Today in "proof governments are horribly inefficient capital allocators" news...
British Columbia is currently in the process of trying to erect a massive hydro dam called the "Site C Clean Energy Project" on the Peace River. The point of erecting the dam was to implement the province's "green and clean" energy policy and try to create alternative clean energy while lowering carbon emissions.
But the economic price, and lackluster progress of the project had one op-ed in the Financial Postcalling the project a "hydro power boondoggle" that "shows real cost of 'clean' energy".
The project has been under construction since 2015, the op-ed notes, and more than $6 billion has already been sunk into it. Despite this, there have been numerous problems identified with the project:
Under foot, according to Premier John Horgan, "there is instability on one of the banks of the river." Early last year B.C. Hydro identified "structural weaknesses" in the project, which has been under construction since 2015. Site C is also said to suffer from "weak foundations." Vancouver Sun columnist Vaughn Palmer recently reported that new information on the precariousness of the project, structurally and financially...
The op-ed asks whether or not it is time for the province to simply cut their losses and abandon the job, which would likely need at least another $6 billion to complete.
A review of the project by three Canadian economists say "yes" and have concluded that "the whole project is uneconomic as an energy source and fails its major green and clean promise, which is to reduce carbon emissions."
The breakdown of the numbers by the economists show how inefficient the project truly is:
The worst numbers in the study: the total present value of the electricity produced from Site C is estimated at $2.76 billion against an estimated total cost of $10.7 billion, implying a loss of $8 billion. That's bad. However, if the project were cancelled now, the loss would be cut in half to maybe $4.5 billion. The economists conclude that "policy makers should stop throwing money at a project that is likely to end up under water."
The economists found that the only way the hydro plant could be worth it, monetarily, would be in conjunction with a "massive national overhaul of the Canadian electricity system":
"In summary, we find that Site C can offer value, but only if the provinces aim for near complete electricity system de-carbonization and only if new transmission between provinces can be built to enable greater inter-provincial electricity trade. Decisions about the future of Site C should be made in this light; if it is not possible to commit to fully decarbonizing electricity generation, and if prospects for inter-provincial transmission are low, Site C offers little value in comparison to its costs. In contrast, if B.C. and Alberta are committed to achieving a zero-carbon electricity system, and building new inter-provincial transmission lines is feasible, then Site C can offer value in excess of its costs."
In light of there being a very small chance of that happening, it seems like the obvious decision to simply shut the project down and save several billion dollars.
And of course, it comes as no surprise to us that such a project is horribly cost inefficient. Because if it wasn't, the free market would have put hydro electric plants to work a long time ago. In other words, the free market shut this project down before it ever even started.
But instead, we get another real life example of how virtue signaling and petty worries over carbon emissions - which are all trending the in the "right" direction globally anyway - lead to frivolous spending, funded by the taxpayer.
We hope B.C. remembers this if Elon Musk ever comes calling, looking for property to build his next solar roof tile factory...
You can read further analysis of the project and the full op-ed here.