- 1 Why private ownership?
- 2 Why public ownership?
- 3 What we propose, and why
- 4 Corporations and Co-operatives
- 5 Cost
This article is an attempt to clarify the details of our proposal for citizen involvement in SaskPower’s infrastructure investments. For the original and much shorter version see our post on publicly owned renewable energy.
Why private ownership?
SaskPower still owns most of the power generating infrastructure in Saskatchewan. Our evaluation of trends in SaskPower’s development tells us that SaskPower is likely to continue to own the large-scale assets, while some smaller pieces will belong to private companies. These companies are bound by power purchase agreements with SaskPower.
SaskPower has moved to a private model for some of its power acquisition in order to leverage some of the expertise of the private sphere. This is especially true in terms of generation sources that are seeing rapid development. For instance, SaskPower is a relative newcomer to the world of wind power. Even though their one wind installation, the Centennial Wind Farm, has been very successful1 , they are looking to the private energy companies for the next 175 MW of wind power installations2 .
Here are some of the reasons why we think SaskPower is choosing this method:
- The up-front cost of power facilities will likely now be shared with the private sphere. This means that they can draw capital from the market for investment, rather than having to put the money up front themselves. Although the Saskatchewan people will eventually be paying for this infrastructure in the form of utility rates down the road, the corresponding increases to the costs of electricity can be made over time.
- There are many energy companies in the world with a lot of experience under their belts. SaskPower is seeking to learn from these companies by inviting them to develop some infrastructure here.
- Staffing and management issues for projects of this size are non-trivial. SaskPower is saving themselves a lot of bureaucratic burden by paying the private sector to take on many of these responsibilities. Additionally, the private sector will be making competitive bids on power infrastructure based on their own feasibility studies. SaskPower will almost certainly provide them with a lot of information for their studies, but the studies themselves would have been funded privately. SaskPower would still have to undertake its own studies to verify the viability of a project from their perspective once it has been proposed to them by a private firm.
Why public ownership?
There are a number of reasons why the people of Saskatchewan would prefer their power infrastructure be owned by their own public utility. We won’t go into much detail but here are some of the basic reasons:
- SaskPower is charged with the mandate of providing power to the Saskatchewan people, not maximizing profits to shareholders. All other things being equal, the crown corporation will have lower power rates because they are not seeking profits on invested capital. SaskPower is expected to make enough money to add infrastructure to their system as the needs of Saskatchewan grow over time.
- Rural electrification. Due to the creation of SaskPower, many areas of Saskatchewan received power infrastructure earlier, and now see better maintenance compared with what would have been likely if profit-seeking private enterprises were our electrical utilities. It is expected that without a public utility, it would be much more costly for rural areas to get power. Due to Saskatchewan’s substantial rural population, this is an important issue.
- Security. We know that SaskPower cannot pick up and run off to somewhere else with its physical, financial, and intellectual capital because the Saskatchewan people own it. It simply does not have the mobility of private corporations.
- SaskPower, like other government agencies, can secure cheaper capital. This is because there are additional guarantees on the credit-worthiness of crown corporations. This effect can help in negotiating lower interest rates when securing financial capital for projects.
What we propose, and why
Our goal is to keep our physical power infrastructure publicly owned, but gain some of the advantages of the private sector listed above. The key to our recommendation is voluntary public investment from the people of Saskatchewan. In order to stimulate new renewable energy construction, we recommend that SaskPower open up renewable energy projects for direct public investment. From the perspective of the investor, this process would look something like this:
- The people and corporations of Saskatchewan are presented with a plan for a renewable power infrastructure development. The details of how this plan, or set of plans, is created and chosen are discussed in later sections of this article.
- Individuals and corporations of Saskatchewan have the choice to voluntarily invest their money into those projects that they regard as a good investment.
- If they do invest, they are buying the rights to a set amount of power production per month (or per year) for the lifetime of the project. For example, something like $10,000 might buy 1kW of production (or about the usage of one house in Saskatchewan, time-averaged over a year) for the lifetime of the energy project which might be 20-60 years depending on the type.
