Power play

James
James McLeod
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Once Muskrat Falls comes online, Nalcor will have boundless energy at its fingertips, and here’s how

Muskrat info graphic

Nalcor Energy marketing manager Greg Jones’s face lights up when he starts talking about the possibilities once Muskrat Falls is built.

For the past three years, debate about the project has centred around engineering, regulatory requirements, least-cost options and industrial development, but what really seems to excite Jones, when he sat down to talk to The Telegram this week, is the potential to be a big player in the market.

“Quite frankly, I can’t wait,” he says.

Like just about every other aspect of the project, it’s wildly complicated once you start getting into the details.

Jones, alongside Nalcor vice-president Rob Henderson, explained how they might actually ramp down electricity production at hydro plants in Newfoundland for short periods of time and import cheap mainland market power to Newfoundland along the Maritime Link.Then, when the price of power peaks on the mainland, they’d turn the hydro generating facilities back on, and use the reservoir water saved to sell electricity at a profit.

“None of this happens without Muskrat Falls and the Labrador-Island Link and the Maritime Link,” Jones says.

With the electricity needs of the province met, and the Maritime Link built, the Nalcor folks can go to work and try to play the market.

The conversation around Muskrat Falls often boils down to 40-20-40 — 40 per cent of the power for domestic use in the province, 20 per cent of the power for Nova Scotia in exchange for building the Maritime Link, and 40 per cent surplus energy to use for industrial development in Labrador or for sale into mainland spot markets.

But that picture is an oversimplification that falls apart pretty quickly. When Nalcor signed a deal with Nova Scotia utility Emera to sell an average of 1.2 terawatts of “surplus” power per year until 2041, it sounded like they were signing away a significant portion of the 40 per cent surplus block that had been earmarked for Labrador industrial development.

But that’s not the case at all, Henderson said. In fact, it’s much more complicated than that.

 

The basics

Every hydroelectric dam is like a car engine, and the fuel it runs on is the water flowing down the river.

If you turn the engine off, the fuel pools up in the reservoir behind the dam until it’s full and the water starts spilling over the top. If you run the engine flat-out, you can generate maximum power until the tank runs dry.

But unlike a car engine, the only way to fill up the tank is to let the rain fall and the snow melt and the water run down the river, and all of that makes things unpredictable.

The worst-case scenario for Henderson is a dry period. That means three years with below average rain and snowfall, meaning minimal water to run the dams. Nalcor has been tracking the province’s hydrology on the island for 60 years, and in Labrador for 50 years.

Whatever baseline power they can generate with the lowest water levels during a dry period is known as “firm power.” That’s what they can rely on no matter what.

Then, there’s the “average power.” That’s what Nalcor knows it can count on — on average — based on the dry and the wet years over time.

The gap between the firm power and the average is what’s called “surplus power.”

That’s electricity that can be generated sometimes, but can’t reliably be counted on.

The way they deal with the unpredictability right now is to use the thermal plant at Holyrood.

Holyrood is literally a big engine, and it runs on a form of oil fuel, so if Nalcor needs it, the the Crown corporation can just buy more oil instead of having to wait for the rain to fall. But buying oil is a lot more expensive than waiting for it to rain, so given the choice, Nalcor would rather use hydro dams.

During a dry year, Holyrood runs more. During a wet year, it runs less, and the province relies on hydro plants instead. During a really wet year, such as 2013, all of the reservoirs are full and Holyrood is used as little as possible, but there’s still too much water, so Nalcor is forced to spill it down the river instead of using it to generate electricity.

When this sort of thing happens, Nalcor executives look wistfully across the Gulf of St. Lawrence and think of 2017, when Muskrat Falls is scheduled to come online.

With the Muskrat Falls system, essentially the whole Newfoundland and Labrador power system will be completely covered by the firm power from Muskrat Falls and the other hydro dams that already exist on the island. Nova Scotia’s 20 per cent of Muskrat Falls power is also covered by the firm power.

Any industrial development will need to rely on firm power, too. You can’t run a mine or a big factory only when it’s raining.

“People talk about all this industrial growth in Labrador, but those industrial customers, they need firm power. We have a certain amount of firm power that is surplus,” Henderson said.

