Thursday, May 7, 2009

Pirate Power Ripoff

The Pirate power issue shows that Gordon Campbell may actually have the record as the worst financial manager in Canadian history beating even Joey Smallwood for stupidity by throwing away as much as 50 billion dollars in taxpayers money. That’s four convention centre cost overruns every year for forty years. These rubes couldn't run a lemonade stand.


To start look at Plutonic’s $4 billion Bute inlet project which produces 3000 Gwh annually at an average annual cost of to ratepayers of 400 million dollars or 13.3 cents a kwh . These projects have a negligible ongoing maintenance cost so running that $4 billion through a simple mortgage calculator at the BC Governments 4% 30 year bond issue rate comes out to 200 million a year - half the cost. BCHydro can build pirate power projects at half the cost saving the taxpayer tens of billions of dollars. This Plutonic contract alone represents a 8 billion dollar loss to the ratepayer.


Compare Bute to BCHydro's Site C which for $5 billion produces approximately 4,600 GWh a year. Using the methods above that comes to 5.4 cents a kwh less than half Plutonics price. Site C produces high value baseload power available year round unlike Butes low value freshette power that BCHydro has to sell on the spot market for a fraction of its cost. Site C unlike Bute is not covered by Gordo's innovative new fast track environmental assessment scheme and will spend years looking for approval.

Of course Westinghouse just started construction on 4 gigawatt class nuclear reactors it sold to China with a 2013 in service date. Those reactors at about the same cost as site C will produce 35000 gwh's of baseload capacity ever year - 9 times the electricity at the same cost.


Campbell’s innovative Buy High Sell Low power policies buying power at 12 cents a kwh (8) and selling it at 2 cents(1) will force our power rates to almost triple (10) over the next three years to cover BCHydro's up to 53 billion (3) in IPP losses. Our power competitors in Washington State will enjoy green nuclear power at much lower rates than our soon to be uncompetitive industry here in BC. And Gordo promises to keep buying. Will that 60 billion be 120 billion by the next election?


Some comments that quote Hydro commitments at 30 billion are based on a doubling of John Calverts Appendix 1 in his paper 'Stick Shock" to account for additional purchases in the 2008 power call. So far 31 billion(16) are accounted for but the 2008 power call is not completed. Hydro officially has reduced the power call to 3000 gwh's firm but the energy minister indicated disagreement with that change. The 2006 power call resulted in much more power being purchased than the original call asked for. If we account for the 5000 gwhs in the original 2008 power call being somewhat higher than the 4200 in the 2006 call the 30 billion is more likely 37 billion. Calvert's Appendix 1- is also based on BCHydro's estimates of how much of its contracted power commitments it will actually have to pay for assuming that some of its contractors will be unable to deliver. In the 2006 power call it purchased around 7000 gwh's in annual power deliveries but in has stated that it assumes only 4200 will survive the financing and construction process. The original 2008 call asks for another 5000 in "firm" power. Given how lucrative the contracts are it could be the entire 7000 survives. With these two factors included BCHydro could be on the hook for the entire 60 billion dollars ..

Rafe then guesses that BCHydro may be able to sell its pirate power surplus at half its cost ie half of 10 to 12 cents a kwh on the average. However the firm/nonfirm spot price today is under 2 cents a kwh (1). The paper described below shows new technology such as Solar PV power in the California desert at 1.7 cent dropping to .8 within a few years, nuclear Power at 2 cents dropping to one cent in five to ten year time, and to a tiny fraction of a cent with nuclear fusion in ten to fifteen years. Remember these are 40 year contracts.

BCHydro must sell its surplus power during the spring freshette and will now have the added burden of dumping up to 9500 (3) gigawatthours of spring freshette generated IPP power that it buys at as much as 12 cents and must sell at 2 cents(1) for an estimated loss of $750(3) million every year. The other 5700 gwh (3) through the rest of the year that it will be buying from pirate power, it could have been trading for on the off peak market at less than a penny a kwh and using its dams during the day for peak hours. This increases its annual losses by another 575(3) million.


