The cost effectiveness of new reservoir hydroelectricity: British Columbia’s Site C project

Abstract

Large-scale, reservoir hydroelectric facilities can play an important role in decarbonizing the electricity sector. However, new hydroelectric facilities are costly, and several recent projects in Canada have been subject to cost over-runs. In this paper, we develop a methodology for evaluating the cost-effectiveness of new reservoir hydroelectric projects. We apply this methodology to a case study of the Site C hydroelectric project currently under construction in British Columbia, Canada. Our approach makes use of a purpose-built linear programming capacity expansion and dispatch model, resolved at an hourly frequency and incorporating detailed treatment of balancing area requirements, available wind and solar resources, watershed constraints on hydroelectric potential, and endogenous electricity trade. Our simulations reveal that the value of the Site C project is unlikely to exceed its total cost, and only exceeds the avoidable cost of project cancellation in scenarios where BC and Alberta build additional inter-provincial transmission capacity and aim for 100% decarbonization of their electricity systems. Site C provides a cautionary tale for policymakers and planners pursuing large hydro-electric projects. Potential cost over-runs can render large hydroelectric projects uneconomic relative to alternatives. The decision to complete the Site C project is only justified by its high sunk costs.