Diesel can be an expensive and dirty fuel. Small, run of river hydro projects are an alternative for many remote First Nation communities using diesel powered generators as a source of power. Increasingly, run of river hydro is also a source of revenue for many First Nation communities in BC.
The traditional territory of the Tla-o-qui-aht First Nation (TFN) is located on the west coast of central Vancouver Island and includes the municipality of Tofino. The traditional territory of the TFN, which have natural boundaries of the mountains and ocean, is home to about 1,000 TFN members. Clayoquot UNESCO Biosphere forms part of the TFN traditional territory.
Formerly known as the Clayoquot Indian Band (name changed in the 1990s), the Tla-o-qui-aht has a two-house governance system composed of the ha’wiih (hereditary chiefs) and an elected chief and council.
Creating wealth through sustainable economic development in their traditional territories is a key priority for the TFN. In the early 2000s, the community decided to look into the feasibility of developing a small footprint, run of river hydro generating plant that would sell power to BC Hydro, thereby providing a steady revenue for the community.
While there was a strong appeal to developing a source of revenue, it could not come at the cost of damaging the environment – that was the number one condition. The criteria for site assessment included zro or no fish interference, proximity to existing power grid, proximity to existing road, ability to use decommissioned forestry roads wherever possible, and short pipe requirements.
Protecting the land and waters of their traditional territory for future generations is not a new age concept for the TFN. Councilor Saya Masso, a staunch proponent of run of river hydro development, said “Back in the day, our chiefs would send warriors out to move the salmon to rivers that weren’t producing and milk the salmon to make them spawn there and maintain the rivers and creeks so that the fish could spawn.” Incorporated into the design of Canoe Creek hydro site, are pipes and outlets so that in the future a fish hatchery project could be developed.
Swift Water Power Corporation
Barkley Project Group Ltd. is a Nanaimo based project management consulting firm specializing in small hydropower development projects. TFN engaged Barkley to conduct an inventory of potential development sites. A very exacting study, conducted over six months, determined there were eight to ten creeks that had potential. The cost of the site assessment process was $30,000, which was provided by the Aboriginal Affairs and Northern Development (AANDC) under the Aboriginal and Northern Community Action Program of 2003-2007.
Barkley Group and TFN shared the same principles regarding environmental stewardship and developed a relationship of trust and respect.
The Partnership – Canoe Creek Hydro
Swift Water Corporation (a private company formed by John Ebell and Iain Cuthbert, principles in the Barkley Project Group) and Tla-o-qui-aht First Nation formed a Limited Partnership to develop the Canoe Creek Hydro project – which at the time was a unique concept. The partnership is 75% TFN and 25% Swift Water Power.
Drawing up the Partnership was a collaborative process between TFN, Swift Water and legal representatives – the end result being a document written in plain language. It contains all the necessary checks and balances to protect the partners and project but is also easily navigated by those who do not have a legal background.
The Challenges – Capital Funding
The environmental assessment process was the easy part………..raising capital in 2008, in a softening economy, was onerous and took the better part of a year. Jamie Bassett as the Economic Development Director was tasked with raising capital. Approximately $1 million was needed for the environmental, technical and cultural studies, and pre-engineering. The TFN wisely chose to invest heavily (15-20%) on the preliminary engineering studies as this compilation of data formed the basis of the business plan, and contributed to the project being within 10% of the projected budget and completed ahead of schedule.
Bassett, in reflecting on the ordeal of raising capital said “We were looking for capital just as the debt crisis was hitting. The Nation took out a loan for equity and our partners put in equity – we had to take the risk of going ahead with the project due to the weather window and our commitment to BC Hydro to be up and running by a certain date. We began dealing with the commercial side of a Canadian bank in January 2009 but after nine months we got to the point where we just could not wait for the bank to prepare their term sheet. By that point we had already spent our equity on roads and we still didn’t have our financing in place. After running out of patience with the bank, I went to VanCity and within a week, VanCity and the Canadian Western Bank had a term sheet and within six weeks between the two our financing was in place.”
At no point did the Nation or Partnership entertain the idea of giving up. The Chief and Council remained committed because they believed it was a good project, they knew the costs, they knew it was doable and that faith was supported by the upfront investment in the analysis. Quitting was not an option. Masso said “It was scary and very nearly unachievable but I credit our band council for passing the motions that were needed and getting our equity financing arranged. We had to mortgage properties the band owned in order to get the financing which was risky. Not many Nations have properties they can mortgage against.”
