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Wednesday, June 08, 2011

Muskrat Falls - Cutting Through the Political Rhetoric

There’s been a lot of political rhetoric around development and distribution of power from Muskrat Falls since the project was announced late in 2010. No doubt that rhetoric, on all sides of the political aisle, will ratchet up as the October provincial election draws closer.

It’s unfortunate that the public, as voters, taxpayers and power consumers don’t yet have a clear picture of whether or not the project is the best approach for Newfoundland and Labrador.

The reason for that lack of clarity falls first and foremost on the shoulders of the communications personnel at NALCOR and within government, but there is plenty of blame for others to share as well.

The various political parties have been using this project as a wedge issue for their own political benefit rather than ensuring that it benefits the province’s people.

Meanwhile, the media has gleefully reported their rhetoric rather than doing the research needed to inform the people of the province, so much for investigative journalism.

It’s also unfortunate that most people are not engaged enough to dig into this on their own. By not doing some basic searches on the web, asking questions of NALCOR and Hydro management and demanding clear answers we also share in the blame for our own ignorance of the situation.

Of course most people simply don’t have the time or inclination to do that sort of leg work and in reality they shouldn’t have to do it. If communication was better at the source they wouldn’t have the need.

As a result we are left to sift through talking points from the most unreliable sources of information out there, politicians.

Like most of you I have a pretty full personal life and a job that keeps me quite busy. Time is precious but I’ve managed to do some limited digging regardless. After all it’s our future that’s at stake and the stakes are high.

A certain level of information is available publicly but it takes a bit of effort to find it and to separate the facts from the myths.

One source of data is the initial backgrounders and announcements issued when the Lower Churchill agreement was first announced. These are available on the provincial web site and at NALCOR online.

Other information is can be gleaned by reading through various regulatory and government submissions and documents, not necessarily related directly to the project, available on the NALCOR and Hydro web sites. Some of those documents predate the project announcement but provide a level of clarification for the reasons why Lower Churchill is on the agenda.

There is also some information on power rates, though understanding most of the numbers requires a Masters degree in accounting.

Regardless, I’ve determined a few things for myself that I’m more than willing to share.

First of all, based on official submissions by Hydro – pre Lower Churchill – it’s clear that the island portion of the province is approaching a wall when it comes to available power. By 2015 we will essentially reach our limit and by 2019 have a shortage of power to meet demand.

This is the reality that manifested itself in NALCOR examining various options for ensuring a stable energy supply, both to meet requirements in the near term and allow for future growth.

The two primary avenues examined in recent years were the interconnectivity of the Lower Churchill at Muskrat Falls and the ongoing use of Holyrood, in conjunction with development of a number of smaller island projects.

According to the documents, the latter alternative brings with it several concerns, which is likely why Muskrat Falls eventually became the preferred option.

On its own Holyrood will not have the capacity necessary to meet the needs of the island in a few short years and having been commissioned in the 1970’s it’s now nearing the end of its lifecycle.

If the Holyrood option were chosen NALCOR/Hydro would be required to install scrubbers to reduce toxic emissions, undertake major upgrades to the installation and to develop several smaller generation facilities (a combination of multiple hydro, thermal and wind stations) simply to meet user needs. Each of these requirements would take several years to complete.

Even with those steps taken the corporation would be leaving itself open to the whims of fluctuating fuel prices. The Holyrood plant currently burns approximately 18,000 barrels of oil per day during peak generation.

The corporation might also be subjected to additional costs if carbon emission limits are put in place by Ottawa.

Even thought the installation of new scrubbers would remove many toxins from the air they do not stop CO2 from being emitted. Holyrood emits more than 600,000 tons of CO2 each year, making it less than environmentally friendly.

If Ottawa were to setup a cap and trade system, as has been widely talked about (essentially putting a price on carbon emissions), the cost of purchasing carbon offsets for Holyrood would lead to additional expenses well beyond the refurbishment and the rising cost of oil. All of which would be a factor in future power rates for consumers.

These additional costs, which would be subject to the whims of the market are in addition to the cost of development for the other smaller projects necessary to meet island demand. With all of that taken into account, the documents I’ve read indicate that the “status quo” approach would only meet demand until about 2029, leave little room for growth and require even further development projects going forward.

These and other issues are likely a big part of the reason why the Muskrat Falls option was the direction decided upon.

The current government has publicly stated that the project will stabilize power rates and that it’s the lowest cost option available. Meanwhile the province’s opposition parties say it will more than double consumer rates and that other options should be examined, though they don’t specify what those other options might be.

As I’ve said before, it’s difficult to separate the facts from the fiction when it comes to this project.

I don’t have the answers but I hope what I’ve provided will at least spur others into digging a little deeper themselves, perhaps even finding information that supports or refutes what I’ve gathered myself.

If nothing else hopefully the information put forward, beyond the rhetoric, will convince the public not to place too much stock in the political positions being staked out by any of the parties heading to the polls in October.

In an effort to provide as much information as I can, below are some diagrams I’ve found on the NALCOR and Hydro sites identifying the current power rates in the province, projections for the cost to consumers under both the Muskrat and Holyrood options and a graph showing the rising cost of fuel at Holyrood over the past few years.

I hope it helps.

The first chart identifies the current island interconnected rate per kilowatt hour - 9.584 cents.

The second chart identifies NALCOR's comparative analysis of revenue requirements for Muskrat Falls vs. the Holyrood option. Note that this chart is depicted in Megawatts rather than Kilowatts but what it shows, according to NALCOR, is that in the 2016 - 2019 time frame both options will cost about the same but in the following years Muskrat Falls (the blue line) is a much less expensive option. Precisely what the rate per kilowatt hour will be to consumers is not identified but it's clear that this would also be affected going forward.

This final chart idenfies the cost per barrel of oil used at Holyrood over the past 10 years. This indicates a doubling in those costs over the period. No projections of oil costs going forward were available, nor were any assumptions about the cost of carbon emissions should regulations be put in place.


Brad Cabana said...

I'm sorry, but your "facts" are mainly government spin. We have been using less power since 2003, and are now at consumption levels of 1992. Check out the charts on the July 2010 report you got your second to last graph from. The only way we hit an energy wall is if these wild and unsubstantiated forecasts come true. That is a big if, and ask yourself where are these "projections" explained in any detail? The reality is that should the Lower Churchill be built, we will not need 1 kwh of it, and it will be sold on the US market at aprox 6 cents per kwh at a huge loss to us here.

Patriot said...

Ok Brad, I'll play the game since its all about getting information out there.

You say my "facts" are mainly government spin and we will not need 1 kwh of it, and it will be sold on the US market at aprox 6 cents per kwh at a huge loss to us here.

So where is the documentation you have to susbstantiate those statements? If you have evidence of this please share it so we can confirm your "facts".

NL-ExPatriate said...

Yes Brad please show us some facts. I would be very interested to see something other than conjecture and political spin which has nothing to do with the benefit of the province but rather partisan rhetoric.

TY Myles for putting this together!