduce the competitiveness of BC’s energy intensive industries, many of which located in BC because of the availability of low cost energy.

According to a BC Hydro quarterly report:  “Total energy costs for the nine months ended December 31, 2014 were $1,681 million, $189 million or 13 percent higher than the same period in the prior fiscal year.   The increase…was primarily due to higher domestic energy purchases mainly due to more Independent Power Producers achieving commercial operation.”

The report does not identify the cost of these new sources of supply.  However, if you divide the increased cost of IPP power by the increased volume of electric power purchased it would appear that the cost of this new IPP power is in the range of $140/MWh.  As stated earlier this compares to the current wholesale price of under $30/MWh.

While I may employ hundreds of people in my new factory that turns gold into lead, it does not mean that the factory is making a positive contribution to the economy of BC.  In a similar fashion, the IPP industry is continuing to consume valuable resources to build facilities to produce a product whose cost is substantially more than market value.

This is what happens when political expediency trumps rational economics.

 

 

 

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Energy Development Situation in British Columbia

A Not So Brief Summary of Energy Development in BC

What British Columbians want (liquid natural gas exports), declining markets won’t let them have; what British Columbians can have (oil pipelines from Alberta to the North Coast) they don’t want; what British Columbians are getting at great cost  (Site C) they don’t need as electric power consumption is declining and ample low cost supplies are available from the market.

It is really sad that we cannot capitalize on the economic opportunities available, oil exports, while we wait for LNG market growth that will eventually lead to LNG exports.  But  as the press reports tell us, Justin Trudeau does not oppose tanker traffic in Burrard inlet, but as quoted in the Vancouver Sun, “The North Coast is no place for tanker traffic.”

I would beg to differ with Mr. Trudeau.  My wife and I lived in Kitimat for four years,  from 1993 to 1997.  Before our arrival we bought a 32 foot cruising boat  to explore the inland waters adjacent to Kitimat and to make probably more than 50 trips from Kitimat to the ocean to fish for salmon and halibut.  We navigated the length of the Douglas Channel, past infamous Gill Island, into Whale Channel  and out to the Pacific Ocean.  This route would present absolutely no problem for a modern oil tanker.  Douglas Channel is wide and deep as are the subsequent channels that would be used by any commercial tanker/freighter in route to the Asia/Pacific.

My wife and I would often spend the weekend near the ocean, anchored out in one of the beautiful bays or coves in the area.  The overwhelming sense of the place was one of loneliness.  We would have welcomed an occasional tanker as a sign of civilization and a potential source of assistance should we encounter an emergency.

My understanding is that Alberta oil producers and therefore the Canadian economy is losing billions of dollars per year due to the lack of access to tidewater and the international oil markets.  BC products travel across Alberta to get to Eastern Canadian markets.  It seems to me we have a  reciprocal obligation to be a good neighbor and facilitate the economic success of our neighboring province.

Before our Prime Minister Elect makes a final decision on Northern Gateway, I hope he would take the time to travel the route from Kitimat to the Sea.  Prohibiting tanker traffic on these waters is no reason to reject the enormous economic benefit potential of Northern Gateway.

Posted in Electric Power | 11,562 Comments

Why Site C is a Loser!

Cost of Site C

The December 16, 2014  press release from the Provincial Government identified the cost to customers of Site C as $500 million per year, nominal dollars, continuing at that level for the indefinite future.  If you divide that cost by the 5200 gigawatt hours Site C will produce in a year, the average cost is $96/megawatt hour.  That assumes the project comes in at its projected cost of $8.9 billion and starts up on schedule in 2026.  It would not be at all unlikely that project costs over-run by 20 percent, with an extended schedule adding further to the cost.

So the cost of Site C power is publicly known.  The question of importance is how to best measure the value of the electric power that Site C will begin producing in 2026 if construction proceeds on schedule.

BC Hydro’s Marginal Cost of Electric Pow

If BC Hydro is short of electric power they will buy additional supplies on the market.  If they have a surplus, the only option is to sell in the market.  Just as market price is BC Hydro’s marginal cost of electric power today, the same situation will prevail in 2026.