- All investments are pledges until the cost of the project has been raised. That is, the investment does not necessarily go through unless enough capital is raised to begin construction. There is a limited quantity of these green energy futures to be bought for each project, since each project has a limited production capacity. Once the required capital has been raised, the project can commence. If a certain amount of predetermined time passes without enough investment pledges to meet the minimum requirements for building the power project, it does not go forward and the pledges are never called in. This is similar to the model known as the ‘threshold pledge system‘. It has a long history in the arts, and has recently been successfully used by the entrepreneurship platform KickStarter.
- The investors have the right to some amount of power produced, delivered on a SaskPower meter in Saskatchewan, for this period of time. One can imagine this as a meter credit. If your power usage is on-average below 1kW for the example of $10,000 investment given above, then you would pay for no extra electricity. Any power usage above your credits will result in you paying normal power rates for the extra usage. The administration of this credit could be done in a similar fashion as the Net Metering program is currently conducted. It is our expectation that SaskPower would still collect connection fees in this case, just as it does with Net Metering. Being able to collect small connection fees will allow SaskPower some amount of flexibility to deal with changing conditions in their grid during the lifetime of the project. The reason this is necessary is because Saskpower has an ongoing responsibility to deal with large-scale grid management issues in addition to power generation issues. Work in this area is financed with a small part of their income.
What are the investors buying?
There are a number of different possible ways to buy future power production. Here we go into a few of the ones that have occurred to us, as well as their comparative qualities.
Buy a defined quantity of power
In this option, an investor would be buying a specific amount of power production for a specific amount of time. For example, this could be a certain number of kilowatt-hours per month for a time period of 20 years. Some advantages of this approach are:
- Investors know exactly what they are getting out of their investment, and for how long. There is no uncertainty about the actual amount of power delivered, leading to a greater sense of safety in making the investment.
- The relative success of the actual project being financed doesn’t matter as much to the investor, since their agreement is with SaskPower, and is not contingent on the success of the energy project in question. In this way a person or company can invest in renewable energy with confidence, since they are buying a power contract, not a share in a possibly risky business venture.
However, some disadvantages are notable as well:
- In order to make firm contractual agreements about power produced, SaskPower will likely have to err on the side of caution. By being prudent, they will charge slightly more for these electricity futures so as to take into account the fact that they are guaranteeing electricity delivered to the investor for a long time period. Many of the renewable power production methods depend greatly on environmental effects such as weather to determine their total energy output for a given period of time. These effects are naturally variable, so SaskPower will have to estimate the average performance of the system. In order to be fiscally responsible, SaskPower is likely to estimate a slightly lower than average performance so that they can be relatively certain that it can deliver the promised energy.
- SaskPower may also be faced with either budget overruns during construction or maintenance of the system. It may thus end up costing SaskPower additional money to run this system for the allotted length of the contract. A related issue would be the possibility that there may be overproduction (beyond expectations) by this energy project. For instance, if SaskPower estimated the capacity factor of a wind farm at 38%, but once constructed it performed for several years at 41%, there would be significantly more energy being produced by the project than the energy futures that have been bought to support it directly. This energy would be added to SaskPower’s grid, becoming a positive externality for the rest of the SaskPower customers since they are getting some of their energy for essentially no cost. This can be seen as a possible disadvantage because the investors who put their money forward for this project are not being exposed to either the relative success or relative failure of the project that they invested in.
Buy a defined percentage of production
In this case investors would be buying a small percentage of the actual power output of the project. The output of the project would be totaled at the end of a month, and each investor would be allotted their share of the electricity credits.This approach has some advantages:
- Investors can reap the benefits of a system that produces more energy than expected.
- Investors will take more care with their investment since they will be exposed to its success or failure. This should encourage responsible investment.
However, it has corresponding disadvantages as well:
- Investors may receive vastly variable amounts of electricity credits depending on shutdowns and maintenance cycles of the project. They will not be able to count on their electricity with as much confidence as the case given above. Additional variability is inherent in many renewable forms of power, such as how wind blows harder during winter, but solar power is less available.
- Since investors are now sharing some of the risk of the venture, it is likely that fewer of them will invest, and if they do invest it is likely to be for a reduced amount. By taking away some of the risk of the venture, it would be possible to make the investment opportunity far more attractive to investors who are adverse to risks. We expect that most of the Saskatchewan citizens who would be interested in investing in renewable energy projects would be risk-adverse by nature.
