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Wednesday, August 10, 2005

Lower Churchill Development Decision is a No Brainer

Over the past couple of days I've had an opportunity to reflect on the issue of who should develop the Lower Churchill hydro project in Labrador. I've listened to the open line programs, chatted with friends and aquaintences and tossed the idea around the old noggin for a while. After all of this, I have come to one and only one conclusion.

Question: Should the Province of Newfoundland and Labrador develop the Lower Churchill itself?

Answer: How in the name of God Almighty can the government of Newfoundland and Labrador even consider doing anything except going it alone on this?

It's a no brainer, unfortuately my brain takes a little while to absorb the facts or I would have had the answer the first time someone asked my opinion, rather than the forty-first.

The province is in desperate need of power to fuel industrial growth. The entire province, especially the Labrador portion, is arguably one of the richest sources of mineral deposits on the continent, if not the planet. Currently most of that material is being exported for processing. Why is this happening? The answer is simple. There is no available source of inexpensive and abundant power in the province that would enable smelters to be built and efficiently run.

I say “available source” because there is indeed abundant power in the area and there always has been. Never the less, it is not available for the development of the province. Instead it is being exported and used to fuel economic development in Quebec and beyond.

Can the province afford to make the same mistake with the Lower Churchill as it did with the Upper? Forget for a moment making the type of bad financial deal that was made in the past. The more critical issue if the province afford to give up the potential for industrial development that would come from controlling this much power?

According to their web site, Newfoundland and Labrador Hydro currently has a generating capacity of approximately 7,289 megawatts. This is used to supply the province’s current needs but leaves little for growth. Consider as well that the Lower Churchill project has the ability to produce 2,824 megawatts or approximately an added 40% of the capacity currently in place.

Even though development estimates on the project run as high as $9 billion dollars, this could be a bargain at the price.

It has been estimated that the Upper Churchill plant has generated over $24 billion in profits since coming on line in 1972 (approximately 96% of this revenues has gone to Quebec Hydro, 3-4 % to NL). The value of clean power continues to rise and it is a revenue stream that will never stop. Although the Lower Churchill is only about half the size of the upper project, the numbers are still staggering and once the initial outlay has been recovered, the money would flow faster than the river itself.

Financing should not even be an issue in the current political environment. The provincial government is in better financial shape than it was in the 1970s, when the original deal was signed, and it would not be a stretch to expect the federal government to cost share the project in a big way.

Canada has extremely large and difficult commitments to meet with respect to Kyoto. The Lower Churchill project alone would allow the Country to meet nearly 10% of this requirement. This doesn’t even take into account the Kyoto benefits that could be gained by shutting down the province’s Holyrood oil fired generating facility.

Currently the Holyrood generating station burns an estimated 6,000 barrels of heavy fuel in each of its three units, for a total of 18,000 barrels a day, in order to generate a mere 490 megawatts of power. In addition to helping Ottawa meet Kyoto commitments, how much money could be saved by Newfoundland and Labrador Hydro if they did not have to purchase approximately 6.5 million barrels of fuel a year at today’s prices?

The province, in conjunction with Newfoundland and Labrador Hydro is now considering options for the development, when in reality what they should do is throw out all the proposals and begin the task of developing the most cost effective and timely plan to develop the project themselves.

Not only should the project be developed by the province, the power should not be sold into the North American market at all. The timeline to develop the project would see first power flow in 2014. This gives the province a decade to market the power potential to energy hungry industries around the globe. Industries that will jump at the chance to have access to clean, stable and reasonably priced power.

The potential is staggering in proportion. No longer would ore be pulled from the earth only to be processed elsewhere. The smelters would come to us.

No longer would raw materials of any kind need to leave the province. The factories and mills would come to us.

Perhaps most importantly, no longer would our people need to migrate out of the province in order to find work. The work would come to us.

Retaining control of this power source is not something that would be nice to do. It is something that must be done.

If the project is managed correctly, within a year or two of first power, the province of Newfoundland and Labrador could see itself in a position where it is experiencing massive industrial growth.

Within a few years of first power, the province could see itself experiencing in-migration rather than out-migration.

Within a decade of first power the province could see itself with a booming oil economy that, although large, is only a small percentage of its revenues, rather than its life’s blood.

Within three decades of first power the Upper Churchill contract would expire and the staggering revenues from that mega project would begin to flow to it’s rightful owners.

In less than 50 years, less than the time the province has been a part of Canada, Newfoundland and Labrador could experience a population explosion. Power brings industry, industry brings jobs, jobs bring wealth and wealth brings people.
The migration of 1 or 2 million people into a province with the land mass of Newfoundland and Labrador would not be a problem, in fact it would be a god send.

Finally, add to all of the benefits outlined above the biggest and perhaps ultimate benefit of all to the province. Massive in-migration would eventually equate to additional seats on Parliament Hill and with those would naturally come an entirely new kind of power.


Anonymous said...

CrazyAmerican once again.

Good thoughts. Only one or two major issues. First, what's clearly not clear is how to get the power from lower Churchill River across to Newfoundland which is just as badly needed as new population in Labrador.

For that you need a tunnel :)

Second, what's needed is a new crown corporation.
Why a new crown corp? Because despite all the efforts of everyone on the Rock, the Upper Churchill Falls agreement shows that letting others control the flow, means the spigot goes empty.
That's why there are purchasing agreements for power on the island.

