Muskrat Falls to cost at least $7.4 billion

James McLeod
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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.

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.


Organizations: Manitoba Hydro International

Geographic location: Newfoundland, Nova Scotia

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Recent comments

  • John in Whitbourne
    November 02, 2012 - 08:53

    The big difference is the fact that in the Hydro case the FUEL IS FREE. This is a classical economic decision. The capital portion of generating 820 MW at MF is fixed. The only indeterminate is the interest rate and that is reasonably predictable. The formulas for a loan repayment are well known and one other variable is the loan period. For 820MW output, which can be used in Labrador, on the island, in Nova Scotia or sold into the North American spot market the 30-year, 8 percent cost base is 9 cents per kWh. ($54M/month and 600kWh/month).

    October 31, 2012 - 07:21

    The muskrat Falls will supply power forever,as the saying goes" FOR AS LONG AS WATER RUNS AND GRASS GROWS" The oil fired generating power plant in Holyrood, is burning so much oil, "in the millions of Dollars per month" that the smoke coming from its stacks as caused it to be listed in the top "10" AIR POLUTERS IN THE WORLD" For this plant to be listed in the top "10" in the world as the dirtiest air poluters HOW MUCH OIL DOES IT BURN OR WASTE? The savings from this alone is a good payment towards the Muskrat Falls Development, each month, Natural Gas if used will increase in cost each year,as will oil, Wind is not reliable But the Muskrat Falls And The Churchill Falls, witch ran for millions of years will run forever turning the turbines at the UPPER CHURCHILL, and THE MUSKRAT FALLS GENERATING POWER FOREVER

  • els
    October 30, 2012 - 19:41

    This government and Nalcor keep throwing around figures like it was monopoly money as if means nothing at the end of the day... When is someone going to put a rein on these people and bring them back to reality... Is it the plan to saddle the next two or three generations of Newfoundlanders with a debt that for all intents and purposes need not happen in the first instance??? It's not the Ed Martins or the Cathy Dunderdales of our world that will suffer (they're well placed financially) but every other common Newfoundlander that will pay the price here!!! How can anyone with any intellect underestimate any project by a "BILLION" dollars ? If they are that incapable of doing a feasibility study and cost analysis, then get someone in there who can do a proper analysis and keep us from going bankrupt and becoming a "Have Not" province again because of New Found debt !!!! And didn't anyone tell them that Manitoba was one of the first ones looking for bailout money when the wind blew their wheat down the road !!!! What do they really know about good fiscal management???

  • Maurice E. Adams
    October 30, 2012 - 15:37

    So Muskrat Falls will mean the installation 10 thermal gas fired units so that we will have even more thermal capacity than we have now with Holyrood. And for that we will spend $8.4 billion for the project (real costs will probably be 10-15 billion). ....MHI also confirms that Nalcor is not using industry best practices, but instead "good industry practices"..... Given the cost, the unheard of 50 year time frame for load forecasting and oil prices and our climate (reliability) ---- how does that make you feel?

  • Cyril Rogers
    October 30, 2012 - 15:21

    I hope Mr. Martin is just blowing hot air when he says that the cost of alternatives have increased by an amount equivalent to the increased costs for MF. That is a glib statement for him to make unless he can back it up with detailed cost analyses of these so-called alternatives. It seems all too convenient, imo, that the alternatives would increase proportionate the increases in this project. Let's inject a little sanity into the numbers for MF. FIRSTLY, the interest costs, with or without a federal loan guarantee, will be in the range of $300-400 MILLION dollars PER YEAR. Why not refurbish Holyrood to get rid of the most toxious pollutants at a cost of $600-700 dollars(NALCOR FIGURES)?. That equates to two years' interest payments for MF, instead of the 50 or more years we will be paying it off. SECONDLY, we have no shortage of electricity now, and will not in future, if Holyrood is refurbished. We only need 28 years before the Upper Churchill is able to supply us with all the power we will ever need. THIRDLY, to further lessen the use of a polluting facility, why not develop wind turbines to supplement the continued use of Holyrood. Also, bear in mind that we will still have thermal facilities to act as backup or to supply needed power to us and Nova Scotia(if the EMERA deal goes ahead)..... so we are not going to get rid of oil all all. It just looks better if they try to justify MF in that light. FOURTHLY, we could, and should, insist on demand management from NL Hydro and NL Power going forward. That method alone would curb demand and negate or delay the construction of some generating facilities, by which time the Upper Churchill will revert back to us. FIFTHLY, we could very easily incorporate some of the more efficient systems Winston Adams promotes into newer homes and retrofit many other to reduce electrical heating, the leading user of power in winter. FINALLY, we could(horror of horrors)actually purchase block of power from the demonic Hydro Quebec to power any mine development in Labrador or even as a short term option on the island. Personally, I believe that if we implement some of the items mentioned before that last item, we would not need to do this at all and would save ourselves from a financial catastrophe. Almost every dam project in the world has come in way over budget(an average of 45%) so why would anyone think we can fine tune it such that we will limit overruns to 10% or less. NALCOR's secrecy and MHI's poor track record do not give me any confidence in their numbers or their unsupported assertions. I guess that makes me a "naysayer"!!

    October 30, 2012 - 14:44

    The Muskrat Falls when built will be run by the water flowing over Muskrat Falls turning the generating turbines creating power, The Holyrood Generating plant is run by oil flowing to the oil fired turbines which is provided by many, many oil tankers each year supplying oil, the only difference in the two is water power when built is clean & free but the oil is dirty and black and it is called black Gold because it is a rich mans source of power,"ITS Costly" OIL will increase in cost each day Water,But the Cost of water will remain the same forever

  • Big questions
    October 30, 2012 - 14:26

    While this development will supposedly benefit he island....the only ones benefitting will be the politicians that will vote themselves new pay raises, the executives with Nalcor and people working directly wih the project....the majority of he population will not have their pay increased and woll see their cost of living increase dramatically...a bigger separation between the haves and have nots....

  • Concerned
    October 30, 2012 - 14:18

    Very, very sad day. Its the end of this beautiful province, thanks to the PC Government.

  • Karen
    October 30, 2012 - 13:41

    As the middle class will be the ones paying for it, like always, I do not feel it is a good investment. We are getting royalities from oil, but getting no benefits so how will this be different? We will have to pay more and once again get nothing back!

    • Common Sense
      October 30, 2012 - 15:48

      You lost your argument with the "no benefit" from oil comment. It may be hard to see the benefits on a day to day basis, but if the oil flow from offshore was stopped tomorrow, our healthcare, schools, infrastructure, etc. would be hurt.

  • Cold Future
    October 30, 2012 - 12:58

    Incredible-the NL captive taxpayer gets to spend 24 % more but it will be more robust. The isolated island will also go up by that much-reorientaion of its dams we suppose. No reason given why the most cost of the two options is now $2.4 billion more wheras it was neck and neck before-the closure of Corner Brook mill with its 120MW would have tipped it in favour of isolated island then. Is anybody out ther uneasy about all this? Stay tuned for the next spin of the wheel or role of the dice.

  • David
    October 30, 2012 - 12:56

    Please take the words "at least" out of the headline, and replace them with: " least 50% more than..." or: "...nowhere in the ballpark of the absurdly politically tainted....."