We’re heavily subsidizing private power developers. Will Californians profit big?
Published: May 14, 2007
Republican Governor Arnold Schwarzenegger and Liberal Premier Gordon Campbell recently had a tête-à-tête to discuss how B.C. could assist California in dealing with its energy crisis. At the same time, the California Utilities Commission gave Pacific Gas and Electric US$14 million to explore renewable energy sources in B.C. and the feasibility of a new transmission corridor stretching from B.C. to the Golden State.
Conspicuously absent from the self-congratulatory press releases about co-operation between the jurisdictions in pursuing a “green” agenda was the most important issue: Who will own — and benefit from — the development of B.C.’s renewable energy?
A closer look at the B.C. government’s wind energy policies reveals an enormous giveaway of literally billions of dollars in wind farm assets and future public revenues to private power developers. Yet there has been virtually no public discussion of the scope and cost of the government’s wind energy policies.
A clean breeze
Global warming has highlighted the need to develop new energy sources that do not release additional greenhouse gas emissions. For many environmentalists, a major part of the answer for solving B.C.’s future energy needs is clear: tap into the enormous amount of wind energy that is available along B.C.’s coast and in the high mountain ranges in the Interior.
B.C. is blessed with some of the best sites for wind farms in the world. Sea Breeze Power Corp., one of B.C.’s most prominent private sector promoters of private wind energy development, describes this province as “an ideal location for utility-scale wind farms.”
Non-polluting, renewable wind energy avoids the serious drawbacks of conventional generation alternatives. Unlike fossil fuels, wind energy does not release greenhouse gas emissions. Unlike nuclear, it avoids the worrisome — and as yet unsolved — problems of decommissioning reactors and disposing of their spent radioactive fuel.
This is not to ignore the significant drawbacks associated with the impact of wind farm developments — and their related roads and transmission corridors — on wildlife, First Nations’ traditional hunting and ceremonial grounds, tourism and community use of the land base.
For this reason, some locations that may potentially be able to generate considerable wind energy should not be developed because their negative impacts outweigh the energy benefits. However, others are not as intrusive and under the right regulatory and environmental framework may be developed in a way that ensures that their net benefits outweigh the social and environmental costs.
Increasingly, energy from wind farms, like energy from run-of-the-river hydro projects, can be certified as “green.” This means it can command a higher price in jurisdictions — such as certain U.S. states — where customers wish to purchase this form of energy for environmental reasons or where state governments have mandated that a specific percentage of energy sold within their jurisdictions must be “green.”
That’s why many of the same private energy developers that have acquired water licences at bargain basement prices have recently been scrambling to acquire land tenures on the very best wind farm sites in B.C.
Friends helping friends
Just as it has subsidized small hydro projects across B.C., the provincial government has been helping its developer friends in the wind power business. While B.C. Hydro set up the first wind monitoring as early as 1981 and has accumulated a great deal of research on B.C.’s wind potential, the government’s Energy Plan prevents our public utility from developing this resource.
Instead, the government has decided that private interests will build — and own — all of B.C.’s future wind farms. And to help them do so, it has been giving them land tenures on vast tracts of Crown land for next to nothing.
The government has further sweetened this arrangement by helping private interests raise the capital to build their projects. It has done so by getting B.C. Hydro to purchase their energy at premium prices through long term contracts that guarantee developers a public revenue stream of 15 to 40 years.
But when these generous contracts expire, B.C. ratepayers will have no wind farm assets, no price protection and no guarantee that this renewable energy will be used to supply the province’s future needs.
Given that many of the companies now involved in such projects are U.S.-owned or have significant U.S. financing, the government’s policies are transferring ownership and control of the very best of our future renewable energy assets to foreign investors, with little or no benefit to B.C. citizens.
This approach contrasts sharply with Saskatchewan, for example, where SaskPower, the province’s Crown utility, is the owner and operator of the largest wind farms in the province. Instead, the B.C. government has opted to have wind energy developed exclusively by private interests, just as it has reserved the construction of small hydro projects to private power developers.
A helping hand to developers
Wind energy remains much more expensive than most other options at this time. Consequently, private energy developers have been placing considerable pressure on the B.C. government to subsidize wind farm projects, arguing that this is a way to stimulate economic development and jobs in this emerging energy sector.
Under the guise of promoting “green energy,” wind farm developers have been energetically lobbying the government for a variety of subsidies, including:
- Virtually free access to the best sites in B.C.
- Generous energy supply contracts from B.C. Hydro (including tenders specifically targeted at wind energy independent of its cost)
- Assistance with fast-tracking environmental and other land use approvals
- Subsidized access to the transmission grid
- Access to energy storage in B.C. Hydro’s reservoirs
The government has given them most of what they have requested.
Perhaps the most significant policy has been the ban on B.C. Hydro developing, owning and operating its own wind farms. The government’s Energy Plan has effectively cleared the field of any potential public ownership in this area.