A hybrid system of both
A possible hybrid system would guarantee a certain level of power production, but share proportionally the surplus production of the system in question. This is a combination of the two systems given above in an attempt to maximize the positive qualities of this sort of venture while also maximizing the investment attractiveness.
In this case, a certain portion, perhaps 60-90% (depending on resource type), of the electricity delivered each month would be guaranteed by SaskPower regardless of how the green energy system in question is actually performing at that time. If the system is overperforming however, the extra electricity credits are shared among the investors on a monthly basis depending on the size of their investment. This would guarantee power in a long term agreement in addition to letting investors enjoy the success of their investment directly if it performs well. It is our belief that a hybrid system such as this could be designed to be effective at attracting investment.
Saving electricity credits
If an investor does not use their electricity credit during a given month, we believe it would be wise to let them bank it for later months. The Net Metering program currently does this for up to a year. We believe that a similar system would be helpful for these projects as well since renewable energy often varies seasonally.
Who bears cost overruns?
If investors are exposed to the full expense of possible cost overruns, they may feel that it is too risky of an endeavor. On the other hand, if SaskPower is solely responsible for cost overruns, many people would rightfully claim that these green projects are draining money from the public system as a whole.
In a later section we discuss further how the private firms chosen to build these systems will be made to bear, at least in part, the risk of cost overruns and equipment failures. We believe that it makes the most sense to have SaskPower and the contracted private firms shoulder these risks. Our reasoning is that the entire premise of this effort is to draw upon personal investment for green energy projects. In order to do this effectively, the system of investment should be designed to be as attractive as possible for the investors. If SaskPower absorbs most of the risk, they can reflect that fact in the prices they charge for these energy futures. These investments may be relatively highly priced anyway since currently renewable energy usually carries a bit of a price premium over fossil fuel energy. We believe that it is reasonable to delegate responsibility in this fashion because SaskPower and the other companies involved are the ones who are designing and vetting these projects. We look into design and vetting in much more detail later on. In short, if SaskPower is not certain that the risks of a design are minimal, it should never be presented to the public as an investment opportunity.
Who plans and who chooses what to build?
There is still the problem of who plans the projects. How do we choose to integrate different beneficial aspects of the market? Here are a few different ways the process of planning and market sourcing could be organized.
Option A: SaskPower plans everything
This was our original proposal, and it does have some advantages. For the Saskatchewan people, SaskPower brings more credibility to the table than a private firm can, for the reasons elaborated on above. SaskPower can be trusted to do a reasonably good job with an assessment of technological and logistical possibilities for power infrastructure. SaskPower conducts all of its planning with reliability and long-term investment in mind. SaskPower could be trusted to do a good job of making sure that what is actually considered is an entire power system life-cycle. That is, this research will look at the entire lifetime of the infrastructure and weigh the various possibilities alongside expected developments in Saskatchewan.
Additionally, SaskPower would conduct its design with their entire grid in mind. Design is conducted with regards to the actual and predicted requirements of Saskatchewan. For example, it is entirely possible that even though a power system may have the potential to produce large amounts of energy for a low price, it may be deemed unsuitable for the SaskPower grid if it is not dispatchable.
Option B: Public chooses from private plans
This option would involve soliciting the private sector for proposals on specific projects to design and construct as additions to the power system. Companies would be competing with each other to create the most affordable and high-quality proposal. The carrot dangled for the private companies would be the opportunity to be the company chosen to construct the power system in question, with perhaps additional ongoing opportunities for profit and employment.
These plans would have to satisfy the requirements that SaskPower would have stated in its request for proposals. If these requirements are met, the choice of what system to support could go to the public, including other corporations in Saskatchewan. Their support for a project would be the value of their monetary investment in it. It is important to remember that these systems, once built, would be owned by SaskPower. The investors would own the rights to a certain amount of electricity per month for the length of the project.
The principal advantage of this system is that the public would have more choice and freedom in making their investment choices. They would be able to support those companies and technologies that they choose. This playing field would perhaps be distorted by advertising efforts on the parts of the companies involved as they attempt to influence the public in the direction of supporting their project. This advertising would ideally have the effect of informing the public more deeply about the factual and pertinent properties of the competing projects.
