Ontario and the faltering Conservative administration in Newfoundland and Labrador are talking about the possibility of developing Gull Island to supply Ontario with renewable energy.
CBC’s online story on Monday said exactly that:
Ontario eyeing Lower Churchill hydroelectric power from Labrador.
But if you listen to what grim-faced energy minister Derrick Dalley said to CBC’s David Cochrane during the supper hour news on Monday, there is a lot less to the announcement than first appeared.
“It’s not specifically about Gull Island, David. I think what we have been talking about is a recognition that Ontario has some energy supply needs and … with the developments we are seeing in Newfoundland and Labrador.. there is an opportunity to work with Newfoundland and Labrador.”
The best Dalley would offer when asked for a second time about Gull Island was that these talks recognise a decade or work.
Asked twice about Gull Island and with evasive answers both times?
That tells you that this is a highly politicised announcement of nothing to get excited about.
Dalley described the talks over the past year as an exercise in trying to figure out what issues they’d have to “drill down” into order to explore the potential that Ontario could get energy from this province.
These items for drilling include the economics of the projects, “ratepayer value” (a code phrase for consumer costs), environmental impacts and economic benefits. Dalley said it would a year or more for these talks.
Drill down a bit into this, then, and you don’t see very much to actually get excited about. Dalley was very quick to dismiss the idea the talks were about Gull Island but, as Cochrane noted, Gull Island is the only major project in the province left to develop.
What makes Dalley’s vagueness look even more suspicious is that this isn;t the first time Ontario has looked at getting electricity from the Lower Churchill. They did it 25 years ago but talks between Ontario, Quebec and Newfoundland and Labrador ultimately fell apart as a result of changed economic circumstances during the Great Recession of the early 1990s.
In 2005, the newly minted Conservative administration in Newfoundland and Labrador asked for expressions on interest in developing the Lower Churchill. Ontario and Quebec proposed that those provinces would buy all the power and fund news transmission links between Ontario and Quebec to boot. Danny Williams rejected all the offers to partner on the project and instead embarked down the disastrous “go-it-alone” scheme.
In other words, both Nalcor and the folks in Ontario already know all the issues involved. They’ve also talked over the past decade about this specific project on the Lower Churchill. One of the reasons why Nalcor abandoned Gull Island and long-term export as a development option in 2010 was because places like Ontario were just not interested in the very expensive output from Gull Island.
Nothing has changed in the past five years. Dalley told reporters on Monday that Gull Island alone will cost $12 billion. Based on experience with Muskrat Falls, you can safely make that $18 to $20 billion. The project is more expensive. The market isn’t any more receptive to expensive electricity.
To give you a sense of how expensive that electricity would likely be, consider that the cost to Newfoundland and Labrador consumers for Muskrat Falls will be more than 15 cents a kilowatt hour, according to Nalcor. That includes transmission costs. But it’s for a project that is probably about two and a half times less costly than Gull Island.
What’s worse for Nalcor is that the company cannot guarantee it can provide any electricity from the Lower Churchill yet. Even the Muskrat Falls project remains speculative pending the outcome of a court case and a dispute between Nalcor and Hydro-Quebec over interpretation of the 1969 Churchill Falls power contract.
Nalcor’s entire scheme for the Lower Churchill is based on the untested assumption that the company can regulate the water flows on the Churchill River to optimise production. Hydro-Quebec contends that it has the right under the 1969 contract to control the delivery and production from the Churchill falls plant and will continue to do so after the contract renews automatically in 2016.
If Nalcor can’t control the water flow, the company’s own projections show the magnitude of the problem it will face:
Under average conditions, the resulting production at Gull Island would be 1,519 MW for 6 the first 20 days and 443 MW during the last 11 days of March. During a dry period, this scenario would require production levels of 1,471 MW during the first 20 days of March, 8 and 395 MW during the last 11 days. Consequently, without a water management agreement, Nalcor would be limited to approximately 400 MW of continuous delivery in a long‐term power purchase agreement for Gull Island. Such an arbitrary constraint on lower Churchill [sic] delivery schedules is unnecessary and is incompatible with the concept of the efficient use of the resource.
The water management agreement the public utilities board imposed on Nalcor and Churchill Falls (Labrador) Corporation subordinates the agreement to the 1969 contract and other agreements between CFLCo and Hydro-Quebec. If Hydro-Quebec succeeds in its court case, Nalcor is truly screwed.
Nalcor knows it. Hydro-Quebec knows it and the folks in Ontario know it as well.
The only people who don’t seem to know it are the folks in Newfoundland and Labrador and all the reporters who breathlessly reported on the great news about the impending development at Gull Island.