Muskrat Falls a standalone project

Moira Baird
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Gilbert Bennet — File photo

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.”

Lower prices

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.

Geographic location: U.S., Newfoundland and Labrador, Long Harbour New England

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Recent comments

  • Terry
    August 11, 2011 - 19:50

    Fact 1 Hydro power is cleaner than oil fired boilers. Fact 2 Oil prices are volatile while hydro is fairly stable. Fact 3 2040 Churchill falls power contract will expire and without an alternative buyer we will have to sell to Quebec at a discount again.This will give us an alternative route. I believe this is good for NL but I do think its sad a fixed link is not going with it.

    • W McLean
      August 12, 2011 - 10:49

      How does any of this provide an "alternative buyer" for the output of Churchill Falls?

    • Terry
      August 13, 2011 - 12:39

      I am sure that NL hydro will insure the capacity is there when they build the cable to NS thus giving us an alternative route for the upper Churchill power and an opening into a different market.

    • W McLean
      August 14, 2011 - 22:50

      Terry, the planned cable simply doesn't have that capacity.

    • Terry
      August 16, 2011 - 07:17

      Muskrat falls will be part of the Labrador grid which includes power from the upper Churchill.It would not make sense to omit it from any calculations. Can anyone from NL hydro comment on this.

  • Maurice E. Adams
    August 11, 2011 - 13:39

    So Nalcor expects a shortfall by 2015? They also expected a 85 GWh increase for year 2010, instead ---- we got a 120GWh DECREASE........... Vale will add a 730GWh additional demand by around 2015 or so. Since 2010 went down to a total usage of 7400 GWh, that will mean a total demand once Vale comes on stream of 8130 GWh........ Yet Nalcor says that they 'expect a shortfall by 2015'. If that is so, how come we didn't have a shortfall in 2004 when our demand was highest at 8700 GWh? Not only did we not have a shortfall then, but that year we only needed to use about 25% of Holyrood's capacity !!!!! So even with Vale, we would still be almost 600 GWh under our highest demand year of 2004 and would still have about 75% of Holyrood capacity left ----- and that would be without doing any small island hydro, additional wind. etc. PLUS ----- our demand has be DECREASING since 2004 --- not increasing.

  • Cyril Rogers
    August 10, 2011 - 11:06

    As of this time, there is no transmission link that could reasonably transport power from Muskrat to the New England states. They are actively pursuing other alternatives such as wind, solar, and cheap natural gas, so it may never be needed. Hydro Quebec just signed a long term contract with Vermont to send over 300 MW of power to their utility at a rate of 5.807 cents per kwh. Compare that with the most optimistic figures from government that Muskrat power will cost 14.9 cents to produce. That assumes no cost overruns of any sort, which is not likely to be the case. The retail price would undoubtedly be much higher for our consumers and it would have to sold at a loss to outside utilities for certain. We have far cheaper options, especially with wind to meet our actual needs, because the demand Nalcor is forecasting is mere hype to promote this project.

  • W McLean
    August 10, 2011 - 09:46

    What "steadily increasing demand"?

  • Calvin
    August 10, 2011 - 09:02

    Well said Roy, the liberals or the ndp will try to claim this as their own victory if they land in power again. The only way this deal is a bad one is if people start evacuating the province by the thousands in the decades to come. While that could happen, chances are it wont. It is a cleaner form of energy than any other in use, despite what the alarmists claim about flooding some land for a generating station. Answer me this, would it be better to continue to pump bunker c toxins into the atmospehere for the next 30 years, or flood a portion of empty Labrador wilderness that people will forget about in 5 years? This project is going nowhere but into production so people had better get used to it.

  • Maurice E. Adams
    August 10, 2011 - 08:16

    No matter what Nalcor says, their own facts say/prove otherwise. Demand peaked at 8700 GWh in 2004. It has gone down year over year, every year, since then (for the past 6 years) --- down more than 2% per year, down around 7400 GWh in 2010. While Nalcor forecasted an increase in demand of 85 GWh for 2010, they couldn't even get 1 year's forecast right. Demand went DOWN more than double the amount that Nalcor forecast that it would go up! When they can't even come close, not even close, not even in the right direction, for a 1 year forecast, when the direction has been DOWN, not for 1 year, not for 4 years, but for the past 6 years ---- the facts show they KNOW NOTHING about what our needs will be in 10, 15, 30, 40 years. U.S. researchers are saying there will be no ice in the Northwest Passage in less than 20 years, yet Nalcor will finance this project on the expectation of massive rate increase for NL consumers --- on the expectations of our winter time needs. If global warming is true --- what winters? For a time Nalcor has said that rates have been going down because of paper mill closures, yet their Annual Report says that last year;s demand went down mostly due to warmer weather. Nalcor forecasts massive increases in oil costs, while even their year 1 forecast (year 2010) increase for Holyrood was about 150% too high !!!! Is this kind of forecasting something reliable that we should base the borrowing of billions of dollars on? This is a significantly flawed project and risks the very economic viability of the province. Maurice E. Adams, Paradise

    • Back to School
      August 10, 2011 - 12:56

      Nalcor knows nothing about what our needs will be but this armchair expert knows it all. I remember you getting schooled on the radio about how forecasts are developed. But when someone gives numbers contrary to your opinion out you come with claims of 'lies, damn lies and statistics'. In the beginning your claims were worth listening to but now they have become obsessive rants of picking and choosing whatever 'facts' you want to believe in. What we need is to hear from credible experts, not party thumpers.

    • AirConditioning
      August 10, 2011 - 16:16

      Without considering the veracity of whether Nalcor's forecasts are errant due to global warming issues, if we continue the global warming argument we'll all end up with air conditioning in which case consumption will still increase. Bring on all the projects!

  • roy
    August 10, 2011 - 08:15

    I have to agree with " John Smith" now is the time, the cost won't go down if we wait a few more years. Show me something that has gone down in price,lets forget the politics of this. The opposition will fear monger thats their role to get elected then do the same deal but try to put a different spin on it to try and convince us that they did a better deal. The time is right lets do it. I,m sure if the lib. or ndp get elected they won,t reduce or electricity cost or any other cost of living we incure

  • John Smith
    August 10, 2011 - 07:57

    That's the thing. This project is the best source for our future energy needs, even if we never sell a KWH outside the Province. The fact that we can sell the 40% excess for a few years till we need it is gravy. We could build the dam and just let the water flow over the top, or we could make 8 or 9 cents a KWH for it. The province will never again be in a better situation to do this deal, we have increasing demands, and oil will only go up over the long term. It will be sad to see those who can least afford it to see their power bills go up forever. When we could have stabalized rates forever. Only the truly stupid would oppose this deal. But hey, that's a Newfie tradition.