The deal between Crown-owned BC Hydro and LNG Canada, a joint venture between Shell (TSX:SHC), PetroChina, Korea Gas Corp. and Mitsubishi, comes as the Liberal government announced the power rates for LNG proponents.
The rate structure follows recent government announcements covering income tax rates and environmental emission standards for the LNG industry. There are 18 potential projects at various development stages, but none have made a final investment decision.
The government's tax, emission and power standards are geared towards providing investor certainty as companies decided on proceeding with multibillion -dollar projects.
The agreement is the first signed with an LNG proponent.
"This is like having an anchor tenant on any power deal," said Natural Gas Development Minister Rich Coleman.
Coleman and Energy and Mines Minister Bill Bennett said the energy and demand charge for LNG facilities in 2014 will be $83.02 per megawatt hour, before taxes. The average rate paid in 2014 by other industrial customers in the province is $54.34 per MWh.
Coleman and Bennett said the higher rate for LNG firms ensures they cover the full cost of the power they need. Bennett said the LNG rate is set to increase two per cent annually until at least 2024.
"LNG Canada plans to purchase power for its ancillary needs from BC Hydro's grid," said Bennett. "That will cover all of LNG Canada's power needs aside from the compression of the natural gas. So about 20 per cent of the electricity they'll need in total will come off the grid."
LNG Canada will use natural gas turbines to drive the compressors to chill natural gas to liquid form.
"The decision to power our facility with renewable electricity in combination with highly efficient natural gas turbines reflects our commitment to listen to, and act on feedback from our stakeholders, when possible," said LNG Canada chief executive officer Andy Calitz in a statement.
Environmental groups say burning natural gas to operate the turbines at LNG plants increases harmful greenhouse gas emissions.
BC Hydro president Jessica McDonald said in a statement the agreement provides greater certainty on future power needs and delivers long-term benefits for customers.
Bennett said LNG developments will require energy to proceed and he suggested if more than two large projects proceed BC Hydro must start looking for additional power sources.
BC Hydro's proposed $7.9-billion Site C dam is estimated to produce 1,100 megawatts of power annually, enough to power 450,000 homes.
"If we get two large LNG projects moving, BC Hydro will be in a position where it is probably going to have to acquire some new generation," Bennett said.
He said he expects the Liberal cabinet will be debating whether to proceed with Site C before Christmas.