THE CHALLENGING PATH TO NOVA SCOTIA's ENERGY FUTURE
…and the shifting variables that need to be fully deliberated by our politicians and regulators
Challenging status quo assumptions is a key to building and maintaining effective strategy within any organization. Recognizing that ecosystems and technology can change key assumptions can lead to great advancement of a mandate or an organization.
Nova Scotia has taken initial steps on the path to becoming a green electricity province and achieving the goal of carbon neutrality. But, as of 2018 the province still generated 76% of its energy needs from fossil fuel products, a significant 63% of that from its traditional coal-powered plants (see chart)
The green electricity producers, wind and hydro, represent 21% of the power transmitted to users on NSPI’s province-wide grid.
In order to become a green electricity province, NS needs to build the infrastructure to produce a great amount of new renewable electricity energy, or will be forced to buy that electricity from external markets. On the way to carbon neutrality, Nova Scotia must examine its propensity to fund or partner in mega-projects in which NSPI’s profits are guaranteed, versus encouraging and providing power purchase agreements for independent producers (IPPs)
The real risk is operating under the following old paradigms that can be challenged as false or deceptive, unless the options and the outcomes are fully examined and qualified:
Ø Renewable energy electricity is more expensive than fossil fuel based electricity: This may have been a safe assumption at some point in the past, but with the advancement of technology and also supply of expertise and equipment, renewable energy is no longer as expensive comparatively to combustion. To re-evaluate, NS needs to know with much greater accuracy the cost of electricity currently generated in NS;
Ø Renewable energy includes a lot of price risk: Independent Power Producers who would build renewable energy assets in Nova Scotia prefer fixed long term rates (up to 50 years) for the electricity they sell to the grid, and therefore present lower risk than NSPI owned assets or shorter term contracts with external electricity sources.
Ø Renewable energy requires huge investments from government: If doing business with NS and NSPI becomes attractive enough to attract Indepent Power Producers, NS may be able to achieve the entire required new domestic supply of renewable energy without investing anything.
Ø Passing along risk to independent power producers (IPP) of renewable energy, and requiring competitions for power purchase agreements, is the best way to achieve a combination of service quality and cost effectiveness for Nova Scotians: Passing certain types of risk to the Independent Power Producer (IPP) would lower costs for the NS ratepayer (compared to NSPI ownership of the assets), however passing other types of risk to the IPP would increase costs and lower quality. In short, the only risk that should be shouldered by the IPP would be the risks that benefit the NS ratepayer, and those are the risks the IPP primarily controls, such as the build out cost of the asset, and producing electricity efficiently passing on risks the IPP does not have adequate control over would also reduce the number of IPPs willing to build new assets in NS; which in turn would force NSPI and NSUARB to accept the risk of purchasing externally produced power to make up for the shortfall in electricity production, or to source new electricity assets from NSPI . Price points in renewable energy are consistent and predictable. Rather than run a competition for lowest cost power, when the price point is well understood – which can lead to quality issues or incomplete projects – the competition can introduce a viable price point and consider environmental factors, community, auxiliary benefits, stability, etc… in selecting winners. Competitions can be structured around a viable price point, and if excess applications under that price point are received, the best quality applications should be chosen.
Ø All vested parties (NSUARB, NSPI, DEM, and IPPs) know the comparative cost of different sources of electricity in NS: There is little public information available on total costs of electricity from each domestic electricity generation asset in NS, whether from NSPI or IPP owned assets. If the Levelized Cost of Electric Energy was carefully calculated and published for public consumption, it would inform and motivate all related parties to seek the best long term solutions.
To be optimistic, there is an enormous economic and environmental benefit to questioning these old assumptions, and approaching our energy strategy with open eyes and a new enthusiasm.
With improved governance design and careful business modeling, Nova Scotia should encourage IPP proposals that will benefit the whole system, including NSPI and the UARB. IPPs will play an important and growing role in Nova Scotia becoming an affordable green electricity province, and the province can become a leader in the mission to become carbon neutral.
This article is excerpted from Kevin Mullen's white paper “Business Model Decisions for Nova Scotia’s Energy Strategy”. To download the entire whitepaper with detailed commentary and accompanying recommendations…CLICK HERE