16 March 2012

Nova Scotia would get Churchill Falls power for free #nlpoli

If you’ve been following the ongoing Muskrat Falls saga, you will recall that energy analyst Tom Adams raised some questions a couple of months ago about whether or not Muskrat Falls could actually produce the power Nalcor and the provincial government claimed.

The problem basically came down to this: 
  • January through to March is when Muskrat Falls needs to produce the most power.
  • That’s when Holyrood would be cranking at full tilt to meet demand on the island for lights and heat in the winter months.
  • At the same time, the Nova Scotians will need to get their guaranteed block.
  • Upstream, Churchill Falls will be cranking at full tilt to feed Quebec under the 1969 contract and the 1998 Guaranteed Winter Availability Contract
  • But the water flows in those three months are the lowest for the year.
  • And at that point, Muskrat Falls would have a problem generating much more electricity than Holyrood did, despite the fact that Muskrat is – on paper – considerably larger.
Nalcor’s official line is that the water management agreement imposed by the public utilities board gives Nalcor access to the Churchill Falls reservoir. 
With production at Muskrat Falls completely integrated with Churchill Falls, this means that during May and June Muskrat Falls will be producing at full output, and the resulting production not required on the island will be displacing production at Churchill Falls. This energy will be drawn down when rivers flows are lower, and during peak winter periods when electricity demand is higher on the island.
Problem solved.

Yeah, well not really, as you will see in a little bit.

The same basic line turns up again in a recent answer Nalcor filed with the public utilities board.  The question was about the water management agreement and the idea that somehow Nalcor could get extra electricity from Churchill Falls to cover any shortfalls at Muskrat Falls.
(d) Muskrat Falls production beyond amounts scheduled for delivery over the Labrador Island Transmission Link or scheduled for export will be stored in the Churchill Falls reservoir. The energy will be returned from Churchill Falls at times when (i) the energy is required to meet Muskrat Falls delivery obligations and (ii) when generation at Churchill Falls is available.
And just to make sure there was no confusion about how all this relates to the preceding commitments for Churchill Falls power, Nalcor said it again:
As indicated in Nalcor’s response to (a) above, the operation of the Water Management Agreement will have no impact on Hydro Quebec.
This is a bit of a poser.

Churchill Falls basically cranks out 5800 megawatts. That’s it. Plans in 1998 to increase output at the Falls didn’t work out. So there’s only a set amount of electricity you can get.

About 300 MWs of that Churchill Falls output comes to Nalcor under the recall provisions of the 1969 contract.  Nalcor supplies that electricity to western Labrador, in part to meet the requirements of the TwinCo agreement. Everything else – the 5500 MWs – feeds the 1969 contract.

Now all of that recall power, isn’t used for Labrador needs gets sold outside Labrador.  Starting in 1998, Newfoundland and Labrador Hydro sold it to Quebec.  In 2009, Nalcor started selling it to Emera in New York by wheeling the power through Quebec. The Emera deal ends in 2014.

We can see roughly how much of it Nalcor uses in Labrador from that PUB document linked above:
In Labrador, the amount of recall currently used is approximately 190 MW. By 2041, this is projected to be approximately 210 MW, excluding any additional industrial demand.
Right now, there’s roughly 110 MW available out of that recall power to sell, on average. 
And basically that’s it. 

No matter how much electricity Muskrat Falls produces in May and June, the most Nalcor might get from Churchill Falls in January to March when Nalcor needs it most is 110 MW or less. 

There is no mysterious extra power available from Churchill Falls that no one knew about before.  Nalcor hasn’t found a magical way to transform electricity back into water.

So in January to March, Nalcor will likely come up short from Muskrat Falls.  They can get some juice from Churchill Falls but only what’s left from the recall power.

And where will it go?

Well, let’s go back to that Nalcor thing to the PUB:
Please note Nalcor is not relying on availability of the 300 MW recall allocation for supply to the Island.
Some of you are already at the end of this because it is so friggin’ obvious once you lay it out. There’s only one logical conclusion.

That Churchill Falls power will go to deliver the Nova Scotia block.

And here’s the sweet bit.

They will get it for free.

That power that we used to sell to Quebec and into the United States will go to keep the Nova Scotia lights on, for free.

You see that basic power block Nova Scotia is supposed to get under the term sheet goes to them for free for 35 years.  So if they start getting electricity in 2017, just add 35 years.  Nova Scotians would get free electricity from Churchill Falls until 2052.

The contract with Quebec expires in 2041.

They pay for their electricity, even if it will be a mere two mils after 2016.

But the Nova Scotians will get their electricity from Churchill Falls for nothing.

And they’ll get it for another dozen years after the original Quebec contract expires.

Sweet, or what?

- srbp -