- Jiya Hai
- Oct 9, 2020
Jiya Hai is a Research Assistant at the Ivey Energy Policy and Management Centre and is currently pursuing a dual degree in HBA/Honours Political Science. She relays panellists’ key insights as they discuss the future of electricity megaprojects in the first of four sessions in the Centre’s annual Workshop on the Economics of Electricity Policy and Markets.
On October 6, in the first of four virtual webinars organized by the Ivey Energy Policy and Management Centre in its fourth annual Workshop on the Economics of Electricity Policy and Markets, participants from industry, government, and academia deliberated on the future of electricity megaprojects. The session was hosted by Brian Rivard, Director of Research for the Ivey Energy Centre, and moderated by Kevin Dawson, Director of Forecasting and Analytics at the Alberta Electric System Operator.
Why electricity megaprojects can be successful
Professor Guy Holburn, Director of the Energy Centre, argued that electricity megaprojects can be successfully developed with the key ingredients of regulatory oversight and accountability. He acknowledged the research of Bent Flyvbjerg from Saïd Business School, which proposes an “iron law of megaprojects” — “over budget, over time, under benefits, over and over again” — but asserted that the iron law need not hold. Although the media tends to focus on megaprojects that suffer financial and technical difficulties, the reality is that there are successful examples, which are often distinguished by effective regulatory oversight. Regulatory best practices limit the risks of approving uneconomic projects and of experiencing cost and/or schedule over-runs. Holburn contrasted the example of the Maritime Link in Nova Scotia, which was completed on time and on budget ($1.7 billion), with the Muskrat Falls megaproject in Newfoundland and Labrador to illustrate how independent, comprehensive, transparent, and evidence-based evaluation and rigorous ex-post cost review can ultimately improve a megaproject’s performance.
Why electricity megaprojects are doomed to fail
A.J. Goulding, President of London Economics International and an Adjunct Associate Professor at Columbia University, compared megaprojects to the prehistoric mastodon, saying the iron law holds in the event that a megaproject does not put private equity at risk and lacks independent regulation. The main problem inherent to megaprojects is the difficulty adapting to changes in the environment, as they lack granularity and subsequently have reduced optionality. Goulding also noted the increased difficulty of making a case for megaprojects given stagnant demand and the declining costs of alternatives, such as wind energy and energy storage. He concluded by urging greater realism on the parts of policy-makers, saying future investments should be targeted toward areas such as investments in rural broadband for distributed energy resources integration, a “climate utility” focused on direct air capture and other forms of carbon reduction, and government support for data aggregation and analytics.
An example of an electricity megaproject
John Mikkelsen, Director of Power and Storage for TC Energy, discussed the company’s proposed pumped hydro storage project at the Department of National Defence’s 4th Canadian Division Training Centre in Meaford, Ont. The megaproject would provide 1,000 megawatts of flexible on-demand capacity for up to eight hours, meeting the electricity needs of one million Canadian homes and reducing annual greenhouse gas emissions by 490,000 tonnes (the equivalent of taking 150,000 cars off the road). Pumped storage in particular is viewed as a proven solution for decarbonization, accounting for more than 95 per cent of energy storage worldwide. Mikkelsen explained the main opportunity drivers behind the project, citing expectations surrounding Ontario’s future capacity needs, continued surplus baseload generation that could be shifted from times of excess to times of need, greater energy efficiency gains, and reduced electricity costs. The project also focuses on its value to ratepayers, which ultimately exceeds cost of service under various future scenarios.