Muskrat Falls is the right project for N.L.

Published on July 15, 2014

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