There are notable disadvantages however:
- This market-like approach may simply split up the pledges from the citizenry among too many different projects, allowing none to acquire enough money to proceed.
- Several similar projects may acquire the funding to proceed, leading SaskPower to an imbalance in supply of a certain type.
- The people of Saskatchewan are not as well situated to be able to ascertain the merit of various proposals. Only a handful of individuals who are not employed currently by SaskPower have the technical knowledge necessary to perform even a moderately deep assessment of a set of proposed power systems. This is of course assuming that detailed information on these projects would be publicly available.
- It may be the case that companies want to keep their plans somewhat secret to retain their competitive advantage. This is certainly within their rights. Thus if we insisted on seeing very detailed plans for all projects, we would cut out a large part of the market since many private firms would choose to protect their secrets and not bother with a small energy market like Saskatchewan.
The next possible method, Option C may be able to address these issues. In the following example, SaskPower is the intermediary that gets to see the plans, but they would be bound by non-disclosure agreements to not give away the trade secrets belonging to the companies.
Option C: Private plans, SaskPower vets
The beginning of this process would be similar to Option B. SaskPower would request proposals for power infrastructure from the private sector. The reason companies would choose to do this is because if they are selected, they will be paid to build their proposed infrastructure in conjunction with SaskPower.
Here we diverge from Option B. Instead of the public getting to choose among many projects of the same type, SaskPower applies their predetermined criteria to select the best or most competitive proposal for each type of generation that they require. If there were for instance ten proposals for 100 MW run-of-river hydro systems around Saskatchewan, and SaskPower was only looking to add one such system currently to their generation mix, they would selectively refine the proposals until only one remained. At the same time however, they might be looking for biomass, wind or solar generation. If there are multiple proposals in these areas, SaskPower would again undergo a selective refinement process whereby they eventually end up presenting to the public only the best proposals for each generation type according to their predetermined standards.
The public then has the choice to choose among high-quality proposals for various renewable energy sources. These proposals have been vetted by SaskPower prior to their public visibility, so the public would have additional confidence that these proposals are realistic and feasible. SaskPower would be lending its credibility to these plans. In Saskatchewan, this may be a crucial factor in sourcing investment capital from the general public and from local businesses.
Some advantages of this model are:
- The people would have choice about what type of power, if any, to support.
- Advertising wars between companies doing similar things would not happen because only one proposal of each major type would be presented to the public. Additional restrictions could be placed on advertising by these companies, since they are leveraging the credibility of the public utility. Such restrictions may mean that they can embark on only education-based advertising of their project. Primary topics could be informing the public about how their project would work and what it means for their energy security.
- No splitting of pledges among several projects of the same type.
- No possibility of ending up with too much generation of one type, since all generation requests are initiated by SaskPower. SaskPower would have the responsibility of analyzing the grid in order to decide what sort of proposals to request from the private sphere based on the needs of the grid and public opinion.
- SaskPower is vetting the proposals. We believe this is a good thing because of all existing agencies in Saskatchewan, they are best suited for the job based on their experience and legislative mandate.
- The public can trust these proposals more thoroughly because of the additional credibility added by SaskPower greenlighting the project.
- Companies who submit proposals could ensure that their proprietary secrets remain private. SaskPower and the companies would work out a non-disclosure agreement that allows SaskPower privileged access to the information, but only for the purposes of ascertaining the validity of the proposal according to the predetermined criteria. This would thus create an atmosphere in which companies would be able to put forward proposals with confidence, knowing that their secrets will not be publicized.
It would be the responsibility of SaskPower to issue requests for proposals for those power generation techniques that are both sought-after by the people of Saskatchewan and which would be maximally useful for the power grid. As mentioned before, it may be that intermittent energy sources are not pursued as fervently as dispatchable ones since the stability of the grid is a primary responsibility of SaskPower.