Recently the Joint Industry Electrical Steering Committee -the industry group representing big industrial buyers of BC Hydro power like pulp mills produced a report (9) on BCHydro’s IPP commitments.. These are Big Liberal campaign donators and certainly no friends of the NDP. The report states that the BCLiberal’s have forced BCHydro to sign contracts to export Run of the River Power at an annual loss of 400 million dollars for the next 40 years. The report uses the DOE estimate for power costs instead of the new generation nuclear/solar rate environment and firm instead of total power commitments.


Certainly rates fluctuate and when the 21st century depression ends there will be a lot of price pressure but look at some year or two down the road options the California market has.


Solar PV power in the California desert at 1.7 cent a kwh(11) dropping to .8 within a few years, nuclear power at 2 cents dropping to one cent in five to ten year time (12) (13)(15), and to a tiny fraction of a cent when nuclear fusion (14) might just rear its ugly head in the ten to fifteen year time frame. Remember IPP contracts run over 40 years.


Today the spot market reflects fuel saving energy producers can realize by buying off the spot market and slowing or shutting down coal and natural gas generators. With a nuclear/wind/solar environment in the US there are no fuel savings so producers will be a lot less likely to buy off the spot market. Spot prices will drop to almost nothing over the near/long term making it likely BCHydro will be unable to sell any of its IPP power in the five to ten year time frame of its 40 year contracts.


You can argue and some do that prices will be much higher than the New Tech prices quoted above (US DOE at 5 cents over next 10 years). However, should New Tech costs quoted in this document be eventually proven optimistic, with the current recession and short lead time required by run of the river power BCHydro could wait quite a few years before embarking on a building extravaganza. What the Campbell is doing is like promoting gold mining jobs by committing taxpayers to contracts for 300K ounces of gold annually for 40 years because some predict gold at $5000 an ounce. If Campbell took such a contract to sell on the commodities future market at today’s $900 or so gold spot price he'd be lucky to get 15 percent of our investment back. Similarly if he tried to sell BCHydro's forty year 10 and 12 cent a kwh contracts into the market with spot prices at 2 cents and good possibility of much lower to come he'd be lucky to get 10 percent of our money back. Essentially he has already lost almost our entire investment.


By waiting a few years until we are closer to a strong need for power for electric cars or geothermal heating, BCHydro can keep its options open and buy into technologies like Generation 3.5 nukes or solar PV which will have a few years of building operating experience behind them and costs much better established. Or perhaps a new technology like Pulse Fusion may have emerged by then and would be viable alternative. Failing all that BCHydro has 50000 gwh's in possible dam construction if needs be all at a lower cost than Pirate run of the river.


So in the last days "Get on it" Start shouting these numbers from the rooftops, in political speeches, in newspaper radio and TV ads. Gordo Campbell couldn't run a lemonade stand.


Details

1) Spot price Apr 24 1.4 cents


from

http://www.energywindow.com/price/mc-full.shtml

BCHydro standing offer program info_-_20090224_sop4.Par.0001.File.20090226_SOP_Program_Rules_Clean.pdf

"...HLH or Heavy Load Hours means the hours commencing at 06:00 Pacific time and ending at 22:00

Pacific time Monday through Saturday inclusive but excluding British Columbia statutory holidays. "

HL for California (6*52*16-7*24)/(365*24) or 55%

Run of the river power power comes 45% at off peak (7.9) and 55% on peak (19.8) gives 1.4 cents a kwh. for april 24, 2009


2) Need to export in freshette


From BCHydro annual report 2008

".....By the second quarter, however, persistent high inflows into the large basins resulted in high volumes of energy sales to avoid the need to spill. By the fourth quarter, Columbia River Treaty constraints restricted the seasonal volume available for release at Mica, resulting in BC Hydro purchasing about 1,500 GWh of energy to meet domestic load requirements. Overall, BC Hydro was a net seller of 1,161 GWh primarily due to above average inflows. Total reservoir storage on March 31, 2008, was about 600 GWh above average levels and 400 GWh above the previous year’s storage level, increasing the amount of energy available for future years.


