Sometime early next year, or possibly even before Christmas, after former B.C. government bureaucrat Peter Milburn completes an independent review of the Site C hydroelectric dam project, British Columbians should brace for sticker-price shock.
And the BC NDP government should brace for excoriation from the BC Green Party for not killing the $11 billion project in 2018, when doing so would have meant a mere $4 billion writeoff.
But despite a red-light warning from BC Hydro that the project now faces “significant cost pressures” that could make Site C a sequel to the Muskrat Falls dam “boondoggle,” which has renewed calls from dam opponents and the Greens to halt the project, the government of Premier John Horgan may conclude that scrapping Site C is not an option.
“When we [the BC NDP] came into government in 2017, we had a very serious discussion about the project and made the decision to go forward,” B.C. Energy, Mines and Petroleum Resources Minister Bruce Ralston said July 31, when announcing Milburn’s appointment as special adviser. “So I’m not sure [dropping Site C] is a realistic alternative. I will await the advice of Mr. Milburn on that.”
A decision on whether to proceed or halt and scrap the project will depend largely on just how serious and expensive new geotechnical risks turn out to be.
The best the Horgan government may be able to do is finish the project, whatever its cost, blame the previous BC Liberal government for sanctioning it in the first place and try to make the best of an overpriced dam by capitalizing on the increased demand for clean electricity that may come from decarbonization.
Budget sure to soar
When the BC Liberal government approved Site C, the budget was $8.6 billion. It was revised to $10.7 billion in 2018. That budget included $858 million in contingency funding – 71% of which is spent, according to BC Hydro – and $708 million in reserves. The project is now about 50% complete, and $6 billion has been spent.
The most recent BC Hydro quarterly progress report to the BC Utilities Commission says the main civil works contract was increased by $332 million in March 2020.
An assessment by Deloitte found the project on time and on budget as of September 2017, but estimated it could cost $10 billion to $12.5 billion, depending how many delays it suffered.
In 2018, the cost of cancelling Site C was estimated at $4 billion, which would require a rate hike of about 10% if the writeoff had to be borne by ratepayers. That included $2.1 billion in expenditures already made and $1.8 billion in termination costs.
Since then, another $4 billion has been spent on the project. So the sunk costs now would be at least $6 billion, and that’s not including the cost of putting everything back the way it was, or the cost of building new power generation facilities in the future or of buying electricity from other jurisdictions, should B.C.’s power demand increase.
If Site C were to be cancelled, the $280 million Peace River Electricity Supply project would also become a white elephant. It is being tied into Site C to increase the Peace region’s electricity supply, largely to electrify the upstream natural gas industry.
Given that Site C’s capital budget is $10.7 billion and that $6 billion has been spent to get it to the halfway mark, the project’s final cost could end up in Deloitte’s upper range estimate: $12.5 billion.
Robert McCullough, a consultant hired by the Peace Valley Landowner Association, which has long opposed the dam and called for its cancellation, estimated in October that the project will likely cost an additional $2.1 billion, which would put the final price tag at $12.8 billion.
Like the Lower Churchill project (Muskrat Falls) in Labrador – now expected to cost double the original $6.2 billion estimate – Site C is likely too far advanced now to kill, unless the geotechnical challenges that have arisen recently prove too costly to justify its completion.
Geological risks well-known
Earlier this year, the Horgan government was informed that the project is now facing delays and added cost pressures. A work reduction earlier this year as a result of the COVID-19 pandemic is one of the new cost pressures.
“The project is experiencing material schedule impacts from the pandemic and these impacts will affect the project completion dates,” BC Hydro states in its most recent progress report to the BCUC.
The project also still faces legal challenges from the West Moberly First Nation, which is seeking an injunction as part of a treaty infringement claim.
But a greater concern, in terms of delays and costs, is a geotechnical problem that was anticipated as a possible risk.
According to BC Hydro’s BCUC update, “a project risk has materialized on the right bank” that could lead to “significant cost pressures.” It first came to light in December 2019.
“Based on further engineering analysis of the proposed mitigation measures, the foundation enhancement costs are anticipated to be more substantial than initially expected in January,” BC Hydro warns in a July 2020 quarterly progress report.
That might be translated as “hang on to your wallet.”
When the NDP government learned of the new geotechnical problems and cost increases this summer, Horgan and Ralston expressed disappointment and surprise, and assigned Milburn to look into the issue.
Those familiar with the project, including a former government bureaucrat, tell BIV that if the government is surprised, it shouldn’t be, because geotechnical risks peculiar to building a dam in the Peace River Valley at Site C have been known for decades.
The Peace River Valley’s shale geology makes it prone to landslides. Several hydroelectric dams in Western Canada have been built in similar geological conditions.
Site C dam has been designed in an L shape to avoid building structures like a spillway and powerhouse on landslide-prone shale. The design allows for those structures to be built on more solid bedrock on the right bank. But now there appears to be a problem with the bedrock.
