The project will wind up behind schedule, most likely.
There’s a good chance Nalcor won’t have enough control over water flows on the Churchill River to meet its forecast firm generating capacity from the smaller dam let alone the theoretical project at Gull Island.
But that hasn’t stopped Nalcor from pitching Muskrat Falls and Gull Island to the good folks of Massachusetts with electricity at prices that would be – conservatively – about one third of what Nalcor’s owners will have to pay for electricity from Muskrat Falls.
According to the Boston Business Journal, Greg Jones, Nalcor’s vice president of energy marketing, claims that Muskrat Falls will “have an average surplus of 400 megawatts of power it could export once Muskrat Falls is done.”
What’s more, “Jones says Nalcor executives would like a clean energy procurement out of Massachusetts to help finance the construction of this massive project. He says about 1,200 megawatts could be sent to New England once Gull Island is built.”
That’s all wonderful stuff but it’s a long way from being even potentially true.
Nalcor operates in an anti-competitive market
For one thing, Nalcor operates in a market that doesn’t allow competition for electricity generation. A 2012 change to electricity regulations in Newfoundland and Labrador closed the market. The provincial government closed the market so that Nalcor could control electricity prices the company needs to fund Muskrat Falls. Under Nalcor’s scheme, domestic consumers – the people who theoretically own the Crown corporation – would use about 20% of the plant’s 560 megawatt output but pay for 100% of the cost plus profits for Emera and assorted bondholders and other lenders.
That anti-competition law is a direct violation of American trade rules that require companies doing business in American markets to operate in competitive energy markets at home. There’s no small irony in that Nalcor has accused Hydro-Quebec in the past of operating a non-competitive market, thereby violating FERC Order 888. Basically, even if Nalcor’s hydro projects qualified as green projects under the proposed Massachusetts law, Nalcor would likely be barred from the market because of provincial government’s anti-competition laws.
Nalcor doesn’t have confirmed generating capacity
For another thing, Nalcor’s promises of surplus electricity to deliver to American markets are based on the assumption that the company can actually control water flows on the Churchill River to make more than minimal amounts of electricity at Gull Island or Muskrat Falls. A law suit working its way through Quebec courts could demolish the 2009 water management agreement the provincial public utilities board imposed Nalcor and the Churchill Falls (Labrador) Corporation.
As SRBP explained in November 2012, Nalcor’s own estimates show that water flows on the Churchill River today are managed to meet the terms of the 1969 power contract between CFLCo and Hydro-Quebec. The result is that water flows downstream at Gull Island and Muskrat Falls would allow the facilities to produce only about 17% of their installed capacity.
That means that the still-theoretical 2250 MW Gull Island plant could only commit to deliver 400 MW of firm capacity. At Muskrat Falls, the installed capacity of 824 MW would only reliably produce 170 MW.
Even with the water management agreement in place, Nalcor’s forecast for Muskrat Falls is only 4.9 terawatt hours per year or roughly the equivalent of 560 MW. It’s hard to see where Nalcor might have a surplus of 400 MW in winter under those circumstances.
New England would be the primary beneficiary of NL resources
Then there’s the question of price. Presumably Nalcor would have to be competitive in the New England marketplace. These days that would mean prices for electricity of less than 10 cents per kilowatt hour. The original delivery cost (generation and transmission) for Muskrat Falls power inside Newfoundland and Labrador was more than double that amount. Running electricity through Nova Scotia, new Brunswick, Maine, Vermont and New Hampshire would only add to those costs. Even pushing power down through Quebec into Massachusetts would still add considerably to the transmission cost per kilowatt hour for Muskrat Falls electricity.
The only way Nalcor could sell electricity into the United States at firm prices below 10 cents per KWH is if local taxpayers – the people who notionally own Nalcor – subsidized the sale while paying full price at home.
Nalcor tried to market Muskrat Falls electricity to Rhode Island in 2009 but failed to secure a long-term power agreement. The reason? Price. Nalcor just couldn’t sell electricity from Gull Island and make money at it given the huge difference between the cost of generation and transmission and the market prices in New England.
Five years later, Nalcor is back in the American markets with that problem notionally solved, anyway. They plan to force local consumers to foot the bill so they can sell heavily discounted power into the United States.
There’s more, though.
If the power supply from Muskrat Falls fails because weather drops the transmission line, Nalcor’s current plan is to meet provincial needs by purchasing cheap electricity from the United States.
And none of that addresses the enormous problem you’d have trying to reconcile Nalcor’s scheme, revealed last December, with this idea of long-term sales of “cheap” power from Muskrat Falls to New England. Nalcor actually plans to shutter domestic generation during periods of the year and import cheaper American electricity to met domestic needs in the province. That confirms the reason why the provincial government closed the market in the province to competition but it runs directly contrary to the idea of supplying Massachusetts with “cheap” electricity from Gull Island or Muskrat Falls.
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