3) Spring freshette 60% of power flows


Martin Shaffer Lost in Transmission: A Comprehensive Critique of the BC Energy Plan pg 47,48 out of 55

Total power in freshette and low flow seasons from 7)

(7000*+5000*/.6)*.6/1.077 = 9542

Freshette power purchase price (7000*.1+5000*.12/.6)*.6./1.077 = 947 million

Freshette power sale price 9542*.02 = 191 million

Loss = 756 million

Total power in low flow seasons

(7000+5000/.6)*.4/1.077 = 5694

Freshette power purchase price (7000*.1+5000*.12/.6)*.4./1.077 = 631 million

Freshette power sale price 5694*.01 = 57 million

Loss = 574 million

Total loss over 40 years (756+574)*40 = 53 billion


4) Price over next ten years US DOE 5 cent a kwh

5) Price paid 2006 tender calls 10 cents a kwh


From:

John Calverts 2007 report "Sticker Shock:

" The US Energy Information Administration (EIA), part of the US Department of Energy, predicts that prices will be about $50 per MWh at the BC border until 2018 with throughout this period the indexed price to be paid under the BC Hydro contracts will average nearly $100 per MWh."

CLA - Contact Length Adjustment as some contracts are not 40 years

Total 2006 power call per Appendix 1 in sticker shock ($15595) adjusted to 40 years at 4200 gwh per annum at $100 per Mwh BCHydro 2007 annual report (6)

CLA = 40*4200*.1/15595 = 1.077


6) 2006 tender calls


John Calvert’s 2007 report "Sticker Shock:

" --- the results of the 2006 call in July, the amount of energy it had committed to purchase had risen dramatically, from the 2,700 GWh originally tendered, to 7,125 GWh."

From the Appendix A: that energy will not hit the system until 2009.

From 2007 BCHydro annual report

"...the summer of 2006 that resulted in 38 Electricity Purchase Agreements (EPAs) with independent power producers throughout the province for approximately 1,500 MW of capacity and over 7,000 GWh/year of energy (4,200 GWh/year of fi rm energy net of attrition and outages). In its 2006 Integrated Electricity Plan/Long-Term Application Plan, BC Hydro identified the need to proceed with a 2007 Call for Powerto acquire 5,000 GWh/year of firm energy for delivery by Fiscal 2015."


7) 2008 tender calls more doubles Calvert totals to at least 37 billion and as much as 63 billion.


From 2008 annual report

" The Clean Power Call will target up to 5,000 GWh a year of clean energy from larger projects using proven technologies, such as hydro, wind, solar and geothermal energy, with extended in-service dates of 2016 or earlier. We have changed "

At the time Calvert wrote that his report BCHydro had committed to 4200 gwh of firm power . IF we update that with the 2008 tender call that grows to 9200 gwh per year.." More than doubling Calvert’s original number.

Firm power:

4200 gwh (6) at an average of .10 cents (5) in the 2006 power call and 5000 (6) at an average(6) of .12 cents in the 2009 power call and adjusted using the CLA (5)

40*(4200*.1+5000*.12)/1.077 = $37 billion


Total power

However, if the contracted amount and not what BCHydro considers as firm power is delivered it appears that costs would be as high as 63 billion dollars

7200 gwh (6) at an average of .10 cents (5) in the 2006 power call and 5000/.6 at an average of .12 (6) in the 2008 power call with the .6 representing an extrapolation of the total/firm ratio in the 2006 power call and adjusted using the CLA (5)


40*(7000*.1+5000*.12/.6)/1.077 = $63 billion


Also

http://www.ourrivers.ca/latest-news-mainmenu-38/183-powerplay-producer-questions-bc-hydro-chair-on-conflict-of-interest


