On the business case to terminate Site C

It is very understandable why some people are opposed to the construction of Site C. There are people who will be forced from their homes; a valley and First Nation traditional territory irreversibly changed; habitat and resources lost.

What isn’t understandable, however, are the simplistic arguments some critics of Site C have put forward to suggest there is a business case for stopping construction at this time.

The suggestion that Site C will be a ‘white elephant’ is unquestionably wrong. A ‘white elephant’ is a project that is too expensive to maintain in operation and would have little or no value if sold. Large hydro projects like Site C are anything but that.

You can argue Site C shouldn’t be built in the first place.  However, once built it will provide ‘dispatchable’ electricity for 60 years or more at very low on-going costs. Dispatchability means Site C can generate electricity when most needed and valuable. Low operating costs means the electricity it can supply will almost always be economic to produce. Site C will be a very valuable asset, increasingly so over the long term just as we have seen with the large hydro dams built in B.C., Manitoba and Quebec in the past.

There is, of course, the critical question as to exactly how valuable an asset Site C would be. Is the electricity that Site C will generate over its lifetime worth the $6 to $7 billion needed to complete the project? That is in effect what the BC Utilities Commission hearing into Site C will have to address because that will ultimately determine its impact on rates relative to the alternatives available at this time.

One prominent critic has been arguing that because of current and forecast surpluses of electricity supply in the province, the electricity Site C would produce would only be worth some $2 billion. He assumes that Site C supply would be worth $25 to $30 per MWh over the project’s entire lifetime based on current surplus sales prices.

Like the suggestion Site C will be a ‘white elephant’, the argument that the electricity Site C will produce would only be worth $2 billion is also unquestionably wrong. It ignores the value Site C can capture by displacing gas-fired generation in Alberta and elsewhere, and the impact that increasingly stringent carbon policies will have on gas-fired generation costs. It ignores the value Site C will have at some point in the future when it will be needed to meet domestic requirements; when it will reduce the amount and cost of other new resources BC Hydro would otherwise have to acquire. It completely ignores the value of the dependable peak generation capacity Site C will provide, something that is in short supply. And it ignores the storage and ‘dispatchability’ value of Site C – something that is ever increasing in importance and value with the growing amount of wind and solar and other intermittent resources on the interconnected grid.

Even with a conservative set of assumptions, the value of the electricity Site C will produce, taking all of these factors into account will be at least $7 to $8 billion, and likely much more – far more than the costs of completing the project.

It is politically convenient to argue that major controversial projects don’t present difficult trade-offs. For critics of Site C it is convenient to argue there is no economic or business case for completing the project. But that is not what any objective analysis is likely to find.

There is in fact a trade-off. And hopefully the BCUC hearing will help define the magnitude of the economic trade-off – the cost that would be imposed on ratepayers and/or taxpayers if the government were to terminate operations. That is not to say that cost should not be incurred. Some people may very reasonably and validly take the position that the environmental and First Nation impacts are the more important considerations in this case.

But it is a disservice to suggest based on simplistic arguments and assertions that there are no trade-offs involved. There are and they are significant.