The company which gets its proposal selected and supported by the public with enough capital would be paid for designing and constructing the power infrastructure. It would also be smart to ensure that the company has some stake in the long-term success of the project. Whether this stake is legal or monetary in nature would depend on how SaskPower decides to implement the program. We believe this is an important facet to build in to these agreements because we don’t want a company overseeing a construction project for power infrastructure in Saskatchewan while facing no responsibility for planning the entire lifetime of the power plant. We want to ensure that the infrastructure is as high quality as possible for Saskatchewan residents, and it makes sense to thus deliver an incentive to companies involved to maximize the long-term quality of their planning and workmanship.
SaskPower would still own the infrastructure. The investors in the project would own rights to a certain amount of power production for a certain amount of time (probably the planned lifetime of the project). This may sound strange, but ownership can be defined in different ways. It does not necessarily have to refer to physical capital. For instance, in the Megatons to Megawatts program between the United States and Russia, the commodity being sold to the United States is actually the Separative Work Units (SWUs) rather than the physical fuel. SWUs refer to the amount of enrichment work that was done on the uranium in order to purify it. The terms of the agreement between the United States and Russia say that the SWUs are a separate commodity from the physical fuel that they are transferred by. This is an excellent example of ownership of something of value that is not physical capital. A contractual agreement for future electricity ownership would be relatively easy to compose if this course were chosen. It could also be regarded as a contractual agreement for the provision of a certain type of service for a certain amount of time.
Corporations and Co-operatives
It may be the case that this program will see additional support from Saskatchewan-based companies. There are a number of reasons why they might choose to do so:
- They may choose to support a project in their local community for positive press coverage and public goodwill.
- Securing their power needs into the future with an up-front investment of capital may actually help shelter them from future rate increases that come down the line in the next years and decades. Some types of renewable generation have lifespans of ~60 years, so this could be an incredibly valuable long-term investment.
- They may be interested in offsetting their C02 emissions. A large scale renewable energy project through SaskPower would be very effective at doing so.
- Showing solidarity with regards to their community. They can boast that locals know they are here to stay because they have bought decades worth of guaranteed electricity.
Traditional renewable energy
It is important to keep in mind that time-averaged this investment will likely be higher cost than current prices for electricity. For reference, the current retail price for electricity sold to customers by SaskPower as of the writing of this document is 10.610¢/kWh. SaskPower estimated in 2010 that the first year of power from renewable sources is estimated to cost: 6-10 ¢/kWh for wind power, 5-10 ¢/kWh for hydro power, 6-11 ¢/kWh for biomass, and 43-180 ¢/kWh for solar photovoltaic (PV) power3 . These estimates are for the first year of production. They do not include the full lifetime of the project. In the case of wind, solar PV, and hydro, the majority of the expense is up-front at the time of construction. Most of the money required for these projects is spent on creating the physical power infrastructure. We will not be going into detail here about how debt financing for these up-front investments can be a large portion of total cost. These systems do not require external fuel, so they have minimal costs once created. Some systems such as Biomass however would have ongoing costs for acquiring the required fuel. We believe detailed feasibility studies would yield better estimates of what this life-cycle cost in total would be for Biomass.
Solar Thermal Electric
SaskPower did not include in its 2010 report a consideration of solar thermal electricity. We have a detailed article on why solar thermal power is so desirable. Solar thermal has been attracting attention in the world today because of its rapidly declining price, well below that of photovoltaics. Estimates have placed it at 10-13 ¢/kWh, making it quite competitive considering its ability to be both dispatchable and baseload power.
Specific to Saskatchewan, we have very clear skies compared to the rest of Canada, and are in fact considered to be the sunniest province with 2000-2500 hours of sunlight per year4 . This presents an interesting possibility with regards to possible development of solar thermal electric systems in Saskatchewan. Interestingly Estevan is cited as having a very high number of hours of sunlight per year at 2540. This makes it an ideal candidate for solar development in Saskatchewan for a number of reasons:
- Estevan is regarded as one of the sunniest places in Canada.
- Water reservoirs exist already for our coal-fired power plants in the region.
- Transmission infrastructure already exists to carry the power to the rest of Saskatchewan.
- We could perhaps re-use some of the other parts of a coal power plant for a new solar thermal system such as the steam turbines, control systems, and water loop to reservoir.
