First up, there are lots of ways to make bad decisions.
The Telegram’s Russell Wangersky did a fine job on Tuesday of pointing out that natural resources minister Jerome Kennedy is basically out to lunch when he claims that the Muskrat Falls project won’t likely experience any cost over-runs.
But that’s not the only way Kennedy’s interview On Point With Jonathan Crowe [video] was surreal.
That’s the second part of our Muskrat Falls round-up.
According to Kennedy, Nalcor will have 300 MW available from Muskrat Falls to sell on the spot market for prices ranging between $40 and $100 per megawatt hour. Kennedy gave an example of how brilliant such an idea would be: at $60 per megawatt hour, Kennedy claimed that Nalcor would reap a profit of $50 per megawatt hour.
Problem: according to Nalcor, Muskrat Falls will produce, on average, roughly 570 megawatts. Three fifths of the power will go to Newfoundland and Nova Scotia. Do some simple math. That won’t leave 300 megawatts for export.
What is Jerome talking about? Good question. Too bad there’s not an equally good answer.
Curiously enough, though, 300 MW is another one of those magically repeating numbers in the world of Labrador hydro. Recall from the 1969 contract is 300 MW.
Maybe Jerome got confused.
Maybe he was watching a movie about Spartans.
Maybe 300 is becoming like 800: a number that appears but isn’t related to anything concrete.
But there’s more. $40 to $100 per megawatt hour on the spot market is just ludicrous. The most recent data on the northeastern American markets shows day-ahead electricity averaging about $25/MWh. No one expects it to climb radically in the near future because the Americans have access to cheap electricity from natural gas.
To put that in context for you, Nalcor’s own figures supplied to the public utilities board estimated that Muskrat Falls electricity will cost $77/MWh to produce if you use Nalcor’s creative pricing scheme. If you use the way of pricing electricity that the public utilities board normally uses, then Muskrat Falls electricity would cost considerably more than $200/MWh.
And that’s just the cost of producing the electricity. It doesn’t include the cost of getting it from Muskrat Falls down through Nova Scotia, New Brunswick and into the United States.
So what is Jerome talking about when he says Nalcor could sell electricity for upwards of almost five times the current average price?
Well, Jerome could be just tossing out old numbers that are out of date.
Then again, Nalcor said that they had figured out a way to make this project happen by making local ratepayers foot the entire bill. They never thought about making cash from exports. As they told the public utilities board:
For the purposes of analysis, Nalcor has assumed there are no export sales and consequently, Hydro customers are assumed to pay the full cost of Muskrat Falls and the Labrador Island Transmission Link.
Maybe Jerome is just talking shit.
That would make it a bit like the third element of our round-up. The Telegram editorial on Wednesday noted another contradiction in Jerome’s interview. He was playing up the need for Muskrat Falls to power mines in Labrador. But, as the Telly notes, Nalcor’s official position is that the mining projects “are not sufficiently advanced in order to justify commitments to invest in generation capacity, transmission infrastructure or to be included in official utility load forecasts.”
Which is it?
As a fourth and last item in the Muskrat round-up, take a look at a column from the Chronicle Herald that argues that more wind power would be better for Nova Scotia than Muskrat Falls. Here’s a sample of the argument:
4) The current cost estimate has not been disclosed and apparently ratepayers will be asked to accept some or all of any cost overruns. The wholesale cost per megawatt hour could be $140 or more, almost double the recent tender for wind. After 35 years, ownership of the cable reverts to Nalcor, so Nova Scotia ratepayers will have no protection against sudden price increases. The provincial government, continuing its weak performance in business dealings, seems to have awarded this contract to Emera untendered.
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