Muskrat Falls is the right project for N.L.

The Telegram
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This past winter was one of the coldest in living memory for most residents of Newfoundland. To add to the discomfort, residents were forced to endure frequent and prolonged power outages during some of the coldest periods.

Demand on the grid even without equipment malfunctions operated for extended periods perilously close to the power supply capacity of some 1,600 megawatts. Any significant mechanical or electrical component failure at that point will lead to blackouts in some areas. In an effort to keep residential and commercial buildings above freezing temperatures Nalcor and Newfoundland Power were forced to introduce rolling blackouts.

Quite naturally a hue and cry arose from dissatisfied customers, variously citing lack of regular maintenance, lack of critical spare parts, insufficient standby capacity, inadequately trained operational staff, coupled with poor overall planning or all of these, and demanding improvements from both Nalcor and Newfoundland Power. Nalcor subsequently engaged Liberty consultants to review and report on the adequacy of their maintenance programs and practices.

This report pointed to areas where improvements could and should have been made. However, nothing could alter the fact we depend on up to 40 per cent of the island’s reliable electrical energy supply from over 40-year-old steam and gas turbine generators whose normal economic life is in the range of 30–35 years.

Old generators of this type have thousands of integrated parts than can fail at any time and cause a loss of power. It can be compared with owning a 10-year-old motor vehicle that requires ever increasing maintenance expenditures in a forlorn hope of attaining suitable reliability.

If nothing else, last winter’s power outages brought home forcefully to affected customers that ad hoc solutions are not acceptable for the long term — something of a permanent nature must be done.

Nalcor recognized this issue several years ago and, after detailed analysis of the practical options, recommended to the Williams Progressive Conservative government the retirement of the old oil and gas thermal powered facilities located at Holyrood and elsewhere on the island, coupled with the development of 824 megawatts of hydro power on the Lower Churchill River at Muskrat Falls, then bringing the power to the island through a high-voltage direct current transmission line and subsea cable with connections to Nova Scotia for the sale of surplus power through a shared cost agreement with Emera Inc. of Nova Scotia, a private entity. The savings for this option over an isolated island option was projected at the time to be in the order of $2.2 billion, not including the likely possibility of a future carbon tax that was under active consideration by the (Jean) Chrétien Liberals several years ago.

This recommendation was accepted by the government subject to favourable decision points in the planning and assessment process. Along the way, supportive reports and comments on the project were received and made available from numerous expert consultants, committees and individuals such as Navigant, Manitoba Hydro, MHW Canada, Ziff Energy, the Federal Provincial Environmental Assessment Committee and the consumer advocate.

The project received the approval of the people of Newfoundland and Labrador through the landslide election of the Dunderdale Progressive Conservative government and that of the government of Canada through its loan guarantee.

 

Bad press

The supportive information released by Nalcor on the project did nothing to satisfy a small number of individuals and groups from negatively dominating the provincial printed and electronic media against either the need, or the option chosen.

For instance, if one were to take the time to review The Telegram editions between 2010 to 2014, well over 150 negative letters and columns were printed, many of a repetitive nature. Well over 50 per cent of this negativity emanated from just 10 individuals or individuals representing groups.

Aside from questioning the need for the project itself, negative comment revolved around inaccurate cost estimates as opposed to the actual costs; the actual rates that consumers would be required to pay; a more cost-effective option could and should have been chosen; site conditions that will cause future problems were not adequately considered in the planning process; the expert consultants were neither expert nor independent; Nova Scotia would receive a better deal from the project than Newfoundland and Labrador; adequate and timely information was not being released, the Public Utilities Board should have been involved to a much greater degree, thereby permitting so called “independent” expert consultants to be found somewhere in the world that might support much of the negativity.

The answers to many of these concerns were, for the most part, already available and had been articulated by Nalcor officials.

Often lost in the negativity are the added environmental benefits by the closure of the fossil fuel facilities. Eliminated from the atmosphere annually are 1.25 million tonnes of greenhouse gases and 11,600 tonnes of sulphur dioxide, coupled with associated heavy metal particulate that often precipitates in the surrounding areas.

With regard to the need, clearly consumers are not prepared to accept as the order of the day until 2041, rolling blackouts coupled with high maintenance and thermal power replacement expenditures at Holyrood and elsewhere on the island, coupled with the inherent large consumer rate increases.