Canoe Creek Hydro is a 5.5 MW hydroelectric project on Canoe Creek, in the Kennedy River Basin, that produces enough electricity to supply the annual needs of 2,000 homes; all the electricity generated is used on Vancouver Island. The project was designed to meet the requirements of BC Hydro’s Standing Offer Program and as such, has a long term contract to sell the power to BC Hydro.
During the construction phase there was an emphasis on using First Nation contractors and quite a few TFN members were employed. The overall administration is conducted by Barkley Group (the management arm of Swift Water Power). Power projects do not generate a lot of jobs but the benefits from the revenue are felt throughout the community. Revenue from Canoe Creek contributes significantly to the financial health of the Nation.
Canoe Creek Hydro began producing power in June 2010 and since then has repaid nearly half of the equity borrowed to develop the project. “It’s a good revenue producing project,” says Bassett, “probably in the neighborhood of 18% return on investment on an annual basis.”
And it’s an award winning project/partnership – it was awarded the Project Excellence Award in 2010 by the Clean Energy Association of BC and the also won the Outstanding Business Achievement – Joint Venture Business Award.
The Path Forward
Building on the success and knowledge gained from developing the Canoe Creek Hydro, TFN began construction on a second, larger run of river project, the Haa-ak-suuk Creek Power Project, of which the TFN will own 85% and Barkley Group will again be both project and site manager. This 7.5 MW project received $500,000 in equity funding in 2012 via BC’s First Nations Clean Energy Fund, which provides money to build capacity within First Nation communities and invest in clean energy infrastructure. “Canoe was so successful, we wanted to replicate the process and success which is why the Haa-ak-suuk was virtually built on time and on budget……I think we were two weeks past our original estimate of when we would start to produce power and about 5% over our projected budget. There were no surprises. We attempted to use the same contractors, same pipe supplier but it doesn’t always work out the same way. We had some hiccups on the second project that we did not expect – our pipe supplier bailed on us. Pipe is about a $2.5 million component of the project so when he said he had pipe for us at a price lower than what we had paid for the Canoe project we jumped at it – we had the engineer look at it and he approved it so we gave the required 30% down. What the trucks delivered was most definitely not the pipe we had agreed upon – the pipe we agreed upon was picked up by another contractor and we were sent dribs and drabs. Live and learn, right? The supplier was terrific the first time, the second time it didn’t happen that way so for the third time we will buy it, move it and keep it until we need it,” said Bassett.
While the pipe was an issue for the second project, thankfully financing was not. The TFN had a track record: they had brought a prior project to completion that was on budget, on time, has received awards and is externally recognized as a great success. While Jamie Bassett and the TFN were scrambling to obtain financing for the Canoe Creek project, they found themselves in the luxurious position of having four lenders bidding on financing the Haa-ak-suuk. “We could pick who our financers were. We were looking for forty year financing – changes in interest rates five or ten years down the road will have no impact on it so there is certainty on the financing side.”
TFN has a third run of river project in the works – Winchie Creek Hydro, in the same watershed, is a 4.4 MW, lower elevation, winter rain type project. Winchie Creek will be 100% under TFN ownership and managed by Barkley. Water licensing and permitting has already been completed. TFN has an additional five projects in the permitting phase. By the time all the projects are on line and producing, TFN’s suite of hydroelectric projects will represent a $200 million investment.
“If the dream is realized these projects will be a substantial generator of revenue for the Tla-o-qui-aht First Nation.”
Advice for First Nation communities who want to develop a small footprint run of river
- Have a community champion from start to finish otherwise it will sit on the “should” shelf forever
- Have expertise of your own; do not depend solely on consultants
- Assume nothing and ask questions
- Be the majority shareholder
- Have a joint venture partner that you’ve developed a relationship with
- Be patient
- Be prepared to spend money
- Talk to other First Nations who are doing similar projects or are planning to do so
Advice for corporations who want to form partnerships with First Nations on clean energy projects
- Be patient – take the time to develop a trusting relationship with the Nation
- Keep your word
- Have a plan that allows the First Nation to become or be the majority shareholder over time – the water is going to be there forever and the First Nation is going to be there forever
- Be forthright and direct
- Recognize that this is their land, not yours.