Nalcor Energy is in somewhat unfamiliar territory.
The provincial energy corporation has plenty of experience pitching hydro developments to regulators willing to wade through reams of electricity forecasts, engineering modelling and financial analysis to evaluate any proposal.
This time, Nalcor Energy is pitching the $6.2-billion Muskrat Falls hydro project to an audience with eyes firmly fixed on their wallets and future electricity bills.
Its message is muddied by election politics and a general perception that higher domestic power rates appear to subsidize lower-priced electricity exports to the U.S.
“We’ve been accused of playing a political role, but that’s the furthest thing from our minds,” said Gilbert Bennett, Nalcor’s vice-president for the Lower Churchill project.
“Our role is to deliver and develop the least-cost electricity solution for the province.”
Bennett and other Nalcor executives spoke with The Telegram’s editorial board Monday.
“If somebody says you should take revenue from electricity exports and use that to subsidize domestic rates — not our call,” he said.
“That’s a clear policy question, which is the responsibility of the government of the day.”
Dawn Dalley, Nalcor’s communications manager, puts a finer point on it.
“At the end of the day … we’re kind of indifferent whether the project goes ahead or not.
“We believe it’s the right thing because the data tells us it’s the right thing. But if it doesn’t go, the lights will stay on — there’s an alternative there and we’ll all pay for that alternative,” she said.
“So we’ll just continue to have the discussion and put the information out there and let people form the opinions.”
The Muskrat Falls plan
Nalcor is forecasting that power rates will rise between now and 2016 — thanks to increasingly expensive Bunker C crude that fuels the aging Holyrood generating station.
The corporation’s plan is to generate 824 megawatts of electricity at Muskrat Falls and connect the island to the Labrador power grid.
Without the hydro development, Nalcor says it won’t be able to meet steadily increasing demand for power from both residential and industrial customers.
It expects a shortfall to begin as early as 2015.
In the short term, Bennett said the “biggest driver” of electricity demand will be the Vale nickel processing plant in Long Harbour.
“We’re not simply forecasting residential demand. It’s a combination … and Vale certainly has a big impact on our electricity consumption.”
At full production, Nalcor estimates the nickel plant will average 85 megawatts of power annually.
U.S. export potential
Of the power to be generated at Muskrat Falls by 2017, Nalcor says 40 per cent will be used by the island, 20 per cent goes to its Nova Scotia-based partner Emera, and the remaining 40 per cent will be exported to the northeastern United States.
As long as that energy is surplus to the province’s needs, Bennett said it makes sense to export.
And it generates a little extra cash.
“We can get some cash for that based on those markets, based on the reality that we may need that energy ourselves for our own requirement potentially in Labrador for industrial development, or we may need it for domestic use, and we also didn’t want to necessarily enter into long-term power purchase arrangements for that.
“So, in return we don’t get premium pricing. But that reality doesn’t change what it’s going to cost us to run our domestic electricity system.”
Bennett describes New England as a “fairly compact” 26,000-megawatt hydro market.
“It has access to natural gas pipelines. It has economies of scale that we don’t have here.”
And a poorly performing U.S. economy has driven down electricity prices in that country.
“Are we subsidizing markets outside of Newfoundland and Labrador?” said Greg Jones, Nalcor’s business development manager.
“The simple answer is no, because those markets are going to be what they’re going to be whether we’re there or not.”
Dalley said hydro exports to the U.S. were not a factor in determining the viability of the project.
“The economic analysis for Muskrat Falls was done on a stand-alone basis,” she said.
“If we never sold a stain of power, it’s still the best alternative.”
Watch for more articles on the Lower Churchill development in the days ahead in The Telegram.