- John in Whitbourne
- September 17, 2012 - 15:14
Arguments against the Lower Churchill Power project universally ignore the basic requirement for the Labrador to Nova Scotia transmission link. It is certain that a link will be necessary in the year 2041 at the expiration of the current Hydro Quebec contract. There is no chance that Quebec or Canada will change their policies to deal honestly with Newfoundland and Labrador. The proposed link will come into service about 2018 and will transfer power from two new dams (2,800 MW) from 2018 until 2041. This also affects the viability of other options for this province in the interim twenty three year period. A replacement for the current Holyrood power station must be provided and the capital cost of constructing the new plant, dismantling the old one and all conversion costs must be amortized over a period ending in 2041 because the Holyrood generating capacity will be redundant at that point. This will increase the cost charged for electricity up to 2041 as the payments for the borrowed capital increase by between more than five percent. In the interim period, the line will provide route diversity which could be sold to Hydro Quebec in the event of a natural disaster or a shortage of transmission capacity (as they officially claim in sworn testimony). Route diversity is an important concept in very large networks. Once it is in place, it can be sold like any other commodity. Hydro Quebec may someday decide to purchase capacity on the link if it is cheaper (or faster) than building new capacity. They are after all, a profit making enterprise. Their role as a political tool is only useful as long as that use is free of charge to the province. Newfoundland Hydro may even place an offer before the Quebec regulator that is cheaper than Hydro Quebec can build transmission capacity. HQ require approval from the regulator before borrowing to build their own capacity. As 2041 approaches, the profitability of Hydro Quebec will be increasingly questionable as the loss of $2Billion in profit from the Upper Churchill approaches and that pressure could make the Maritime link attractive to them as they seek to minimize their costs. The real cost of the link is the difference of the cost to build it now and the cost to build it about 2036 less any profit made from selling capacity to Hydro Quebec and the internal profit made from transmitting Lower Churchill Power. That is the difference between the present values of the two options. Such a calculation would require a number of assumptions which can be 'adjusted' to prove either side of the argument. These include the cost of capital over twenty-three years and the selection of a GDP inflator to represent the costs of construction in twenty-three years. The old saying "You can pay me now or pay me later." applies. Building the project now allows us to produce and sell 2,800 MW for twenty-three additional years.
- George Power
- September 17, 2012 - 06:42
The letter compares 4 cent 2012 natural gas in US to 23 cent (posted numbers) 2017 Muskrat Falls power and suggests that an independent review of the natural gas option should be done prior to proceeding with Muskrat Falls. Neither the Navigant Report nor the Manitoba Hydro Review had natural gas as part of the terms of reference. The other numbers serve as a perspective in both costs and volume. The 2.6 cents could be escalated but not much as it primarily represetns the fixed cost mortgage on the plant for the 24 years it would be needed from 2017 to 2041. The Muskrat Falls favourable comments relate to using a lower cost of capital with a loan guarantee (3%) versus the 8% that Nalcor used for estimate purposes. It also recognizes some revenues from power sales which Nalcor does not provide in order to be conservative. If one wants to understand the risk without a loan guarantee, use a mortgage calculator and try different interest rates and then increase the principal by 50%and see if the investment is still affordable. It may be nice to own in 35 years but can we afford it.
