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.
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.