But once the system is hooked up with the mainland, Nalcor can shut down Holyrood, and instead of spilling water due to unpredictability, sell it on the mainland.

 

Playing the market

To hear Henderson and Jones tell it, Nova Scotia is a match made in heaven for Newfoundland and Labrador when it comes to electricity — just as soon as the Maritime Link is built.

Nova Scotia will get 20 per cent of the Muskrat Falls output in exchange for building the link, but Jones said the rest of their power comes largely from burning coal and natural gas.

“They are a thermal-based system, almost entirely,” he said. “They’ll back down their thermal generation and take more energy from us when we offer it, and when we say it’s not available, they’ll have to bring up their thermal generation to offset.”

When Nalcor agreed to sell surplus power to Nova Scotia, it specified that it would be non-firm power and it would only be provided when it’s available.

That means that in the wet years, instead of spilling water, it can generate electricity and send it into Nova Scotia.

Nalcor has agreed to provide an average of 1.2 terawatt hours of power per year at market prices — some years it can be more, some years it can be less — coming from that surplus.

Off the top of his head, Henderson estimated that because 2013 has been a very wet year, Nalcor has spilled enough water to fill about half that requirement just from the island hydro dams.

So in a wet year, Nalcor can flow lots and lots of power, and in a dry year, it can send nothing over the line.

According to Jones, that’s just the beginning of the wild and wonderful opportunities that are available.

Henderson said one idea would be to import power from the mainland to Newfoundland when spot market prices are low.

Essentially, Nalcor would slow down or shut off some of its hydro dams and let the water build up in the reservoir, while buying cheap power from the market. Then later, during peak demand times on the mainland, Nalcor would run the hydro dams flat out and turn a profit.

“We will have the ability to bring power in. The transmission line to Nova Scotia can go either direction,” Henderson said.

“We can take advantage of our reservoirs.”

Nalcor traders are already playing the energy market with the help of Emera, by selling Churchill Falls recall power across Quebec power lines into the United States market.

By 2017, Nalcor plans to play the game on a bigger scale, with Churchill Falls, Muskrat Falls and all of the Newfoundland hydro dams co-ordinated.

 

jmcleod@thetelegram.com

Twitter: TelegramJames

Organizations: Maritime Link

Geographic location: Muskrat Falls, Newfoundland and Labrador, Nova Scotia Holyrood Quebec United States

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Recent comments

  • Doug
    December 22, 2013 - 10:45

    Seems like Nalcor and a better handle on things than the critics would give them credit for. I would trust their judgement and expertise before I would the arm chair wantabees who try to distort the facts and use scare tactics to try to influence public opinion.

  • Fred Penner
    December 22, 2013 - 10:40

    Nalcor (and in particular Muskrat Falls) are going to make the province alot of money over the next ....oh million years. As long as it rains, the Churchill Falls complex and the hydro generators on the island are literally goldmines. Unlike a goldmine however, the gold will not run out! All we need is rain and the province is assured of a revenue "stream" forever. I envision that this maritime link is only the first of many DC links to the mainland. We will start with Muskrat but come 2041, we will need new and larger capacity DC links to the mainland. We will build additional wind generation sites and new hydro sites and we will export all of it to the mainland....the province will make alot of money from Nalcor. This money will be used to build new infrastructure and new opportunities for everyone. It is a great time for the province and it is only the beginning!

    • Tony Rockel
      December 23, 2013 - 23:40

      Fred, the power distribution model you are promoting belongs to the 19th and early 20th centuries. Distributed energy production is the new model. Megaprojects are a thing of the past, as the Edison Electric Institute report clearly explains. If the leading representatives of the electric power production industry are saying this, I think it's time for the Nalcor nabobs to take notice. Their projections are ludicrously unrealistic and outdated, not to say totally dishonest, and we are being royally screwed.

  • John Smith
    December 22, 2013 - 08:18

    It is wonderful to hear the ever quieting of the naysayers....they are being relegated to the lunatic fringe, where they belong, their arguments being shown to be as weak as wet tissue paper. This is a well thought out answer to our coming energy needs, ans would have had to be built without any deal with NS, as we need it for NL....I do enjoy reading the naysayers comments though, very entertaining to watch them squirm...keep it up guys...hilarious...

