Sustainable Communities Consultancy
socially responsible, earth-friendly community planning and development

Larry Bell,
CEO, BC Hydro,
333 Dunsmuir Street
Vancouver, BC V6B 5R3

July 14^th 2003

The Vancouver Island Generation Project (Duke Point)

Dear Larry,

My name is Guy Dauncey, and I have lived in Victoria since 1990. I work as a green buildings and sustainable community planning consultant, and I am author of the book Stormy Weather: 101 Solutions to Global Climate Change (New Society Publishers, 2001; Nautilus Award Winner, New York Book Expo, 2002). I gave you a copy in person at the wave energy bidders meeting in Victoria, about 18 months ago.

While researching the book, and in time spent subsequently on the issues of energy policy, and global climate change, I have become very conversant with the state of energy efficiency and renewable energy technologies, both globally and here in BC.

I am very concerned that if BC Hydro is granted a permit to operate the planned gas-fired generating plant at Duke Point, it will embark on a mistake which will cost BC tax-payers dearly. I am familiar with BC Hydro’s arguments, and their warnings that "the lights will go out" on Vancouver Island if they are not able to proceed with the planned plant, but I have come to believe that the whole project was wrongly conceived from the beginning.

As a developing world, we have been using energy in an organized manner for thousands of years. When firewood began to run out as a fuel source, we turned to coal. When burning coal became too dirty for our cities, we switched to natural gas.

As a result of burning these fossil fuels, the CO2 concentration in our planet’s atmosphere has risen from 280 to 373 ppm, a level which has not been seen for 20 million years, long before humans evolved. If we continue to burn fossil fuels as we are, the CO2 concentration will rise to 560 ppm, a level which has not been seen for 50 million years: and 50 million years ago, the were crocodiles (or proto-crocodiles) on Ellesmere Island in the Arctic. There was no Arctic. There was no ice, and sea levels were 20 metres higher all around the world.

Everyone assumes that by 2100, we will have found alternatives to fossil fuels. What the public in general and BC Hydro in particular has not yet grasped is that the first wave of these clean alternatives are ready now.

Wind energy is the fastest growing energy source in the US, with 30 percent growth annually for the fifth year in a row. Cost-wise, it is coming in at 3.5 to 5 cents US per kWh. There is an active proposal by Sea Breeze Energy Inc to install 500 MW of wind turbines at Knob Hill & Shushartie, on the northern tip of Vancouver Island, at an estimate sale price of 7 cents (CAN), that is currently going through the Environmental Assessment process. There are other wind turbine proposals and initiatives around BC pending application with BC Water and Lands, totaling 6,000 MW, which amounts to 50% of BC’s current energy supply. The new turbines are large, and their blades turn much more slowly, so the problem of bird kill that arose at some of the 1980s wind installations has disappeared.

BC Hydro’s approach to wind energy has been very strange. Germany has 18,000 MW of installed wind turbines, and Denmark gets 27% of its grid power from the wind, but here in BC, BC Hydro was planning to install a 10 MW "demonstration project" at Alert Bay, as if to see if it really worked. It has since withdrawn the proposal.

Another argument against wind that has been advanced by BC Hydro is that wind energy is "intermittent", and cannot be depended on for the grid. On the surface of things, this is true, but the evidence from Europe shows that the larger the number of turbines, the less the overall intermittency, since the chance that no turbines will be operating falls as the number of turbines increases.

The strongest argument against intermittency, however, comes from the CEO of Denmark’s power utility, who told a colleague of mine that he would give an arm and a leg to have the kind of public marriage with hydro that we have here in BC, where a surplus of wind energy can be stored behind the dams and released when needed. This is the strategy that Denmark is employing through a partnership with Norway’s hydro utilities, just across the North Sea.