Furthermore, if our negotiators for the return of 5,400 megawatts of power from the Upper Churchill in 2041 are to be provided with any bargaining capability, we must have in place well before that time, adequate transmission lines from the Upper Churchill to Newfoundland and Nova Scotia. Quebec owns 30 per cent of the Churchill Falls Labrador Corporation (CFLCo.) and it would be disastrous to be faced with another one-sided power purchase agreement (PPA), as our only option. This province will never be permitted by Quebec to wheel power across their province to Ontario or the U.S., nor will they ever be ordered to do so by any federal government.

 

Few alternatives

Practical options other than the one selected for long-term electrical energy are limited. A renewed thermal plant at Holyrood using piped offshore natural gas is even less attractive now than it was prior to 2010. Extensive on-land fracking in the U.S. has made our neighbour a net exporter of natural gas. In the small state of North Dakota alone, some 60,000 fracked wells have occurred, producing both oil and natural gas. This has driven the cost of natural gas to rock bottom prices. No offshore developer would be interested in supplying natural gas under those conditions.

By contrast, the cost of liquefied natural gas (LNG) still remains high. This may change in the future with greater production, but it is not much to count on for the present. The price of crude oil remains stubbornly high, and with continued volatility on the world markets, coupled with a dwindling world supply, is likely to remain so for the foreseeable future.

Much has been written and articulated about our wind power potential by those, either choosing to ignore or not understanding its limitations, on an isolated island grid. In Denmark, for instance, which is connected to the European grid, wind power provides some 20 per cent of its power requirements; nevertheless, consumers in that country pay one of the highest electrical rates in Europe. This is largely due to that country having no cost-effective storage capacity for excess wind power, and then having to sell into the grid at low rates and repurchase power at much higher rates, when the wind is not blowing.

Private wind power developers are only interested in investing in wind power infrastructure when they have a captive market, or when some distribution entity like Nalcor is prepared to purchase everything they can produce for a minimum of 25-year PPA at a fixed rate, irrespective of what this might do to the efficiency of Nalcor’s own operations.

Unstable wind power approximating 10 per cent of grid capacity is about all that can be tolerated without affecting reliability. This situation will improve considerably with suitable connections to the North American grid.

The Muskrat Falls project has now proceeded to the point where the detailed planning is virtually complete and over 90 per cent of the contracts committed. Anyone familiar with engineering and construction knows full well to consider reversing course at that stage, for any reason, is tantamount to economic madness.

True, the cost estimate has now increased to $7 billion, which is some 13 per cent over what was estimated before the detailed planning was completed and the construction and purchasing commitments made. There is nothing unusual about this kind of variation in the construction industry, in particular for a remote area such as this, where competition is limited.

Certainly a risk is associated with any large project. Many things in life are a risk. Should something occur in the future that will prove some of the naysayers correct, there will be ample time for those to bask in the brilliance of their foresight.

In the meantime, it is time to stop the negativity and let the future unfold as it will. I, for one, believe we have chosen the correct path.

 

T.E. Bursey writes from Portugal Cove-St. Philip’s

Organizations: Newfoundland Power, Emera Inc. of Nova Scotia, Manitoba Hydro Federal Provincial Environmental Assessment Committee Public Utilities Board Churchill Falls Labrador North American

Geographic location: Holyrood, Nova Scotia, Newfoundland and Labrador Lower Churchill River Canada Quebec U.S. Ontario North Dakota Denmark Europe Portugal Cove

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Comments

Comments

Recent comments

  • Winston Adams
    July 16, 2014 - 14:50

    Mr Bursey, I suggest you read the latest link on the Vision 2041 blog about Muskrat Falls. It is about Disruptive Technologies, and published recently, and the effect on electric power companies future viability. As wireless telephones made the copper wire landlines obselete, these companies changed and adapted to the reality of lost revenue from people abandoning landline phones. Accordingly power companies must adapt or suffer the consequence of lost revenue from efficient heating systems, and alternative electricity sources etc. Instead most power ignore this trend at their peril, and will likely create a spiral of ever increasing electricity rates as consumers change to alternatives. I highly recommend the link, and if Mr Martin at Nalcor has not read it, it points to his incompetance as a CEO. Basically it points to the financial risk of power companies being less credit worthy if they ignore these disruptive technologies. This means higher borrowing costs for Nfld Hydro and Nfld Power, and higher costs to pass along to the customers. Basically, power companies who ignore this risk are inferior companies to invest in.

