As the Muskrat Falls project steams forward, it might be easy to think that the hard part is over. In reality, though, the hard part has only begun.
Now comes the difficult twin tasks of staying on time and on budget — in a business where budgets regularly fly out the window.
Consider Manitoba, for example. It was a division of Manitoba Hydro, after all, that reviewed Nalcor’s numbers for Muskrat Falls and said they were comfortable with the estimates. But new numbers show how difficult it can be to make with accurate budgets for megaprojects.
There has already been plenty of mention of Manitoba Hydro’s problems with its Wuskwatim hydro project, which came in at 85.5 per cent overbudget. But it’s also worth looking at two other projects on Manitoba Hydro’s horizon. Muskrat Falls was announced in 2010; just one year earlier, Manitoba Hydro had been talking about two new hydro ventures, the Keeyask project, which would produce 4,400 gigawatt/hours (Gw/h) of power, and Conawapa, set to produce 7,000 Gw/h. At that time, the smaller of the two, Keeyask, was budgeted to cost $4.59 billion to construct. Conawapa? It was on the books as costing $6.33 billion. By 2011, those number had changed: Keeyask was forecast to cost $5.6 billion, and Conawapa, $7.77 billion, a combined increase of more that 23 per cent in just two years.
Since then, the Manitoba government (apparently more fond of its Public Utilities Board than the Newfoundland government is of ours), ordered the Manitoba utilities board to review Manitoba Hydro’s development plans in what it’s calling a “Needs For and Alternatives To” (NFAAT) examination.
Late this August, Manitoba Hydro submitted its planned development strategy to the NFAAT review, saying it still believes Keeyask and Conawapa to be the best plans. Interesting, though, is what the budget numbers for the developments are now.
Keeyask, given current construction and technology costs, is expected to cost $6.26 billion. Conawapa now tips the scales at $10.2 billion. Since 2009, that means the price tag for the two projects combined has jumped from $10.92 billion to $16.46 billion, an increase of 54 per cent over just four years. (If you really want a fright, have a look at even earlier numbers than 2009 for the two dams. Manitoba’s PUB raised concerns in January 2012 that the combined price of the dams had jumped from an even-earlier $8.6 billion to the 2011 numbers. The combined cost is now a whopping 91 per cent higher than first forecast.)
Different hydro projects may well be as different as apples and oranges. Right now, Nalcor says new numbers for Muskrat Falls will be released in the new year.
A spokeswoman said, “We will aim for a capital cost update during the first quarter of 2014. We just finished financing and we are still letting some large contracts and we need to get a full picture before an updated capital cost estimate can be provided. This time-frame is when we anticipate having the last of the major contracts in place and that would be the right time to provide an update on the full cost picture. … These are early days on the project and we continue to aggressively manage the cost profile.”
Fair ball. But it’s worth thinking about.
Nalcor has repeatedly stressed Manitoba Hydro’s expertise in hydro development. If anything, the Manitoba experience shows that expertise and goodwill are only a small part of the costs battle. The hard work has only started.