Yet while B.C. Hydro cannot benefit from developing its own wind energy projects, the government has directed it and, more recently, the B.C. Transmission Corporation to continue to fund research on the most promising wind farm locations, examine their transmission requirements and assess what other related technology and infrastructure will be required to facilitate the development of new wind farms.
Land, lots of land
To be viable, wind farms require access to Crown land — large amounts of land. The scope of the land give-away is staggering. Literally hundreds of thousands of hectares of the best wind farm sites have already been assigned to private developers. Yet because most of this land is in remote locations, the average British Columbian has no idea of the extent of the land giveaway.
As with the sale of water licences for run-of-the-river hydro projects, the province has been treating Crown lands suitable for wind farms as virtually a “free good.” The government’s position is that private investment is the key to the development of the province’s wind resources.
To do this it is giving investors access to the best sites in the province on the basis of 30-year licences of occupation. This arrangement effectively gives developers virtually all the rights of private property. Once their power plants are up and running, developers can be expected to demand either a permanent right of occupation, or fee simple ownership to secure their assets.
Wind energy is still more expensive than other alternatives and the government believes that it has to keep costs down for the proponents if it is going to be able to stimulate the growth of this sector. This means charging very low land occupancy fees and minimizing other related development charges.
Under a policy announced in 2005, the government will not charge any “participation rents” (i.e., rents for use of Crown land) for the first 10 years that a wind farm is in commercial operation. After that, the rental will be variable, ranging from one per cent to three per cent of the wind farm’s gross annual revenues.
Although this rental arrangement for the most promising wind farm locations may suit the private developers of these farms, it is not clear how it squares with the interests of the public.
While wind farm energy is still expensive, its relative price in relation to other energy may eventually drop, giving the owners of these highly subsidized wind farms significant windfall profits — profits that the government intends to remain in the hands of the private developers.
To further encourage the development of wind farms, the government has also encouraged B.C. Hydro to adopt a “diversified” energy portfolio. This means that even if wind energy is more expensive than other alternatives, B.C. Hydro will try to reserve a block of energy in its future “calls” specifically for wind farms.
Few ownership restrictions
As with water licences for small hydro projects, there are few ownership restrictions on wind power developers. The prospective investor must be a Canadian citizen or resident in B.C. for 10 years, or be a B.C.-registered company.
Given that any Canadian, or foreign, investor willing to pay the $350 fee can obtain registration as a B.C. company, there is no effective restriction on foreign ownership of wind farms. Not surprisingly, U.S. investors are now putting money into B.C.’s wind farm projects.
Foreign ownership of wind farms — and particularly ownership by NAFTA-based investors — raises important public policy issues that have not been widely discussed in B.C.
One of the most important issues, in addition to the question of ownership, is energy self-sufficiency. Restrictions on private wind power exports may be very difficult to impose, regardless of B.C.’s own needs.
Yet instead of taking steps to secure B.C.’s future energy supplies, recent government policy changes, such as Bill 40 — which abolished the requirement for an energy removal certificate — have done the opposite, by opening our transmission grid to private energy exports.
Additionally, the unfettered right to export will also enable private developers to demand California prices if B.C. customers want their energy.
An ill wind
The possibility that B.C.’s renewable energy may be headed south is no longer a theoretical issue. New legislation in California requires utilities to increase the share of renewables in the energy they sell. Consequently, they are very interested in locating new supplies of “green” energy to meet their obligations.
The California Public Utilities Commission recently authorized the payment of up to US$14 million to the Pacific Gas and Electric Corporation (PG&E) for the purpose of studying the feasibility of acquiring wind and other renewable energy from British Columbia and the related costs of a new transmission system for the purpose of moving this energy to California.
Given the B.C. government’s obsession with promoting private power generation, the interest of PG&E in a new transmission corridor along the coast is perfectly understandable.
Such a corridor could, perhaps, start as far north as Kitimat, then run down Vancouver Island, proceeding south to California. It could result in virtually all of B.C.’s coastal renewable energy, including energy from small hydro projects, being committed to satisfy the power-hungry demands of California.
Couple this with foreign ownership of these projects — and all their profits — protected by NAFTA rights, and we may witness one of the biggest energy giveaways in Canada’s history.
Premier Campbell may feel he can successfully arm wrestle “Terminator” Schwarzenegger and get a good deal for B.C.’s renewable energy. But you don’t need to watch the movie to know in advance who is likely to win this match.
Related Tyee stories:
- BC Hydro’s Amazingly Bad Deal for Ratepayers
We give big firms $15 billion. We get higher prices, no assets, no guarantee of supply.
- The Politics of Wind
Wind power is in vogue, but is B.C. failing to set sail?
- Huge ‘Green’ Boondoggle?
Critics claim $300 million will be wasted on BC ‘clean energy’ project.