Andrew Findlay, Financial Post Business 

Tuesday, February 05, 2008

Alberta is betting that fossil fuels are the answer to its energy needs, while Ontario believes that nuclear is the way of the future. However, in British Columbia, private companies are jumping in to help the province meet its growing energy demands by using a different strategy: run-of-river hydro projects.

Mountainous B.C. is ideal for run-of-river hydro, which diverts a portion of a river's water and uses it to rotate a waterwheel or turbine before the water returns to the river. No dams or reservoirs are required because the project harnesses the river's natural gradient, so it's considered much greener than conventional hydro technology. With B.C. Hydro vowing to go green, there are many opportunities for private companies to develop independent power projects, although hopeful producers face myriad challenges. "Run-of-river projects need a lot of investment up front and take many years to get a return," says Steve Davis, president of the Independent Power Producers Association of British Columbia.

It takes three to 12 years before run-of-river producers can churn out their first megawatt hour of electricity. First they must obtain around 50 government permits, sign an Electricity Purchase Agreement (EPA) with B.C. Hydro and pay the rapidly soaring costs of construction. There's also noisy opposition from environmentalists accusing the government of holding a fire sale on B.C.'s rivers and disrupting wildlife. "The biggest challenge is public expectations regarding community consultation," says Ann Hughes, executive vice-president of Calgary's Canadian Hydro Developers, which recently scored EPAs on four B.C. creeks.

The growing activity in the sector has been driven by policy changes: The governing Liberals didn't like the fact that B.C. Hydro had become a net importer of electricity, so it asked the private sector to develop local projects that would feed the grid. In 2007, the government announced its B.C. Energy Plan, which aimed to have the province reach electricity self-sufficiency by 2016, using 90% renewable energy. Today, 35 run-of-river projects generate 3.5% of the province's electricity, and another 39 are in development.

Despite the numerous hurdles companies face, the payoff can be lucrative. Their 10- to 40-year agreements with B.C. Hydro are appealing to pension fund managers and other investors looking for stable returns. "The capital costs are big up front, but once the plant is producing, it's not very labour intensive and maintenance costs should be minimal," says Kelly Boychuk, Ledcor Group of Companies' project manager. The Vancouver-based company aims to complete its $80-million Ashlu Creek plant near Squamish by 2009, which will power 23,000 homes and bring in $12.7 million in annual revenue. And with B.C. Hydro issuing another call for proposals for alternative energy this spring, expect to see more private companies entering the energy game.