Drought conditions force BC Hydro to rely on power purchases

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Persistent drought conditions have forced BC Hydro to rely on costly energy imports this year for one-fifth of its domestic demand, while the Crown-owned utility has missed an opportunity to fill the Site C dam’s reservoir this year, which could have mitigated the shortfall.

Throughout the summer and early fall, BC Hydro was aiming to do the filling a year ahead of schedule, and the dozens of regulatory approvals needed to proceed had been obtained. This last major milestone in the $16-billion hydroelectric project would have brought it into service next spring, after being beset by technical challenges, delays and cost-overruns since construction began in 2015.

But on Nov. 14, Hydro officials decided to wait until next fall to close the tunnels that have been diverting the Peace River around the dam site, which would allow the reservoir to fill over a period of months.

“We just got to a point where winter conditions were setting in, and it wasn’t just possible start filling that late into fall and winter,” said Greg Alexis, Site C spokesperson.

After two years of exceptional drought, and a forecast for another warm, dry year ahead, the decision sets up the province’s major electricity provider for continued reliance on power imports at a time when B.C.’s electricity needs are growing faster than expected.

Over the years, BC Hydro has made substantial income through its trading arm, Powerex, as a net exporter of electricity. But it’s among Canada’s biggest public electricity utilities in feeling the pressure from unusual drought conditions. In the first half of the year, Manitoba Hydro’s projected surplus flipped to a deficit because low water levels have left it with less power to sell in the U.S. spot market.

To date, BC Hydro has acquired a net 10,000 gigawatt hours of electricity this year from imports. In the first half of the fiscal year, Hydro added $463-million to one of its deferral accounts “primarily due to higher net system imports,” according to the utility’s quarterly financial reports. BC Hydro uses deferral accounts, which track costs incurred that have not yet been recovered from ratepayers, to smooth rates.

Minimal snowpack, drought and record high temperatures have created a parched landscape across most parts of Canada. That’s affecting the provinces that rely heavily on hydroelectric power, including B.C., Manitoba and Quebec.

The International Energy Agency, in its latest update on electricity statistics, noted that Canada’s total electricity generation declined in September to the lowest levels in more than a decade, driven primarily by a reduction in hydroelectric generation. Extreme weather is to blame, according to the report, noting that 2023 had the warmest September on record in North America.

On the day that Hydro officials abandoned their ambition to fill the Site C reservoir this fall, the massive Williston reservoir just above Site C was sitting about four metres below normal levels – the lowest it has been since 1991.

At the same time that climate change is hammering hydroelectric power producers, inflationary pressures have governments seeking rate relief from their major utilities. In B.C., where the New Democratic Party government will face an election in 2024, Energy Minister Josie Osborne applauded BC Hydro for seeking a rate hike next spring that would be well below the rate of inflation.

“It’s more important than ever for us to keep the cost of clean energy down,” she said in a statement in October.

The coming April 1 rate hike of 2.3 per cent has been approved by the provincial energy regulator, subject to adjustments. If BC Hydro had filled Site C’s reservoir this fall, however, that could have put serious upward pressure on rates next year. (Until now, the costs of building the dam have not been reflected in rates. The majority of the impact on BC Hydro rates from the dam begins with the first generating unit coming into service.)

Mr. Alexis said the decision to wait until next fall to fill the reservoir was based on technical considerations. The approach channel, spillway gates and powerhouse intake gate were not finished: “We weren’t ready,” he said.

The government first approved the Site C megaproject in 2010, but faced questions of whether the power was needed. Today, the dam is expected to help the province adapt to climate change, offering more clean power to wean the province off its reliance on fossil fuels. In recent years, BC Hydro has seen increased demand for power from all sectors – residential, commercial and industrial.

The demand is fuelled by population growth and increased industrial development, but also from the shift to electrification. Light-duty electric vehicle sales have increased, and more homes and buildings are switching to heat pumps.

Between now and 2030, BC Hydro expects electricity demand to increase by 15 per cent or more, and is now working to add more generating capacity. The sustained drought in Western Canada won’t make that easy.

BC Hydro’s large dams, fed by reservoirs which are replenished by spring snowmelt, are the backbone of the province’s electricity grid. The Peace River watershed provides more than one-third of all B.C.’s hydroelectric power, and cumulative inflows to the Williston reservoir between October, 2022 and September, 2023 are currently the lowest on record.

Armel Castellan, a meteorologist with Environment and Climate Change Canada, said the drought that envelopes most of the country has many causes – climate change, marine heat waves, land use changes and the normal climate variability that is charted in phases such as La Niña and El Niño winters.

And there is a high probability that 2024 won’t bring relief, especially for the Peace River watershed.

“If I can say the deck is stacked for certain outcomes, it would be that El Niño will bring the warmer temperatures, and a lower snowpack. We can imagine the freshet of the snow melt will be muted – a whimper of its former self,” he said.

Those features of an El Niño winter are compounded in the Peace, because it typically brings a warm and drying flow of air across the Rockies.

“The Peace is in the bullseye.”