Market Structure

The market for electric power in North America is well established.   To quote from the website of the United States Energy Information Agency (EIA):

“Currently, electricity products can be traded at more than two dozen hubs or delivery points in North America, and natural gas products can be traded at over 120 hubs. The data posted under EIA’s agreement with ICE represent eight major electricity and corresponding natural gas trading hubs. Included are daily volumes, high and low prices, and weighted average prices.”

The nearest trading hub to BC is what is known as Mid-C, nominally a location on the Columbia River accessing the power produced by the several dams on that river.

The current pricing regime, and probable future pricing regime for electric power has been greatly affected by development of these electric power trading hubs at many locations in North America.  In the late 1980’s.  BC Hydro created a subsidiary in 1988, Powerex, to participate in, and profit from, these new markets.

Combustion Turbine Generators

Following the development of active markets was the development of combustion turbine technology to generate electric power from natural gas.  Essentially stationery jet engines powering generators, this new technology reduced the amount of natural gas required to product a megawatt of electricity by approximately 50 percent.  The average combustion turbine generator has a heat rate (the quantity of natural gas required for a megawatt of electricity) of 7.0.

California Power Supply Crisis

About the same time the combustion turbine generator technology became available, around 2001, the California electric supply crisis occurred with brown outs, the failure of Enron, etc.  In response to those events utilities in the western United States added substantial combustion turbine generating capacity in order to upgrade their ability to handle peak demands. With ample capacity, the facilities already built and paid for, the incremental cost of producing another megawatt of electric power is the incremental cost of fuel.  Since, as we have discussed this cost is the heat rate (7.0 average) times the natural gas price.

Shale Deposits of Natural Gas

The final change was the development of technology to exploit large, low cost supplies of shale gas.  The market expectation today is that there will be a plentiful supply of relatively low cost natural gas for the indefinite future.  As a result the expectation today is that natural gas will be in ample supply at relatively low cost.  Recent prices are under $3.00 per gj, much reduced from the $6-10 range that prevailed from 2002-2010.

Economic Result

Given the relationship between natural gas prices and electric power prices the market price of electric power can easily be derived from a forecast of natural gas prices.  With natural gas prices now under $3.00 per gigajoule and apparently stable at that level, it would seem unlikely that natural gas prices would exceed $5.00 in 2026.  At that natural gas price electric power market prices would be in the mid 30’s per megawatt hour and Site C would have a negative return of over $300 million per year {($100/mWh – $35/mWh) x 5,200,000 mWh}.

Conclusion – It is highly probable that the financial return on Site C will be negative.  This project should be delayed until there is a reasonable probability that the cost of power from Site C will be less than the likely market price.

 

 

Posted in Electric Power | 9,245 Comments

How BC Hydro Wastes $560 Million Each Year

Until 2010 BC Hydro included Burrard Thermal in their list of available resources at a annual rated capacity of 6,000 gigawatt hours per year.  In actual fact, Burrard Thermal seldom produced electricity since it was almost always less expensive to buy the needed power from the market, either at Mid-C or other North American market hubs.

With the implementation of the Clean Energy Act in 2010 BC Hydro was prohibited from supplying their customers from the market.  Further,  under the terms of the act, 93% of the power they supplied had to be renewable and must be purchased from independent suppliers (BC Hydro was prohibited from constructing any generating facilities other than Site C).  So BC Hydro was forced to contract for the 6,000 gigawatt hours from Independent Power Producers at a price that is at least $100 per megawatt hour higher than the power available on the market.  That additional  price times the needed quantity equals $600 million per year.  BC Hydro justifies shutting down Burrard because the construction of additional power lines to the lower mainland means it no longer needs the back-up security Burrard provides and it costs $40 million per year to maintain Burrard.