At 7 cents CAN, wind energy is still 1.5 cents more than the 5.5 cents barrier BC Hydro has erected for its green energy proposals, but there are three arguments that are important to note:

1. If the average price of electricity in BC is 5.5 cents, and a 20% wind mix is added to the grid at 7 cents, the average price of power only rises by 5.45% to 5.8 cents. It is not as if everyone will be paying 7 cents. This is the very argument that BC Hydro is now using to justify its 8.9 cents sale price for the gas-fired electricity from Duke Point.
2. Once a wind turbine has been installed, its additional energy cost is zero; the wind does not stop blowing unless it is paid a certain price. This means that you can guarantee price stability for the full 20 years of the turbine’s expected life. With natural gas, the opposite it true. It may cost 8.9 cents today, but in ten years time it may cost 12 cents, or 18 cents, depending on the market. Wherever natural gas has been introduced into a an energy market, price instability has followed. Industry may argue that it needs the "BC advantage" of a low price for power; but just as much, it needs price stability.
3. As wind turbine technology continues to mature, the cost of future turbines will fall. Since wind energy is one of the hottest items available right now, and the pressure to drive down costs is very active. The cost for future large installations has been estimated at 2.5 – 3 cents US.

There are other renewable technologies which are also mature, of which we take little advantage. Ground source heating is one, which can be used to heat a new building very effectively with a good payback.

Microhydro is another, which is coming in close to 5.5 cents. If BC Hydro were to lift its price ceiling for green power to 7 cents, it would receive an abundance of offers.

Biomass is another clean option. The planned Gold River plant is aiming to produce 250 MW once it is up and running. The proposed Norske projects at its 3 mills on the Island, which (if I understand them correctly) are a biomass/natural gas cogen hybrid, promise another 362 MW.

None of these proposals feature in BC Hydro’s calculations. I feel as if I am Alice in Wonderland, trying to figure out why. Whey, when BC Hydro’s staff tell us so insistently that the lights will go out and the pulp mills will start burning old tires if we don’t approve their plans for the 265 MW VIGP, would they choose to ignore other more renewable power proposals that have the potential to supply 1112 MW?

Shushartie (wind) 500 MW

Gold River (biomass) 250 MW

Norske (biomass/cogen) 362 MW

TOTAL 1112 MW

(Subsequent addition: the Norske proposal is for gas cogeneration alone, and should not have been included in this list).

Solar energy, while it will be slow to arrive in BC because our power prices are so low, will see a major fall in price in 2005, when the Japanese company Sharpe plans to open a 500 MW factory. Solar is like all technologies – it struggles to get started, and then it enjoys the downward ride on the price curve of mass production. A watt of solar energy cost $100 US in 1980. It cost $10 in 1990; it costs $3.50 today. Mass production will reduce the price to $1, and throughout the world’s sunbelt, net-metered home-owners and building owners will find that the payback makes it financially rewarding to install solar PV on their roofs and sell the surplus summer energy into the grid.

And then we come to the future security of North America’s natural gas supply. When the original plant was planned for Port Alberni, energy supply and policy experts all over North America were looking to natural gas as the cheapest, cleanest and most reliable form of electricity generation. 96% of all planned new power capacity for the USA is going to use natural gas.

In three short years, however, the industry has moved from an apparent surplus to a diminishing supply of natural gas, and the signs are that the shortage will only increase, driving the price higher. BC Hydro’s figures for VIGP project a price of 8.9 cents/kWh, almost 2 cents higher than wind energy, and 3.4 cents higher than the price barrier which it erected for green energy. Some energy analysts suggest that if the price of gas remains high, this will justify increased drilling; but no-one is forecasting a return to 2000 prices.

Over the planned 20 year life of the VIGP, the chances that the price of natural gas will return to the 2000 level are almost zero. What is more likely is the reverse – that the price will increase further as the supply begins to run out. There is not an infinite amount of natural gas sitting under North America; the more that is consumed, the less there is to use. It is a one-off hit, and but long before it begins to run out, the rising price will cause customers and energy suppliers to turn away from it. I would not like to be a customer who was dependent on natural gas for heat and light, forced to pay higher prices while other areas were seeing falling energy prices as the renewable energy revolution kicks in. Yes, natural gas can be liquefied and shipped around the world – but only at a guaranteed higher price, to cover the cost of liquefaction, shipping and offloading.