8) 2009 tender calls 12 cent a kwh


http://communities.canada.com/vancouversun/blogs/energy/archive/2009/04/09/power-producers-attack-new-democrat-party-campaign-platform.aspx


9) Large BCHydro power customer report JIESC


http://courses.forestry.ubc.ca/Portals/129/JIESC%20Brief.pdf


10) Double and almost tripling of rates


From 2008 annual report (millions)

Total Firm

Energy costs 2008 2012 2012

Hydro generation $318 $318 $318

Independent Power $477 $1974 $1375

Other $152 $152 $152

Gas $ 64 $ 64 $ 64

Transmission $ 63 $ 63 $ 63

Subtotal $1074 $2571 $1972


From 6} above BCHydro considers 60% or 4200 Gwh's of its 2006 call to be firm ie the bidders can actually meet their commitments.


Independent power 2012 is Current + total firm and non firm 2006 from Calvert appendix 1 + total firm and non firm extrapolated from 2009 5000 gwh call with 2006 firm/nonfirm ration , ref 8), and CLA above


477 + (7.000* 87.5 + 120*5.0/.60)/1.077 = 1974 total

477 + (4.200* 87.5 + 120*5.000)/1.077 = 1375 firm

11) Solar PV

How about solar PV down to below 1 cent a kwh peaking at the same time BCHydros 12 cent a kwh does. Currently production costs have dropped below $1000 a kw and promise to hit $500 a kw soon.


http://investor.firstsolar.com/phoenix.zhtml?c=201491&p=irol-newsArticle&ID=1259614&highlight=

http://www.scientificamerican.com/article.cfm?id=plan-b-for-energy-8-ideas&page=5


Put that in the Southwest American desert and you get


http://rredc.nrel.gov/solar/calculators/PVWATTS/version1/US/Texas/El_Paso.html


Gives 3000 kwh per annum for a large high efficiency array. Put that in your trusty public power mortgage calculator and you get 1.7 cents per kwh dropping to .8 soon

12) Nuclear

How about nuclear power at 2 cents a kwh dropping to 1 cent with thorium reactors and a tiny fraction of a penny with pulse fusion.

Westinghouse has just started construction on four gigawatt class nuclear reactors for 5 billion to China.


http://www.post-gazette.com/pg/06351/746789-28.stm


Using the calculation in


http://www.westinghousenuclear.com/docs/news_room/worldview1002.pdf


with Public Power's trusty public power mortgage calculator at 4% over 40 years and you get less than 2 cents a kwh.

Another source for 2 cents a kwh is


http://nuclearinfo.net/Nuclearpower/WebHomeCostOfNuclearPower


This is not science fiction construction started this month..


http://pittsburghlive.com/x/pittsburghtrib/business/s_621526.html


13) Gen 4 Thorium Reactors 1.2 cents a kwh

Use wastes from previous Generation Nukes as fuel and spits out much less radioactive ash

Generation IV thorium reactors. 200 Million for a 100 mw reactor with Public Power's trusty public power mortgage calculator at 4% over 40 years at 90% baseload and you get around than 1.2 cents a kwh.


http://rethinkingnuclearpower.googlepages.com/aimhigh


14) Nuclear Fusion .001 cents


First attempt goes hot at Los Alamos next year.


http://www.engadget.com/2009/03/31/nif-scientists-set-the-controls-for-nuclear-fusion/2


For pulse fusion power example costs can be between $200,000 and $300,000 for a 20 MW plant or a tiny fraction of a cent per kwh.


http://peswiki.com/index.php/Directory:Focus_Fusion


15) Small Nukes 1.9 cents a kwh

Hyperion has firm orders for 6 and options on 12 small 70 mw, 25 mwe reactors at $25 Million each for deliveries starting in 2013.


This units can run between 5 and 10 years depending on power output then are rebuilt. Assuming 70% utililization 3% 10 year money we get.


