Nalcor and the Eff In Way #nlpoli

Over at Uncle Gnarley,  JM’s at it again with the first of a two-parter on Nalcor and its problems with forecasting for Muskrat Falls.

Nalcor assumed that they would get 830 megawatts of electricity out of Muskrat Falls in the winter months when demand is highest.  That’s the number they gave everyone else and, as you can tell by the language Nalcor uses, it was an assumption, not a solid forecast.  Now they say they should be able to get 673 MW at Soldier;s Pond from Muskrat Falls.  That’s a difference of 157 MW, not an inconsiderable difference.

Muskrat Three-some #nlpoli

Here are some treats to keep you up with the latest developments on the Muskrat falls front.

For starters, CBC’s Anthony Germain interviewed Tom Adams on Thursday about Adams’ contention that the Muskrat Falls project will add a significant debt load on the province.  It’s the third audio file from the top on that linked page, incidentally. 

How’s $12,000 per person for a significant debt load?

Adams points out that the industry standard way of figuring out costs for electricity projects makes Muskrat Falls hideously expensive.  Nalcor’s estimate, incidentally, is that the cost using the industry-standard means puts Muskrat falls at a cost of at least 21 cents per kilowatt hour.  When your humble e-scribbler and others said Muskrat would double the price of electricity for consumers, we were wrong.  it would actually triple it or worse.

Because Muskrat Falls is so hideously expensive, Nalcor Energy and its whole-owned subsidiary - the Government of Newfoundland and Labrador - plan to use a costing method that transfers the costs and the huge risks for the project into the future.  That makes it appear cheaper at the front but ensures that consumers get it in the end.

Clever, eh?

Adams’ comments are based on a post he made on March 21.

A couple of days later, Adams posted a link to slides from David Vardy’s presentation to the Rotary Club of St. John’s. That’s your second treat.

Most of this is stuff you may have heard before.  One of the things you might want to pick out, though, is a point Vardy makes at the bottom of slide 18:

Access to financing will depend on the form of the loan guarantee.

Federal officials have talked about delivering their loan guarantee in a number of forms depending on what works best for them.  Provincial officials haven’t really talked about this because it is a very delicate issue.  How the feds deliver their commitment will affect the cost of the project significantly.

It can also determine whether or not the provincial government can raise the cash they will need for this very expensive project that has no apparent chance of ever making a nickel from export sales.  Potential investors are looking at this project like hawks. They aren’t going to be fooled by Twittered bullshit about a 15% cost over-run and revenue streams that make it wonderful and viable.

Financing is the key to this project.  Note Vardy’s point.  You might also want to go back and check two old posts from this corner:  one from December 2010 and another from February 2011.

Your third treat is the presentation by Dr. Stephen Bruneau (March 28) on the potential for natural gas as a way to produce electricity in the province.  David Vardy noted this one as well as the availability of Churchill Falls power in 2041, incidentally.

Bruneau walked through the entire issue, including availability and potential costs. The slides are here in pdf.

He also looks at the risk of a pipeline rupture.  Interestingly enough, the proponents of the Muskrat project are grasping at that one to try and fight off the threat to their dream posed by natural gas. 

Bruneau estimates that the fuel costs for a Holyrood-sized gas plant would be one quarter of the cost of Holyrood.  That’s based on an assumption that we cost the natural gas at current American market prices.  The overall construction cost is in the neighbourhood of your humble e-scribbler’s estimates of under $2.0 billion.  Bruneau estimates construction would be two years or so.

One of the things that opponents of low cost electricity forget is that you actually need a mix of generation types to deliver a stable supply of electricity.  Natural gas would be the logical compliment to the existing hydro-electric generation on the island.

And, for those folks, that’s a significant issue.  They love Muskrat and criticise natural gas because it isn’t green enough.  What they fail to admit is that their plan for Muskrat includes more thermal generation from oil than the island current has.  The Green Fallacy is just another example of how Muskrat proponents have to cut corners on the facts in order to push their project along.

- srbp -

Living after them #nlpoli

The evil that men do lives after them; the good is oft interred with their bones.

William Shakespeare, Julius Caesar

In his latest post on Muskrat Falls, energy analyst Tom Adams argues that the provincial government wants to finance Muskrat Falls in a way that shifts the costs and the risks to future generations.

“This proposed financial model inappropriately mixes elements of a power purchase agreement (PPA),” writes Adams, “often used in some elements of the utility industry, and government subsidies to create what Jane Jacobs described in her book Systems of Survival as a “monstrous hybrid”. This monstrous hybrid imposes escalating costs and obsolescence risks on consumers over the next 57 years.”

Adams says that Atlantic Canadian governments have been especially prone to financing schemes that are described as innovative but that turn out to be disasters:

Usually, the purpose is to promote riskier investments than could be justified using conventional approaches. Sometimes, such as with the franchise model innovated by the New Brunswick government in the late 1990s to promote natural gas distribution, the innovation fails spectacularly. Except for industrial consumers, New Brunswick natural gas consumers now pay by far the highest gas rates in North America. The growth rate for the local distribution utility is below a rate that is financially sustainable.

What’s more, the project hasn’t received adequate review, Adams contends.

And, in the end, Hydro-Quebec controls power output from Muskrat Falls since it effectively controls the water flows on the entire Churchill river.

Read the full post – “Newfoundland’s Muskrat Falls Megaproject Fails Test of Intergenerational Ethics” – here.

- srbp -

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.

Nalcor will have problems supplying MF power to Nova Scotia? #nlpoli #cdnpoli

Energy analyst Tom Adams has an interesting observation on why Nalcor and Emera are having a hard time finishing their agreement.

Adams believes that a detailed analysis of Muskrat Falls generating capacity and electricity demand will create a situation where “Nova Scotia gets nothing or close to nothing when customers there need it most.”  [Emphasis in original]

As Adams lays it out:

During the times of the year when Holyrood would have been running near capacity, all on-island generation [in Newfoundland] will be running flat-out (as it does today) and Muskrat Falls will not be able to supply enough power to move any significant amount of power to Nova Scotia. This is because in Jan./Feb./Mar. the maximum output of Muskrat Falls will be about 500 MW due to the seasonality of water flow. This maximum output is after taking into account the operation of the Upper Churchill facility upstream which is contractually bound to maximize winter production for sales to Quebec.

Hang on, some of you will be saying.  Adams has left out 324 megawatts.  He mentions 500 MW but the Muskrat Falls dam is supposed to produce 824 MW.

Yeah, well, not really according to Adams.

Adams took a closer look at information Nalcor supplied to the public utilities board.  Adams believes that the Nalcor information presents an ideal scenario.  In actual operation,  Adams believes the plant will crank out 577 MW.  According to Adams, “this corresponds to 5.05 TWh of production — i.e. pretty close to the [official] project estimate of 4.9 TWh of production.”

In the summer months,  Nalcor won’t have any trouble meeting its commitments to ship free electricity to Nova Scotia.  There’s plenty readily available on the island from the surplus generating capacity in central Newfoundland. 

Interesting idea.

Would explain a lot, too.

- srbp -