- John in Whitbourne
- September 16, 2012 - 12:59
There are serious errors in the analysis presented in the article and I will briefly address some of them here. The position is taken that the Brookings Institute estimate of the cost of natural gas generation is complete and that it somehow represents a constant upon which we can base our planning. The author does not prove that natural gas can be purchased for Holyrood for the study price. There is no cost included for transporting the gas from Texas or Montana to Holyrood. The discussion divides the price of four cents per kilowatt hour into fuel (1.4 cents) and non-fuel (2.6 cents) components. The analysis then assumes that the non-fuel component will remain constant while the cost of fuel is allowed to increase to 14 cents per kilowatt hour. This is nonsense because the non-fuel components include labour and the cost of capital which would both rise dramatically in response to fuel cost inflation. Labour costs because workers will not be available at the original price when the cheapest fuel price rises ten-fold. Capital costs will increase when governments raise interest rates in response to the inflation associated with fuel and labour costs. The costs of natural gas and capital are at or near long-term lows that should not be expected to remain for the next thirty years. Cheap natural gas will attract a lot of users, especially in the transportation sector. The costs of converting a gasoline engine to run on natural gas or propane are relatively low when compared to the savings in fuel cost. There is an additional flaw in the argument where the author states that the proven reserves of offshore Newfoundland and Labrador natural gas would prove sufficient to fuel Holyrood for 500 years. There may be sufficient gas out there to do that but the author fails to demonstrate that offshore NL natural gas can be delivered to Holyrood for 1.4 cents per kilowatt hour. The reader should recall that offshore oil has been known for many years but was not economically viable when Oil was selling for sixteen dollars a barrel a few years ago. The same argument is true for Albertan bitumen which is not profitable for less than forty or fifty dollars per barrel.
- Winston Adams
- September 12, 2012 - 08:55
Suppose the federal government paid 80 or 90 percent for the maritime link as a national project to help Nova scotia and Nfld and Canada to meet reducing CO2 levels. Something like the Trans canada Highway. It would cost N.S. and NFLD only 100 million each. It ties us to the mainland grid with energy transfer both ways. But before building the grid both provinces make aggressive moves for energy efficiency as in other jurisdictions, at least 2 percent reduction per year. In a few years we will have excess production from our existing hydro, and will have significant export to N.S., Plus some additional wind potential. We are presently wasting 600MW by not using efficient heating. We can import gas produced energy from Nova Scotia when needed. This will require transmission upgrades from Nfld to the cable link to N.S . and upgrades in Nova Scotia. Doesn,t appear to be very costly, and then down the road , maybe, 10 or 20 years, Muskrat falls may be desirable.
- Cold Future
- September 12, 2012 - 08:15
The main fact is that Muskrat is a money losing giveaway which will put consumers in NL in great hardship to subsidize power sold at discount rates into mainland Canada. Its a good project for NS, NB, PEI, Quebec and the US states on the eastern seaboard. NL consumers will have to switch to oil and wood heat to get off electricity and still have to subsidize the power sales under the take or pay contract required to make it fly. Fourteen years have been wasted, the PC government have failed to negotiate with Quebec, and this deal is far worse than what the Grimes/Tobin liberals were preparing in 1998. Are we born losers or what???
- Cyril Rogers
- September 11, 2012 - 21:36
Mr. Power, I agree with your basic argument. It sticks to the facts about Muskrat Falls and they are not pretty. I would argue though that, this project as proposed, has no merit whatsoever from the perspective of the ordinary ratepayer. It is a colossal financial price to pay for power that is currently NOT needed on this island and may never be needed. If indeed, power shortages ever do come into the equation, there are many better and far less costly alternatives. My key point is that we are using a sledge hammer to drive a finishing nail. Over the next several years, if power shortages do occur, we have multiple options that can be developed and integrated into the system with minimal financial impact on the ratepayer. Wind, for example, could replace a significant portion of the power that Holyrood is now needed for. It will never be totally used to replace Holyrood but a further reduction in the range of 50%, will result in a significant reduction in greenhouse gases. Further, more modifications to that system would reduce still more the emissions from Holyrood. Another option we really need to focus on, as Winston Adams consistently points out, is the use of more efficient heating systems, perhaps with generous rebates from NL Hydro. Neither of these options will totally eliminate the Holyrood plant, because it will always be needed in some capacity, but its use can be greatly reduced by these two options alone. Finally, we have no imminent shortages and for government to foist this project on us is nothing short of stupidity, given the energy transformation occurring in the marketplace. After all, we would be stupid to sell power to the U.S. for less than it costs to produce it...precisely what will happen if we build this project.
- William Daniels
- September 11, 2012 - 17:28
Danny Williams can build his own dam on his dime.
- Dr. Wow
- September 12, 2012 - 08:10
Looks like someone has an unhealthy obsession with the former premier.