25000*.116/(.7*25*365*24) or 1.9 cents a kwh


16) 2008 Power call at 31 billion


http://thetyee.ca/Views/2009/05/13/ItHurts/

http://www.plutonic.ca/s/Media.asp?ReportID=345924&_Title=CKNW-Sean-Leslie-Show-with-John-Horgan-BC-Energy-Critic-and-Blair-Lekstrom-...

3 comments:

  1. Thank you. I need to read it all again (and again) but this is wonderful information.
    Why won't people"get it"? I know the papers and tv are big supporters of Campbell's Liberals and will barely make a negative gesture in their direction.
    It's going to be BC Rail all over again. And we've known about that one for years.
    Corruption, greed and add a little TILMA should people find the gumption to say no, we are getting the government we deserve? I hope not.
    But thank you again for this article. I've not read anything so informative in too long.

    Good luck to us all come Tuesday.

    Geo

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  2. Perhaps you should download and use BC Hydro's levelised cost calculation - this is the generally accepted manner to compare different projects with different start dates, delivery profiles and contract durations. It also takes into account the benefits of the IPP contracts increasing at 50% or less than CPI. While you are at it, look at BC Hydro's seasonal price adjustment and 'freshet' cap on firm energy. BC Hydro and the BCUC do look far and wide for all sources of energy, and if they thought that their own projects were going to be more economical than IPP's, you could be sure that they would fast track them. Their problem is that the large projects come with a high environmental and financial cost, tremendous permitting risk (remember 3-Gorges) and Site-C will only replace the energy and capacity from Burrard Thermal when it is eventually decommissioned. I challenge you to ask BC Hydro what the 25MW Aberfeldy project cost them, how much energy it produces, and what its overall cost / kWh including financing is? Maybe this is why BC Hydro does not want to be building 5 or 10 of these around the province? BC Hydro received many bids for the 2008 Clean Power Call, enough to be truly competitive and market related. So I think you are premature in assessing the prices and quantities. Before you say that Plutonic and other hydro IPP's have negligible operating costs, perhaps you should become informed on water rental rates, local and provincial taxes and the true cost of operating and maintaining a plant for 40 years? When you truly start to understand the choices that BC Hydro has, I think they are doing a pretty good job. Their planning starts with ambitious conservation targets, takes into account long term energy requirements and aims to meet these from a multitude of resources including imports, IPP's and their own resources. As a customer of BC Hydro, I recognize that any new supply is going to be expensive because it is built in 2010-15 dollars, not 1960 $$, all we should be asking for is a real thorough evaluation of what the alternatives really cost and who is accountable when the capital cost runs over. Aberfeldy may have been a wonderful plan on paper, but now it is pretty expensive power that BC Hydro customers are landed with. Hydro is supposed to be their forte, now you want them to repeat the exercise with wind, tidal and solar too?

    ReplyDelete
  3. Oh thank you for finally coming out of the closet. Are you THE "no campaign donation" Donald? Hmm.

    " Perhaps you should download and use BC Hydro's levelised cost calculation - this is the generally accepted manner to compare different projects with different start dates, delivery profiles and contract durations."

    I have a lifetime of experience doing Engineering Economic Studies on various projects, using and writing the associated tools. BCHydro management has been given the word to prove in Pirate Power or else. Tool inputs are easily massaged to produce the desired result.

    "It also takes into account the benefits of the IPP contracts increasing at 50% or less than CPI."

    Just like the cost of your PC and big screen TV have gone up year after year? It's called Moores Law Donald and it effects new power technologies as well as electronics. I have posted many links to articles showing costs for new technologies. Many of them are projected to be substantially less expensive than current technology.

    " While you are at it, look at BC Hydro's seasonal price adjustment and 'freshet' cap on firm energy"

    Oh do please please please post us a link for the freshette cap. I know your contracts are secret but quoting something out of the realm of fiction when the immensity of the freshette flow is so well documented is really just politics.