I agree that investment won't be a problem if you can at least merge the transport issue together with the generating. If you let the lower project flow only west *which is the only place it can go on current grid*, it'll mean that the production also goes west.

Lastly, if you can get the grid onto the island in the north... it becomes closer to being economically feasible to ship it west to NS and NB thru Cape Breton and Truro.

Rough look says the difference between Upper Churchill to New York City thru Quebec versus straight line through Newfoundland Labrador is less than 300 miles of grid.

Just need 2 really big, durable, and freakin long cables.

And that gives the province a clear real revenue stream.

Just my two cents worth

Patriot said...

Hi CrazyAmerican, good to hear from you again and I appreciate the comments. Let me respond to them as best I can.

On the issue of transporting power to the island, this is not a major problem. Although a tunnel would be nice, it is probably not going to happen any time soon. This doesn't mean the power cannot be transported.

The island of Hong Kong is currently being supplied power from mainland China via underwater cables. This is a fairly inexpensive approach that could be made to work here, although the logistics would be a little different due to the inhospitable environment.

Newfoundland currently has underwater telephone cables connecting to the mainland so this is possible.

It would be nice to have the tunnel in order to move the power to the island, not to mention moving oil and gas from the island to the mainland. The movement of people is not a major issue. The distance is only about 14 miles and there are air and ferry services in place currently.

As for a crown corporation, we have one. It is called Newfoundland and Labrador Hydro. It is run at arms length by the provincial government and in fact is the 4th largest hydro electric company in the country. Hopefully if this is done correctly and after 2041 when the upper churchill power reverts back to the province, it will be the biggest.

I can see your point about getting the power into the grid for New York et al, but my contention is that if the power remains within the province rather than being sold elsewhere, the business that requires it will move here rather than into those already massive markets and take our human resources with it in order to find employment.

I hope this helps (and is coherent. This topic is very close to my heart).

Keep in touch and keep the comments coming.

The Editor

MrChills said...

The Mainlanders are already running their mouths http://stjohns.cbc.ca/regional/servlet/View?filename=stj-churchill20050811

Of course we couldn't develop it ourselves, we are just a bunch of stupid Newfs... Arrggg! I am sick to my stomach with the negativity from the big motherland.

There is no other way to do this but on our own.

Anonymous said...

Crazy American here

My additional 2 cents worth

I agree that laying a cable across the straits is not an overwhelming issue. But, it seems to me that I've seen in more than one website that one of the desires of people in your province is a need to start developing the infrastructure to support actually doing more than "grab and go" with the mineral resources from Labrador. So long as the only effective way of getting products out of Labrador is restricted to the summer and fall, or by going out through Wabush and Quebec, then the more likely approach will be to ship out the resource and smelt/refine/treat/ it nearer to major transport capabilities.

It's somewhat interesting to read about the various efforts to get a cross strait connection. Most of them come down to a question of cost. Costs are based on the volumes expected without major development in Labrador itself. Therefore, it's too expensive. Major development in Labrador doesn't occur because getting products out is too expensive.
Seems like each needs the other.

I know I'm only a cyber guest in your province, so it's easy for me to be that d*** yankee. But my actual intent on suggesting running through the island to get power out was precisely because that would help to justify the overall expense, and to get some of the islands costs down. I suspect that sucharging the electricity leaving the province to allow for lowering rates within would be something that lawyers can finagle how to make legal. The obvious downstream impact to such things as the paper mill power costs is also a consideration.

Lastly, regarding the crown corporation. I did read that and I don't have as good an understanding of corporate structures in Canada as I should. But isn't that the same company that is getting the short end of the power generation from Upper Churchill with the bulk of the revenue and power going to Quebec?

That was why I suggested a separate corporation.

Gotta go... my bosses may figure out what I'm doing any time now. :)

Patriot said...

Hi folks,

Great comments.

First, to MrChills:

Thanks for making me aware of the article on CBC. This, as you say is a typical case of an upper canadian thinking the "dumb newfies" can't do anything without help. Who does he think is developing hydro projects in the province now and around the world for that matter? As for engineering, we have highly skilled engineers including some who have been involved in everything from hydro projects to skyscrapers and everything in between. Typical tunnel vision.

Next, to Crazy American:

Again, good comments and I can see where you are coming from but as to getting to getting the resources out, currently they move raw ore out. When the product is refined and smelted the volumes are obviously much lower. It seems to me that it is easier to transport (for example) 1 ton of refined material than 100 tons of raw marterial.

Currently the raw materials are transported to Quebec and beyond year round then refined and shipped to customers world wide. It would simply be a matter of finishing the product in Labrador then sending it to Quebec or anywhere else it would need to go in order to access shipping if the waters off Quebec are unnavigable.

Just a thought.

As to Newfoundland and Labrador Hydro being the ones who are in the current agreement with Hydro Quebec, that is extremely over simplified.

The deal with Hydro Quebec was brokered by the government of the day back in the 1970s. It has haunted every successive government as well as NL Hydro ever since. Unfortunately there is not way out of it until 2041. In that respect, NL Hydro did not make the deal but they and everyone in the province have had to digest it.

Hope this helps and keep the comments coming.


MrChills said...

One thing that I could never comprehend about this topic or any other for that matter is when we refer to Newfoundland being away from the rest of the world. We are indeed away from central Canada, but being the most easterly province we are closer to the UK and Europe.

By refining our raw materials within Newfoundland, we would have an edge if the finished product was then shipped oversees.