My fear, as a tax-paying BC citizen who is as concerned to have a balanced budget as anyone, is that if Duke Point is built, BC Hydro will be unable to find a private sector buyer, since most investors are very savvy to the turbulence in the natural gas market. As the price of natural gas rises, and gas becomes uncompetitive, I fear a large stranded cost that we will be forced to pay for on our bills.

On the demand side of the equation, meanwhile, we have hardly begun to exploit the opportunities for energy efficiency, in spite of 15 years of Power Smart. As evidence, I would point to the efficiency retrofits that Norske has achieved in two of its plants here on the Island, saving 400 gigawatt hours a year, and the planned 15 year retrofit at UBC which will reduce energy consumption and costs by 20%, and reduce UBC’s demand pull by 5 MW.

With the right mix of policies and incentives, every home, factory, hotel and office in BC could use 20% less energy, and pay 20% less in bills. The technologies that are needed to achieve a 20% reduction can be bought on the market now; by 2010, there will be new technologies, that are even more efficient. As a model of what is possible, alongside Power Smart, I would point to the commercial and residential incentives programs offered by Seattle City Light, America’s third largest public utility. A planned 20% reduction in demand would free up 2400 MW for other purposes in BC’s grid.

The Duke Point plant is a 1990s concept that should be taken off the drawing board altogether. I would rather write off $100 million that has apparently already been invested, than $710 million that has not yet been spent ($340 million for VIGP + $370 million for the GSX).

The future of electricity supply lies with the smart electronic network, or distributed grid. Instead of one big supplier sending power down the wires to a million consumers, there will be a million suppliers, integrating their energy through a smart network to optimize the time of delivery and market price. The energy will come from large scale wind turbines; solar cells, microhydro, geothermal, fuel cells, ground-source and water-source heating, tidal energy, wave energy, and even from small, silent domestic wind turbines, that are now being designed by Renewable Devices in Scotland – see www.renewabledevices.com/whatsnew.htm.

The world is sitting on the crux of an energy transition. There is an urgency in the need to phase out fossil fuels, driven by the alarm bells of global warming and the imminent oil and gas peak crises. Exactly on cue, the renewable revolution is ready. It makes no sense at all to invest in old gas-fired technologies. That’s like entering World War I with 19^th century cavalry, as the Russians did, only to be confronted with 20^th century German tanks. It makes every sense to use this historic opportunity to cancel the plans for VIGP, and open the doors to a new approach to energy generation and demand management based on renewables and energy efficiency.

When Vancouver Island’s wind, biomass, microhydro, tidal and energy efficiency potentials are combined, we may have the potential to become an energy exporter, rather than an importer. The same applies to BC as a whole – as an energy exporter of clean, renewable energy, without need for any gas-fired, coal-fired or coal-bed methane fired electricity. BC Hydro’s own study of BC’s tidal energy potential, done by Triton Consultants, found 10 sites which could produce over 100 MW each, the best being in Johnstone Strait, and 55 sites where the current reaches 2 metres/sec, which could produce 2225 MW of power. In the past year, tidal energy has "hit the sea" in northern Norway, and off the north Devon coast in England. One of these two countries is seeking to grab the global lead in this new technology – something that BC could (and should) be seeking.

Left, right, and centre, we have been missing opportunities in the fields of renewable energy, because of BC Hydro’s single vision of new energy coming from natural gas. Last fall, I was told that Vestas, the Danish wind energy company, was looking to set up a 100 MW factory somewhere in North America to supply the growing demand. They just missed going to Portland, I believe because the US wind energy credit legislation had been put off. If BC’s energy policy had carved out a space for wind, I was told, they would have happily brought their factory to BC, with several hundred new jobs.

And then there’s climate change, which is costing us dear through the pine beetle infestation in BC’s interior. The beetles are a natural part of the forest ecosystem, but their population is controlled by really cold winters. As the winters have grown warmer, the beetle population has exploded, devastating an area of forest five times the size of Vancouver Island.