    " BC Hydro and the BCUC do look far and wide for all sources of energy, and if they thought that their own projects were going to be more economical than IPP's, you could be sure that they would fast track them."

    And for sure they would but Gordon Campbell would fire them the very next day. If they were engineering oriented and not political Generation 3.5 nuclear would have starred in their calculations now wouldn't it.

    " Their problem is that the large projects come with a high environmental and financial cost, tremendous permitting risk (remember 3-Gorges) and Site-C will only replace the energy and capacity from Burrard Thermal when it is eventually decommissioned. "

    And Bute is not a large capacity project?. But you are right Pirate projects get fast track environmental assessments. BCHydro projects do not.

    "I challenge you to ask BC Hydro what the 25MW Aberfeldy project cost them, how much energy it produces, and what its overall cost / kWh including financing is? Maybe this is why BC Hydro does not want to be building 5 or 10 of these around the province?"

    Yup they screwed that one up and you boys never cease reminding us of it. Why just this summer they also screwed up downtown power feed diversity and no doubt over the years many other projects. As you Pirates are fond of pointing out there is risk in all engineering works. However there are many experts in run of the river engineering projects in Europe and here at home. I'm sure that includes Bechtel and SNC Lavelin to name two. BCHydro could have simply gone out for tender and went for the best bid. Are you telling me Donald that all your projects are built by Pirate employees or are they contracts too? No BCHydro is not building the projects because Gordon has told them they can't on numerous occasions and in the media

    "BC Hydro received many bids for the 2008 Clean Power Call, enough to be truly competitive and market related. So I think you are premature in assessing the prices and quantities."

    Funny the details are kept secret but from the little the public is allowed to find out all seem to run around 12 cents a kwh. Odd that happens don't you think?

    "Before you say that Plutonic and other hydro IPP's have negligible operating costs, perhaps you should become informed on water rental rates, local and provincial taxes"

    BCHydro does not pay taxes and I am not trying to evaluate your profits situation under the Canada's tax act. I can't without your private corporate details and a couple of tax attorneys. I can only look at it on the basis of what BCHydro pays you and what the alternative is.

    " and the true cost of operating and maintaining a plant for 40 years?"

    Modern large public power projects are remotely monitored, maintained and controlled. Rarely is it necessary that maintenance personnel attend a site. Relative to the capital cost of these projects maintenance in modern computer based installations is very low.

    "When you truly start to understand the choices that BC Hydro has, I think they are doing a pretty good job. Their planning starts with ambitious conservation targets, takes into account long term energy requirements and aims to meet these from a multitude of resources including imports, IPP's and their own resources."

    I understand full well the choice BCHydro engineers have - do what Campbell tells you or find another job!!!. They are doing the best job possible given they have utterly no options. They must spend all available resources buying high cost Pirate Power which will have to be sold at an enormous loss into the spring spot market. The no nukes necessary policy alone will cost taxpayers tens of billions of dollars and render our industry completely uncompetitive.

    As a customer of BC Hydro, I recognize that any new supply is going to be expensive because it is built in 2010-15 dollars, not 1960 "$$, all we should be asking for is a real thorough evaluation of what the alternatives really cost and who is accountable when the capital cost runs over. "

    I have posted many links to articles showing costs for new technologies. Some of those costs are firm like Westinghouse's 4 gigawatt class nuclear reactors to China with 10 times the baseload high value power at almost the same cost as Bute with it's low value freshette power that has to be sold at an enormous loss. Read the links!!!!!

    "Aberfeldy may have been a wonderful plan on paper, but now it is pretty expensive power that BC Hydro customers are landed with. Hydro is supposed to be their forte, now you want them to repeat the exercise with wind, tidal and solar too?"

    Once again they can contract out to the best bidder on any project they do. BCHydro can do a very good job but politicians for their own reasons (campaign donations, board of director appointments, consulting fees and jobs for friends and insiders) have tied their hands.

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