By Jonathan Fowlie, Vancouver Sun, February 3, 2012
VICTORIA - Premier Christy Clark is making over her predecessors approach to energy self sufficiency to help make way for a significant expansion in the production of liquefied natural gas.
Clark is expected to declare this morning that the province is changing a requirement that BC Hydro be self-sufficient by 2016, even if provincial water levels - important for generation in B.C. dams - drop to "critical" low. Instead, the government will now only require BC Hydro to be self-sufficient at so-called "average" water levels.
The move will mean a significant drop in the need for new power generation projects in B.C., something that comes as part of a plan to allow for the creation of three power hungry LNG plants in the province's northwest.
In her jobs plan last year, Clark set a goal to have one liquefied natural gas terminal operating by 2015 and three by 2020. These plants - which will ship the gas overseas - are meant to cash in on rapidly expanding Asian markets.
Kitimat LNG is expected to begin construction this year of a five million-tonnes-a year facility at Kitimat to be in production by 2015, and Douglas Channel LNG plans a smaller, 1.8 million tonnes-a-year plant.
The third proposal is Shell Oil's plan to construct a plant at Kitimat expected to be in the seven million tonnes-a-year range.
But the plants also represent a sizeable new demand for power here in B.C.
To liquefy natural gas, electricity is required to cool the gas to minus 160 degrees C so it can be shipped overseas. Government has said that BC Hydro can only provide enough power for two of those plants, meaning it has to find new sources to allow for the expansion.
Lowering the self-sufficiency requirement means the province will need to build less new infrastructure here in B.C. to meet the growing demand, and instead can plan to import power from outside the province in years that are especially dry.
A recommendation to move to average water came in a report last year, which predicted that such a change could lower rate increases at Hydro by up to eight per cent in 2016 and up to 20 per cent in 2020 - assuming energy prices remain the same.
Clark has been working to find ways to allow for the creation of the new LNG plants - which are expected to bring new jobs and increased government revenue to B.C. - without adding a significant burden to Hydro ratepayers.
In addition to the move to average water, Clark is expected to say today that owners of the new LNG terminals will be required to help pay some of the cost for infrastructure needed to get power to their plants.
She is also expected to announce the province is looking at green energy projects such as wind power as the primary source for the plants. Natural gas generation will used to firm up the supply.
The plan to push natural gas production for export is designed to cash in on higher prices in Asian markets. Gas that sells in North America for between $3 and $4 a unit is fetching over $12 a unit in Asia, according to government numbers released Friday.
But places like Australia and Qatar are pursuing similar strategies, meaning B.C. needs to move fast to remain competitive.
Critics have questioned if allowing natural gas generation to power even a portion of the LNG plants will keep B.C. from meeting its target of dramatically reducing its greenhouse gas emissions by 2020.
In an interview last month, Environment Minister Terry Lake agreed this may be a challenge.
"I won't shy away from the fact that it's a challenge to develop our resources, particularly our natural gas resources, and still meet those targets but that doesn't mean it can't be done, so we are working very hard to assess it all," Lake said in an interview with the Vancouver Sun.
"We want to make sure we take every available opportunity to power those facilities with clean, green power but we recognize that, particularly as we get to the third project that it may be a challenge," he added.
"If we have to look at alternatives, such as using a small, natural gas-powered electricity plant to shape the clean, green power that we will have up in that area, we need to know what they will mean in terms of emissions."
British Columbia's independent power producers have also warned against the move from critical water to average water when it comes to energy self-sufficiency.
"By redefining self-sufficiency to average water years, BC Hydro would become dependent on the spot market for long-term needs, which is a risky business given price volatility Clean Energy Association of B.C. executive director Paul Kariya said last year.
Kariya said BC Hydro's own forecast predicts spot market prices will rise 50 per cent by 2020 and 100 per cent by 2028. "By locking into long-term contracts with clean energy producers in B.C., BC Hydro can hedge against market variations and eliminate price uncertainty for its ratepayers."
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