    • Tony Rockel
      December 23, 2013 - 23:46

      What a surprise! "John Smith"a.k.a. Kathy's pet poodle is once again springing to the defence of this pathetic project. Good boy! Waggy tail and beg! You might get an extra biscuit.

  • Tony Rockel
    December 21, 2013 - 18:27

    "Boundless energy"??? It's actually a pitiful amount, especially when you consider the obscene cost of the project, which will almost certainly come to 10 or 12 $Billion. "Frankly, I can't wait" says Greg Jones. And I'm sure the hapless residents of this province 'can't wait' to see their electricity bills next year.

  • holyrood
    December 21, 2013 - 14:14

    I guess Holyrood won't shutting down. And by the way you can't get power beyond Nova Scotia, the line is at capacity.

  • holyrood
    December 21, 2013 - 13:25

    I guess Holyrood won't shutting down. And by the way you can't get power beyond Nova Scotia, the line is at capacity.

  • holyrood
    December 21, 2013 - 13:23

    I guess Holyrood won't shutting down. And by the way you can't get power beyond Nova Scotia, the line is at capacity.

  • holyrood
    December 21, 2013 - 13:12

    I guess Holyrood won't shutting down. And by the way you can't get power beyond Nova Scotia, the line is at capacity.

  • Prescient
    December 21, 2013 - 10:09

    James that all sounds great but you need to add some economics into the analysis. What price did Nalcor receive for the surplus Recall power it has sold with Emera's help? According to Nalcor's annual reports it was less than 5 cents per KWh in 2010 and 2011. In 2012 it was less than 4 cents. Value all Muskrat Falls output at those prices (even at 6 or 7 cents per KWh) and it is not a lot relative to the projected capital costs (7.7 billion before interest during construction and rising).

  • Maurice E. Adams
    December 21, 2013 - 10:04

    What a joke. The average 1.2 - 1.8 terrawatts of energy that NL MUST provide NS, is (over the 24 year legal contractual period) effectively 'firm' power. Any year over year variance in one or more years MUST be made up in future years (so it doesn't take a math genius to see that if several variance years occur is a row early on in the 24 year contract period, then there would be virtually no room, less and less room, left in the remaining 23, 22, 21, 20, 19 years, etc. to make up the shortfall --- which makes them effectively FIRM power years), since over the total 24 years the full 29 terrwatts of energy MUST (that is -- "firmly", legally, contractually,) be provided, or else NL must pay damages............ Also, NL must also provide (FIRMLY) 100 MW of firm power to cover off Emera's small (25%) contribution to any year over year variance. Also, keep in mind that without a legally binding Water Management Agreement with Quebec, Nalcor has previously filed evidence with our PUB that Muskrat Falls will only produce enough firm power to provide the 170 MW that we have committed to NS in exchange for the Maritime Link. Are we being corralled into having no choice but to build even billions more worth of hydro dams to meet legal commitments to NS? Time for a reality check !!

    • Cyril Rogers
      December 21, 2013 - 16:23

      Very good points, Maurice. Where was all of this wonderful information in the past. It sounds like the folk up at NALCOR are spending a lot of time dreaming up ways to try to rationalize this project and make it more palatable. There are so many variables in these scenarios that it would make your head spin trying to sort out what they are talking about. All well and good to use hydro resources on the Island to sell for a profit but they were here before Muskrat and are underutilized right now, in terms of our own power needs.

  • Ken Collis
    December 21, 2013 - 08:18

    That's great news. Now for government to legislate the money generated by this to go towards paying off the Muskrat Falls debt so the ratepayers can afford to live here. Remember everyone that every business that uses electricity will have to charge more for their products. All those lights and coolers in Sobeys aren't free to operate. Social Services will have to increase payments to those less fortunate. Internet and telephones run on electricity so will cost more too. Lots of other things about this deal will increase consumer costs. A lot of this suffering can be alleviated with proper legislation, and making it law is about the only way I would be able to put trust in it.