John Clague, a geologist at Simon Fraser University, says geotechnical trouble had been anticipated on the valley’s left bank. The most recent red flag is over the right bank, where the powerhouse, spillway and other dam infrastructure is being built.
“They just assumed that the bedrock in there was stable and solid,” Clague said. “It appears that [rock material] is not as stable as they had thought. It’s not going to slide into the reservoir, but it can kind of contract and expand a bit.
“If you’re going to build a powerhouse and a dam on top of that stuff, you cannot tolerate any expansion or contraction because ultimately it’s going to damage – even destroy – the foundation of the dam. They’ve got to be perfectly stable.”
There are engineering approaches that can improve stability, but they could be expensive. “I can only imagine that would cost a fortune,” Clague said.
BC Hydro pretty much admits it will.
“The foundation enhancement costs are anticipated to be more substantial than initially expected in January,” it wrote in its last progress report.
Dwayne Tannant, professor at the University of British Columbia’s Okanagan campus’ school of engineering, did his undergraduate thesis on Site C and the landslides that occur at that location.
He said a number of hydroelectric dams have been built in Western Canada in regions with similar shale geology, including the Gardner Dam in Saskatchewan. Once the dam is built, he said the entire structure could move slightly downstream as it settles.
“But it’s not as if it’s going to rupture and fail the dam,” Tannant said. “The chances of that happening are really remote.”
He also dismissed concerns that hydraulic fracturing in the region’s natural gas sector poses a risk to the dam as a lot of “noise.”
“All our dams are designed to handle seismic influences,” Tannant said.
If a dam can be built to withstand a major subduction earthquake, it can withstand the smaller mini-quakes that hydraulic fracturing can sometimes produce, he said.
“The dam should handle that without much issue at all.”
But he added there are legitimate questions to be asked about latest geotechnical concerns.
“It’s worth asking the tough questions, and BC Hydro should have the answers to those questions.”
If it does, it isn’t offering them up. In response to an interview request from BIV, BC Hydro said no one was available to answer questions.
Even the BCUC is having a hard time prying answers out of BC Hydro. It has grilled BC Hydro over the recent cost overruns and geotechnical issues. But BC Hydro recently told the BCUC it will have to wait until Milburn’s review is complete to get any answers.
“BC Hydro believes that it should refrain from providing responses until after the independent review has been completed and after the government has received the consultant’s final report of findings and recommendations,” the utility writes in a letter to the BCUC.
Nor does BC Hydro plan to file its usual quarterly progress report to the BCUC until Milburn’s final report is submitted. It was originally due in October, but the snap election delayed it.
Why Site C?
Site C was chosen as the best option among a number of sites along the Peace River for a third dam on the Peace River. The two others built upstream are the W.A.C. Bennett and Peace Canyon dams.
Having a third hydroelectric dam on the Peace River – even an overpriced one – may not be such a bad thing to have a decade from now, when decarbonizing the economy will mean an ever-growing need for more clean electricity – provided, of course, its foundation doesn’t fail.
Marvin Shaffer, a professor of public policy at Simon Fraser University (SFU), has followed the Site C saga over the years. He says the project’s opponents often miss a key point: cost versus value. He doubts the NDP government would cancel the project now.
“It is possible, though highly unlikely, that the geotechnical problems and cost escalation for Site C would justify terminating the project at this time,” Shaffer recently wrote in a blog post.
“If you were to abandon that, you not only have the costs you’ve already spent, but the costs you’d have to incur to remediate the site, to walk away from contracts – it would be a huge, huge cost you’d be facing,” he told BIV.
As a clean energy source, hydroelectric dams offer significant advantages over wind, solar, run-of-river and other renewable energy sources due to their capacity to store water and use it to generate power when it’s needed.
Hydroelectric dams are more expensive to build than wind or solar, but they can last 70 to 100 years, and, unlike renewables can provide firm, dispatchable power that can meet peak demand. That dispatchability makes dam power more valuable. It gives jurisdictions that trade in power an arbitrage advantage – allowing them to buy low and sell high.
Mark Jaccard, an energy sustainability economist at SFU, urged the BCUC to consider dispatchability when tasked with reviewing Site C in 2017. In a Vancouver Sun op-ed, he wrote, “Comments that wind and solar are getting cheaper than Site C because their costs are falling are nonsensical. These costs must be compared to the value of the electricity.”
In a submission he wrote to the BCUC for the BC Sustainable Energy Association, Jaccard wrote: “The BCUC panel must take into account the differences in value provided by non-dispatchable and dispatchable generators when evaluating the claim that falling costs of non-dispatchable renewables erode the relative economic position of Site C. It may well turn out that the effect is the opposite.”
Shaffer added that Site C dam should not be viewed as a competitor to wind power. At some point, B.C. may need more power generation, as the economy moves towards greater electrification, and hydro dams can provide a storage solution for intermittent wind power.
“You shouldn’t think of Site C and wind as substitutes,” Shaffer said. “They’re complements. Site C makes it possible to absorb more wind in your system efficiently.”