Saskatchewan is also home to a company that has been developing advanced solar thermal electric systems. SHEC is based in Saskatoon, and claims to have developed techniques for providing baseload and dispatchable electricity from solar sources. The propose accomplishing this via thermal storage, where heat captured when the sun is in the sky is then kept insulated from the environment until it is needed. Systems such as these have allowed solar thermal electric power to provide baseload power. Their tabled documents to the Standing Committee on Crown and Central Agencies list their current estimated prices to be 4-9 ¢/kWh. If they can validate this estimate with SaskPower, we would expect to see investment in a project of this sort.
It seems that SHEC is actively looking for opportunities to implement their technologies. They are interested in developing solar thermal electricity at a variety of scales. Pilot projects of this energy resource would be very educational for Saskatchewan. They also mention in their documents the possible retrofitting of fossil fuel thermal plants so as to provide most of the energy from the sun, with fossil fuels being used for backup in the case of long term cloudiness. This may work well for Saskatchewan since our most sunny city, Estevan, is home to several large, old, coal-fired power plants.
We have heard talk of SaskPower establishing additional run-of-river hydroelectric stations. With their reduced environmental impact and fairly predictable output, these systems are a very intriguing possibility for renewable development in Saskatchewan.
On Feb 5th, 2010, Brian Moore of SaskPower spoke at the New Energy Conference at the University of Regina. During his talk he mentioned two specific run-of-river hydro projects that were being looked into at the time. The first was a 42-50 MW project on the Fond du Lac river near Black Lake First Nation.5 The second was a 250 MW project on the Saskatchewan River named the Pehonan Hydroelectric Project.6 He also mentioned that there had been a series of hydro studies during the 1980s regarding the hydroelectric potential of Saskatchewan’s rivers. Their report concluded that there was a potential for an additional 3240 MW of hydro projects, spread over all three major river systems (Saskatchewan, Churchill, Athabasca). He mentioned an additional study in 2006, where they looked for hydro projects in the north within 25km of already existing transmission lines or load center. They found 27 such sites, 13 of which had a potential above 10 MW. He closed this portion of his discussion by saying, “Saskpower has not been active in the development of other hydro opportunities”.
We believe that this projects should be revisited under this proposed system. Run-of-river hydro is not ‘firm’ power, but it is much more reliable than wind, and much simpler to forecast accurately, at least on the scale of days to weeks.
SaskPower has acquired proposals for all of the wind power generation that they are currently interested in adding to their system. We believe that run-of-river hydro projects should be considered as an additional way to add green energy generation to the grid. Due to their nature they would not introduce as much grid instability as wind. It is our understanding that some portion of the power generated from most run-of-river hydro projects can be regarded as baseload. We do know that the majority of the hydro projects in Manitoba are run-of-river7 , and they generate a large amount of baseload energy.
Manitoba Hydro would be an excellent source to consult on run-of-river development in Saskatchewan. They are a neighboring crown corporation and have extensive experience in this area. If SaskPower undertakes this project, it could be under Option A (listed above) with consultation help from Manitoba Hydro. Alternatively it could be reasonably undertaken under Option C (above), assuming that a request for proposals would interest electricity companies enough that they would conduct large-scale feasibility studies on the subject. It seems to us that securing such long-term resources that are so demanding to plan and implement would be better done directly by a crown corporation. In order to see it done however, we want SaskPower to open up the ability for interested citizens and corporations to contribute.
- Centennial Wind Power Facility Rides the Wind to a Great First Year. SaskPower, June 14th, 2007. Retrieved Sep 9th, 2010. [↩]
- Short list of wind projects selected for Green Options Plan. SaskPower. July 22nd, 2010. [↩]
- Powering A Sustainable Energy Future: The Electricity and Conservation Strategy for Meeting Saskatchewan’s Needs. SaskPower. 2010. Page 11. [↩]
- Saskatchewan. One Stop Canada. [↩]
- SaskPower And Black Lake First Nation Sign Agreement To Proceed With Feasibility Studies On Hydroelectric Project. Indigenous People’s Issues and Resources. May 14th, 2010. [↩]
- Brookfield and its First Nations Partners Proceed with Feasibility Stage of the Pehonan Hydroelectric Project. Brookfield Renewable Power Inc. May 13th, 2010. [↩]
- Manitoba Hydro only operates two reservoir-based hydro stations at Grand Rapids and Kelsey. [↩]