More than $1 billion added to cost estimates
Nalcor CEO Ed Martin and Natural Resources Deputy Minister Charles Bown speak to reporters at a technical briefing on the Muskrat Falls project. — Photo by James McLeod/The Telegram.
Cost estimates for the Muskrat Falls project have been revised upward by more than a billion dollars. In total, the project is now forecast to cost at least $7.4 billion, compared to initial estimates of $6.2 billion in November 2010.
The Muskrat Falls number released today – the so-called “decision gate three” numbers – will form the basis for the final decision on whether the government chooses to proceed with the project.
Of the total $7.4-billion cost estimate, the actual dam in Labrador and transmission lines to Newfoundland are now forecast to cost $6.2 billion, compared to $5 billion forecast in November 2010.
Nalcor CEO Ed Martin said forecasts on the alternative have increased at an equivalent rate, so Muskrat Falls is still forecast to be the cheaper option.
In total, the current forecasts say that the “isolated island” option relying on small hydro developments, wind power and refurbishing the Holyrood generating facility, all together is $2.4 billion more expensive than the Muskrat Falls plan.
Nalcor is recommending that the government proceed with this project. Manitoba Hydro International, an independent contractor which did an analysis on Nalcor's numbers and conclusions, also recommended that the government proceed with the project.
The Maritime link between Newfoundland and Nova Scotia, which will be built by Nova Scotia utility Emera, does not have updated costs yet, and it is still forecast at $1.2 billion.
Martin explained that a lot of the cost increases can be chalked up to more detailed engineering work they've done, designing the project.
The project is now a “more robust design” and aimed to be more efficient and so the whole system will produce more electricity.
To optimize electricity output, Nalcor has actually changed the design of the dam, turning it by 30 degrees, which will cost more money, because it requires more concrete, more excavation, and more work.
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The original cost estimate of $5 billion included a 15 per cent margin of error for cost estimates. In fact, the costs have increased by $400 million above that margin of error.
Martin said Nalcor is using “international standards” in how it does its estimates and project management.
He said the initial estimates were much fuzzier, because they were preliminary and based on only five per cent of the engineering work done. Martin said now with more than 50 per cent of the engineering done, and with contractor bids in for all of the major pieces of the project, they have a better sense of how much everything will cost.
He said he's confident of the current cost estimate, with a current margin above or below of about 10 per cent.
The current cost estimates include calculations for a federal loan guarantee to cover financing costs.
The loan guarantee hasn't been finalized, but Martin said they're “within inches of the goal line.”
Martin refused to give any detail on what that means for project costs because it's “commercially sensitive” information. In the past, Martin and government politicians have said a loan guarantee would mean a two per cent reduction in interest rates, which would translate into more than $600 million in savings on financing.
Up until now, Nalcor has spent roughly $260 million on the Muskrat Falls and Labrador Island Link since 2003.
Two separate studies on wind power and natural gas are expected to be released later this week.
More information and a copy of the Manitoba Hydro International report can be accessed HERE.
For detailed coverage, see Wednesday's Telegram.