February 2007: B.C. Can't Afford To Burn Coal

Coal-fired power not nearly as cheap as it's purported to be
February 1, 2007

Controversy has erupted in British Columbia over the Campbell government's claim that the province is running out of electricity and that the solution is to encourage coal-fired power generation. Overlooked in the debate is the mistaken assumption that coal, particularly using current combustion technologies, represents a low-cost source of power for the province. The argument then becomes whether B.C. citizens should sacrifice their health and the environment for allegedly cheap power. Nothing could be further from the truth.

In B.C. Hydro's 2006 call for tenders (CFT), the coal-burning proposals ranged in cost from 6.7 to 8.2 cents per kWh, delivered to the lower mainland. Distribution costs will push this figure to 8-9 cents per kWh. Compare this to B.C. Hydro's cost of generation from its own hydroelectric facilities, which was reported as 0.54 cents per kWh in 2004. Assuming an approximate cost of 3 cents per kWh for transmission and distribution, the total cost is around 3.5 cents per kWh. (Residential rates are currently about 6 cents per kWh.) And this is without any consideration of environmental or human health costs.

What about the long-term price effects of moving into coal burning? We know from experience with oil and natural gas that, as demand rises and supply declines, the price of non-renewable resources like coal will rise dramatically. In addition, as private companies take over the business of generating electricity and look south to bigger markets, we will have to compete for a share of the power that is generated here. As it is, residential rates for electricity are substantially higher in the U.S. and Alberta, where coal burning is a significant source of generation.

Utilities are also increasingly concerned with the financial risks associated with coal-fired generation. In its 2006 Integrated Electricity Plan (www.bchydro.com/rx_files/info43514.pdf), B.C. Hydro looked at the effects of various future greenhouse gas regulations on the cost of energy from coal burning. It considered five possible scenarios. The "mid-greenhouse gas case" is consistent with GHG offset costs currently used by various U.S. utilities in their Integrated Resource Plans. It assumes an offset of $15/ton of CO2 from 2008-20014 and $25/ton from 2015-2020. This would add 1.6 cents per kWh to the cost of production. At this rate, coal becomes more expensive than wind power. Other analysts have predicted the "carbon tax" could rise to as much as 3 cents per kWh.

So what should B.C. be doing? In its 2002 Conservation Potential Review (www.bchydro.com/rx_files/info/info6471.pdf), B.C. Hydro estimated that the province could capture the equivalent of 5,800 GWh of energy by improving insulation, moving to more efficient appliances, and taking advantage of other known energy saving measures. (1 GWh equals 1 million kWh.) Its 2007 updated Conservation Potential Review is expected to identify even larger savings. This is equivalent to the energy produced by 15 plants the size of the coal-and-wood-waste-burning plant proposed for Princeton. The average cost for the improvements in efficiency was set at about 2.5 cents per kWh--and that is the entire cost (unlike new generation projects) because conservation requires no additional transmission and distribution investment. What's more, research done at Simon Fraser University shows that far more jobs are created saving energy through conservation than from building and operating more coal-burning or hydro power plants.

But conservation isn't the only source of power available. The province has chosen to take the "downstream benefits" from the Columbia River Treaty in cash, rather than electricity. These benefits are currently 4,279 GWh of energy per year. The price works out to around 5 cents per kWh.

Maybe someone should ask B.C. Minister of Energy Richard Neufeld why B.C. Hydro is selling the province’s treaty entitlement to the U.S. for 5 cents per kWh and then buying new power for 8.75 cents per kWh. The answer might be that, when the province sells this power, the money goes directly into general revenue, making the government's financial picture look healthier. When it buys new power, the cost is borne by electricity customers.

Finally, clean and renewable sources of energy such as wind and tidal power have been decreasing in cost every year. B.C. Hydro reports wind power bids in its 2006 CFT ranged from 7.1 to 9.1 cents per kWh, depending on the location: very close to the price of the coal bids. Many European countries and other Canadian provinces are moving rapidly into wind production. Southern California Edison, a profit-driven corporation, recently signed a contract to purchase the power from what will be the largest wind generation project in U.S. history at 1500 MW. It makes more sense to invest scarce resources in a technology whose cost is decreasing, rather than one whose costs will fluctuate, then rise steeply before it disappears.

Critics of wind generation like to discount its value. Since the wind isn’t always blowing, they don’t consider it to be “firm” power. This would be a problem if wind was the only source of energy. In B.C., where the system is 90% hydroelectric, the reservoirs act like giant storage batteries. When the wind is blowing, it can be utilized for power and the water held back behind the dams. When the wind isn’t blowing, the turbines in the dams can be quickly activated to meet the demand. However, if B.C. moves to a future where coal becomes a significant source of energy, it will lose this advantage.

Coal, of course, is being promoted as the solution to the claim that B.C. is running out of electricity. This is a "crisis" that has been manufactured by government decisions:

  • The government has not attempted to capture the conservation potential identified in B.C. Hydro's own review.
    It insists on taking the "downstream benefits" in cash rather than energy.
    It has not pursued wind and other renewable sources of power.
    Independent power producers have been allowed to export the electricity they produce from subsidized access to public resources.

Although B.C. Hydro defends the financial benefits of selling surplus power when the price is high, it doesn’t acknowledge that the reverse may also be true. It may make more economic sense to import power in low water years than to build a surplus into the system by entering into expensive long-term contracts with independent producers. Compare the 8.75 cents per kWh cost in the CFT to the 5.5 cents per kWh cost in the Pacific Northwest market.

The province does have enormous reserves of coal (estimated by the Ministry of Energy as 20 billion tons in surface or shallow underground deposits). The coal-mining industry, a major contributor to the ruling Liberal party, can earn far greater profits by burning the coal in B.C. to make electricity than by exporting it.

Consequently, if these two projects proceed, expect to see even more proposals for coal-burning generators near existing coal deposits in the coming months. A project near Stewart is on the table. Other likely locations are the Kootenay coal mines near Sparwood, the Klappan and Groundhog mines near Dease Lake, Hat Creek where a coal-fired plant was rejected in the 1980s, and Quinsam near Campbell River.

Before they are led down this road, however, the citizens of B.C. need to carefully consider the full cost of burning coal, and decide what kind of energy future they really need.

(Richard Tarnoff lives in Hedley, B.C.)