So the net loss from shutting down Burrard, in the effort to achieve “self sufficiency” as required by the Liberal Clean Air Act is costing ratepayers $560 million per year.  Doesn’t it feel great to be self sufficient?

Posted in Electric Power | 8,451 Comments

Consumption of Electric Power in BC is Declining

The discussion of the electric power issue in BC is always founded on the fundamental assumption that BC needs to build more dams and power plants to meet our growing need for electric power.  Sorry all you dam builders, natural gas drillers, and builders of gas fired generating plants, this assumption is not supported by recent trends.   Electric power use in BC peaked in BC Hydro’s fiscal year ended March 31, 2008 at 53,300 gigawatt hours, the year before the severe economic downturn.  Power consumption has never, in the last seven years, returned to that level.  The most recent data, from BC Hydro’s annual report for fiscal 2015, reveals that domestic consumption is down from 52,200 gigawatt hours in fiscal 2014 to 50,660 in 2015, down five percent from the previous peak.  With further price increases scheduled for the next several years you can expect continuing reductions in electric power consumption as businesses and homeowners switch to other or more efficient energy sources.

There has recently been some badly needed discussion of Site C and the Liberal dreams of an LNG bonanza led by retired banker David  Bond (October 6, 2015 issue  of Vancouver Sun)  and elaborated on further by Vaughan Palmer in the next days paper.  The idea suggested is to postpone the expensive  Site C and consider  building much less expensive natural gas generating facilities.

There is a better idea.  Build nothing.  Electric power is in ample supply and available on the Mid-C market for less than $30 per megawatt hour.  This compares to costs of $100 per megawatt hour for Site C and a cost of over $50 per megawatt hour for a new green field natural gas plant.

The Liberal  government’s press release announcing approval of Site C said there will be a 40% increase in demand for electric power over the next 20 years.  And that projection is based on “only three” new LNG plants.  The forecast of significant need for new power in BC is now subject to serious doubt.  Time to stop and rethink our electric power supply strategy.

 

Posted in Electric Power | 11,019 Comments

BC Hydro Obfuscation

In the process of keeping an eye on BC Hydro, I have been a regular reader of their annual report, and the report for fiscal 2015 is now available on their website.  Last year’s report included information on the purchases of power from IPP’s.  Volumes and total costs were included for the fiscal year 2013 as well as 2014.  Using that information I was able to determine the cost of the additional 350 giga-watt hours purchased in 2014 cost an average of $142.85.  I included that information in my slide presentation to both the Pacific Energy Innovation Association and to the Probus Club of North Shore Vancouver.   What is more interesting, of course, is that this information is no longer available in their current annual report.  Somehow,  I  am not surprised.  I  am sure the cost per mWh for the additional IPP power purchased in fiscal 2015 would be an embarrassment to both Hydro and the Provincial Government.

 

We would have much better information available about BC Hydro’s operations if it were a regulated private company.

 

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Electric Power Rates In BC Ever Increasing, Why

Why is it that BC Hydro customers are facing an almost never-ending series of rate increases when electric power is in ample supply, market prices for electric power are very low, the efficiency of producing electric power from natural gas is continuing to improve, and oil and gas markets are at the lowest level in years?  Well, contracts are contracts.  Remember the Gordon Campbell years when BC was to become a “renewable energy powerhouse?” With all the enthusiasm to develop renewable power, the Clean Energy Act was implemented in 2010 requiring Burrard Thermal to be shut down, 93% of the power produced by BC Hydro must be renewable, and BC was to be self sufficient.  In order to achieve these objectives, BC Hydro proceeded on a renewable energy buying spree.  So, as a result fiscal year 2015 purchases of electric power under those expensive long term contracts with IPP’s has increased by 2300 gigawatt hours (about half the annual production expected from Site C) at a total cost exceeding market value of at least $230 million per year or approximately 5% of  BC Hydro’s revenue from sales to domestic customers.  And there are more IPP projects coming on line in future years.

More details about electric power markets  and their importance to BC electric power consumers in future blogs.

 

Posted in Electric Power | 8,636 Comments