  • Nichol
    July 15, 2014 - 22:25

    There are several very basic flaws in T.E. Bursey's arguments. The most fundamental omission is the lack of reference to the realities of the electricity marketplace in general, and in particular in NL - decay in population, and invisible industrial demand on the island. I mentioned several very real situations in my comments to Ed Martin's letter supporting MF in yesterday's Telegram. The main argument being that the fact that the project could not attract any private capital...not a penny, and the fact that it had to be supported by non compete legislation and and the biggest insult of all, legislated payment of ALL costs of the project by the NL ratepayers...(with the exception of the Maritime Link). Theses provisos are enshrined in Bills 61 and 69, which were introduced by the now vanished Mr. Kennedy. With respect to the market for the relatively small 824MW production of the project, we are assured of losses on 60% of this production. This of course is enough to delay, or stop any development project in it's tracks. The huge surplus of 30 terawatt hours (this is enough to power about 40% of the homes in Quebec, which has 9 million population) projected for Quebec this year is devastating by itself. Wholesale prices in the US for electricity are too low to support our investment. Ontario, Manitoba and other provinces have surplus electricity. Yes, these are current conditions, and will change ....sometime in the future, maybe. The unfortunate thing for Nalcor, is that the indicators for these market conditions have been apparent for years. The US will soon issue export permits for light sweet crude with only minimal refining, the first permits in 40 years. WTI crude prices are headed down and may even break the $100.00/bbl mark today. Wholesale NG prices are stabilizing at about $4.00 per thousand cu. ft. in Alberta for Aug. delivery. The US rates are similar, and although very low, are enough to sustain continued production. This brings me to LNG. Currently, LNG prices in the US are fairly high, both as exports and imports. This is as a result of many factors, but will be shorter term as more liquefaction plants come on stream. Currently Shell is building the largest hull ever floated in the world. At 488 meters in length, Prelude will be the first Floating Liquefaction Gas Plant in the world and will be stationed directly above offshore NG gas wells in Malaysia to produce LNG. The fuel used in any electricity generating facility is only one component of the retail price, and does not translate directly into high electricity prices. The future for LNG production is bright onshore as well. The overnight capital cost for a convention combined cycle NG plant is one third the cost of hydropower per MW. We could have replaced Holyrood with a combined cycle NG plant for about $1B in overnight capital cost including LNG storage. The trade off is in the O&M costs, but this option was not seriously considered at any stage to get us to 2041. Instead we focused blindly on the Hydro potential on the Lower Churchill, which in itself, is not a bad thing. The problem lies with fundamental disregard for rapidly changing energy markets, and price trends for electricity, particularly in the NE US. It was all ignored with the rush to 'build around Quebec at any cost'. 'At any cost' is the keyword, since MF is a very high cost, isolated project. The cost of the electricity produced at the relatively close 1550MW Romaine River project in Quebec was estimated to be $0.0600/KWh. Production at MF will have to cost well more than double that due to the low 824MW output, and long transmission distances. No, the MF project will probably not stop, which, I agree, at this point MAY not be a prudent decision, but it will certainly be the 'Albatross' around the necks of the people of NL long past the 2041 Churchill Falls reversion date. By the way, if you read the Government's own energy plan, they say CF power will 'probably' continue to be sold through Quebec after that date. In any event, there are far too many people in NL who do NOT accept MF as the best option. I am one. The 'Mad Hatter's Tea Party', disguised as Dunderdale's silly televised sanction celebration in Dec. 2012 seems to sum up the whole MF project quite well. Sell it to all the bumps on the logs out there, and all will be well! Very sad indeed, for a Government that has blown at least $18B in oil revenues, and runs consecutive deficits ($500M this year)... Massive numbers for our tiny population! How has all this worked out for your wallet?

  • HarbourMaster
    July 15, 2014 - 21:57

    I have a problem with how Ed Martin presents the increased cost of electricity. Hew said in 2017 the average monthly price for electricity will be $260. First does this include Nfld Powers markup plus the HST. The second thing is that many people burn oil and wood to provide heat. Are these people included in the average? If rates are expected to increase by 85% can I expect my $500 bill in January to increase to $925. Mr. Martin just tell me what my $500 bill will go up to without using averages !