In response to the crisis of global climate change, the world’s industrial nations (except the US and Australia) have agreed through the Kyoto Treaty to reduce their emission of greenhouse gases by 5% below the 1990 level (about 20% below today’s level) by 2012. As soon as Russia signs, the Treaty will become international law. Here in Canada, we have agreed to reduce our emissions by 6%, or 240 million tonnes. This means burning less fossil fuels, not more.

BC is an exciting place, where many people feel free to develop new ideas, new businesses, and new technologies. We should be embracing the challenge of the new energy technologies, not fearing them, especially when they are the very technologies that can help us to reduce our greenhouse gas emissions, and counteract the price-rises that will accompany the oil and gas peak crises. With the $710 million of public money that BC Hydro is proposing to spend on the VIGP and the GSX pipeline, we could make incredible progress with the newer approaches to energy and energy management, if we just decided to do so.

Yours sincerely,

Guy Dauncey

Cc: Robert Pellatt, Commission Secretary, BC Utilities Commission
The Hon Richard Neufeld, Minister for Energy and Mines

Reply from Larry Bell, CEO of BC Hydro:

1 August 2003

Dear Mr. Dauncey,

Thankyou for your letter of July 14^th, 2003, and, once again, for the copy of your book Stormy Weather: 101 Solutions to Global Climate Change. You raise a large number of issues in your letter, and I would like to respond on a number of fronts.

First is the issue of electricity demand on Vancouver Island. The fact is that not only does demand keep growing on the Island, but we need more capacity – the amount of electricity that we can provide at any one time – right now. With the rapid deterioration of the underwater cables to the Island, this is only getting worse and we need to find a solution that can be in place by 2007 at the latest.

You reference that fact that BC Hydro has not taken into consideration alternatives to the Vancouver Island Generation Project (VIGP). Well, I can tell you that is certainly not the case. In fact, over the next ten years, we will meet a growing provincial demand (which obviously includes demand on the Island) of 10,000 gigawatt-hours (GW.h) through:

• Power Smart (3,500 GW.h, or 35% of new load)
• Resource Smart (1,100 GW.h or 11% of new load)
• Independent Power Producers, which includes Customer Based Generation and Green and non-Green IPPs (3300 GW.h or 33% of new load); and of course
• VIGP (2100 GW.h or 21% of new load)

A number of the alternative energy projects in both the Customer Based Generation and Green IPP are the kinds of ‘alternate energy’ sources you reference throughout your letter. The good news is that – along with Power Smart – there appears to be more than enough of them to help us meet the provincial government’s Energy Plan goal of having 50% of new supply come from new, clean sources.

These projects will also allow us to help address some of the concerns you raise about greenhouse gases (GHGs). Not only will they allow us to meet our commitment to offset 50% of the greenhouse gases (GHGs) form new facilities on the Island, they will also offset a total of 30 million tonnes of greenhouse gases over the next ten years. That is in addition to the 24 million tonnes of GHGs we have already offset from 1989 to 2002.

However, even with all these benefits of alternative resources, there is still not enough of this kind of supply – both on the Island and across the province – to cost-effectively and reliably meet wither the capacity shortfall on Vancouver Island or the overall growth in electricity demand in the province. We know that from the results of both our Customer Based Generation and Green IPP called for generation. The key words her are "cost-effectively and reliably". There are many proposals out there, but our mandate is to make sure the lights stay on at the lowest possible cost. That is something we will not compromise on.

This applies to the proposals form Green Island and Norske as well. We welcome such proposals, but they must meet the same criteria as all the others. Most important, they must be economic, reliable and be in place by 2007. To date, we have not received such commitments. I anticipate that they will have another opportunity this fall to do so.

Our obligation at BC Hydro is to ensure that the electricity needs our customers are met in the most cost-effective manner. We have done that in the past and will continue in the future. As a result, our customers enjoy some of the lowest electricity rates and highest reliability of service in North America. That will continue to be our goal in the future.

Yours very truly,

L.I. (Larry) Bell

Chair and Chief Executive Officer