  • Corporate Psycho
    July 15, 2014 - 19:18

    What kind of dog food will you be eating?

  • Tony Rockel
    July 15, 2014 - 13:02

    "In the meantime, it is time to stop the negativity and let the future unfold as it will. I, for one, believe we have chosen the correct path"...... and Ed Martin, for two, agrees with you.

  • Winston Adams
    July 15, 2014 - 12:57

    `Should something occur in the future... to prove the brilliance of their foresight` . There is likely to be a significant move by customers to move to alternatives to the high cost of electricity ( projected by Martin to be 44 percent increase by 2018 , and by others to be 85 percent increase. In 2010 I did an analysis of pellet stoves versus electric heat, when power was about 10.4 cent s per kwh, and found wood pellets was 30 percent cheaper. However all electric efficient minisplit heatpumps reduced electricity use for heating by 65 percent. I chose the all electric option and installed one in my 1000 sq ft collage and a full year of heating cost 275.oo for total of 12 months with the heat never below 73F. But there is no rush by everyone to install these, as they are a bit expensive. But watch when consumers realize that we are to see somewhere between 44 and 85 percent cost increases for electricity. Now we could all be patriotic and pay the sky high rates, as Mr Bursey will be, or we will submit to common sense when it is realized that this will not be a temporary increase to be rolled back. Of course the brilliance comes from manufacturers like Sanyo, Panasonic, and others who 20 years ago developed these units for climates like ours, and operate reliability at minus 20C in winter. The stupidity comes from Nalcor, our government, and our power companies who expect to keep consumers in the dark as to the cost effectiveness of these systems. Consumers will react once the rates increase.... too bad Nalcor ignored this in their alternatives..... they say consumers are not interested in this. No, not at the current 11.4 cent per kwh, but wait and see when power is 16.4 or 18 cents per kwh. I am now in my fourth year of trouble free low cost heat.

  • Gord
    July 15, 2014 - 10:51

    TE Bursey sounds like a PC Caucus member. Absolutely no info in this column except, trust us, its the best option. Unfortunately, it isn't. The cheapest electricity option for the province would have been to upgrade the Holyrood plant. In spite of what Nalcor wants us to believe, that is really all was needed to ensure steady power in the winter months (keep in mind, if the North Atlantic Refinery and Kruger Plants close, we will have a surplus of power on the Island. Of course, Nalcor neglected Holyrood maintenance since all the monies coming in had to be diverted to pay for expensive Muskrat Falls. Second cheapest option would have been to purchase power from Quebec at the going rate of 6 cents/kwh (Hydro Quebec has a surplus of power to sell and recently sold a block to Vermont at 6 cents/kwh). Of course Newfoundland would have to still build transmission lines from Quebec to this province, but it would still be much cheaper than a midsized hydro plant like Muskrat Falls (min cost expected in mid 20 cents/kwh). FYI, NOBODY. And I mean NOBODY has stepped up to buy Muskrat Falls Power when it will have a min price of 20-30 cents/kwh. As TE Bursey states, Frac gas (Natural Gas) in the USA is booming, with electricity generated from it selling in the 5-6 cents/kw range. Why on Earth would anyone build a hydro plant and pay 4-5 times that for 50 yrs when electricity generated with frac gas is projected to be at this price for the mid to long term?

  • Number 11
    July 15, 2014 - 08:13

    I have an issue with the government's emphasis on the 30 billion in "revenue" that this project will bring in over its life. Ed Martin's recent letter states that just 3 billion of this amount will come as a result of the sale of power to other markets. So, the remaining 27 billion of the revenue- 90% - will come from the rate payers of Newfoundland and Labrador over the life of the project. I'm not excited about this. Should I be? If the cost of the project is, say, "just" 8 billion, why are NL ratepayers ponying up 27 billion over the life of the project? Isn't this just a means of taxing us? When the construction costs, maintenance costs, salaries, etc. over the project's life are considered, is it really necessary for the people of NL to pay 27 billion over the life of the project? Martin suggests that the 3 billion from sales can be spent to improve the province's infrastructure or pay down the province's debt. We've already seen a cost overrun of 800 million. We can expect much more of the 3 billion to be eaten up by cost overruns. A couple of billion spread out over 50 years isn't a lot of money when we are running yearly budget deficits of more than half a billion.