Power Polititcs: "Events Dear Boy, Events"

Electricity generation made a surprise appearance in our federal election campaign last Friday, when Prime Minister Harper ventured to Newfoundland and announced a new Conservative government would provide loan support for a lower Churchill hydro project.   Sunday brought the reintroduction of cap-and-trade as the Liberals dropped their policy book, and this morning's top news story on the CBC was that we need to spend all kinds of cash on new capacity – their source being the companies selling all types of new generation and grid technology.  All this interest will vanish shortly because the politics behind the Lower Churchill project won't be talked about honestly (Quebec can't admit they've been thugs on Churchill Falls for 4 decades and intend on remaining thugs for another 3 decades - and Newfoundland can't admit the project is to free them from the shackles of Quebec).  There is time for provincial politicians to take advantage of the situation.

I have a fairly simple, but very political, opinion on the funding for Newfoundland's Lower Churchill and maritime transmission project (the way Prime Minister Harper noted support for the Newfoundland and Labrador's Premier's project is towards the end of the speech here). Newfoundland and Labrador feels there are another 4000MW of capacity to be developed, cheaply, at and below, the existing Churchill Falls Facility. The current generation, of 5428MW, can have some upgrades – but Hydro Quebec has had a contract for the vast majority of the output since 1969, and it goes through 2041 (at about $2.50/MWh). The contract has meant Quebec receives about 20 times the financial benefits from Churchill Falls' output, than the Province that the project is located in, and which owns the majority of the project. One estimate I read had Churchill Falls responsible for $2 billion of Hydro Quebec's $2.8 billion annual profit. It's a long-term sore spot that's been to the Supreme Court a couple of times. Because of this, the 1000MW of upgrades that could be done at Churchill Falls aren't even discussed, which leaves two other projects downstream. The bigger of these 'lower Churchill” projects is at Gull Island (around 2300MW) and the smaller is at Muskrat Falls – for 824MW. The worst economics are for the smallest project.

They are planning on proceeding with the smallest project. The $6 billion figure being bandied about is therefore considered to be for 824MW of generation. But the value of the project needn't be that. If Newfoundland and Labrador have the foresight to build the transmission capacity for closer to 3000MW, at least for the most expensive sections running under the ocean from Labrador to Newfoundland, and again from Newfoundland to Nova Scotia, the next 2300MW, either from Gull Island or from Churchill Falls itself, would be much more economical. Churchill Falls produces over 30 million MWh annually , and each sells for about $60 less than it would in New England – or Ontario. Can a $6 billion load get paid back by enabling that to circumvent the Quebec deal?

Yes.

Newfoundland may gain some taxing options on Churchill Falls production in 2016. Politically, Newfoundland needs another route to get power out of Labrador, and they can find ways to pay for it that are unrelated to the 824MW of Muskrat Falls capacity.

Most people in the world would be astounded to know there is a 31TW/year source with the output selling at such a low price. The problem for developing more of the area's cheap hydro is getting it out. Quebec has the ability to drive an extraordinarily hard bargain – as they have other cheap hydro sources too. Newfoundland proper, also is largly hydro supplied (there is a 500MW Holyrood oil site that will be redundant as the Lower Churchill supply becomes available). It's a long way to markets that currently don't have clean electricity supplies (the Maritime provinces), especially if the route can't include Quebec.

Regardless of the unspoken justification for supporting what is, at face value, a very expensive project, the justification was communicated as supporting a clean electricity project.

Steve Aplin picked up on that one immediately, at his pro-nuclear (and excellent) Canadian Energy Issues blog:

“The Muskrat Falls loan guarantee is promised for an 824-MW project that is expected to cost $6.2 billion. Back in 2009 when the Ontario government asked vendors for proposals to build the new Darlington reactors, federally owned AECL’s bid was rumoured to be around $26 billion. Do the arithmetic, and you see that the federal Conservatives are willing to back a Newfoundland-Labrador power project that is, dollar for dollar and megawatt for megawatt, almost exactly proportional to Darlington.”

At about the same time the Darlington Joint Review Panel Public Hearing included some comments on pricing, which doesn't seem to have been as high as the press rumours.  From the transcript for April 2^nd, page 189:

"Albert Sweetnam,for the record. At present, there is no estimated cost for the units at Darlington. The reason for this is that no vendor has been selected and no technology has been selected.However, the Assistant Deputy Minister, when he was here, indicated that the province is looking at a price range in between $5,000 and $8,000 per kilowatt hour, and that's the range that is presently being utilized.”

Mr. Sweetnam (of OPG) later clarified, “On the 26 billion, this is an amount that was stated in the newspapers. It's not based in fact, and it was refuted by the procurement agency for the province ...”

It's pretty clear that in calculating the $/kW for only Muskrat Falls, and only the transmission capacity for Muskrat Falls output, that Ontario has the same pricing in a nuclear option.  Ontario's nuclear plans include removing 3000MW of capacity from service at Pickering. The two proposed reactors at Darlington are either the only new build required in the next 20 years, or only one of two.

Enter the CBC reporting team with, “Canada's power grid needs $293B infusion: Report.” This is nonsense. I'll read the report – someday – but the CBC article notes, indirectly, where the nonsense comes from as it cites the province planning the largest increase in capacity is Ontario. I've written extensively on Ontario's plans – and why they are bad.  Primarily it is because there has been almost no ability to integrate wind to meet demand, and the plan primarily calls for more wind. Ontario is planning on adding wind specifically because it doesn't have growing demand and this is the angle the Charlatans of the day are working.

Now the world is figuring out the very same things about the wind supply fable. A report this week out of the UK, for the John Muir Trust, notes the same patterns that make wind unreliable in Ontario, and that negate any possible benefit in terms of reducing the need for traditional/real capacity, also make wind a poor idea there. That report followed one a week earlier from Pöyry, one of Europe’s leading advisers in the energy market. That report included;

“We have little doubt that investors will face major challenges developing appropriate investment and divestment strategies to deal with this kind of future ahead. Thermal assets may be highly valuable if the market evolves in one direction, but they also face the strong possibility that the intermittency from wind and solar can create power stations that for most of the time do not make a profitable contribution.”

The Interstate Natural Gas Association of America (INGAA) has already pounced on this theme. While major generation company executives are calling for a withdrawal of all subsidies to curb the current supply glut – as well as because natural gas is so cheap the electricity generation industry stateside now sees it's profits move with the price of natural gas – this gas industry body is noting that the back-up generation required for wind will also require subsidy for new gas builds, due to low capacity factors (and presumably high fuel use as reserves are kept spinning).

It's a pretty great game for a salesman – if you can just hook the folks with the illusion their demand is increasing (it hasn't in my province for 2 decades, and it isn't expected to move significantly higher here, or in the much larger USA, for another 2 decades), first sell them some clean stuff they'll need to subsidize, and then some real stuff that they'll have to subsidize only due to the clean stuff.

Add on the much more complicated transmission structures and already high costs to consumers surge out of control as in Ontario during 2009 and 2010, as demand dropped.

The saner model would be building only when necessary, and then only the cleanest reliable source first, even at a price of $6000-$8000/kWp

Steve Aplin blogged today that the current federal election, with the Harper pledge of loan support for Newfoundland's Lower Churchill project, provides Ontario's Liberal government political leverage to pressure Prime Minister Harper to commit to supporting Darlington's new build. I won't disagree with the opportunity – but I've never thought McGuinty would commit to new nuclear.  His primary challenger, PC leader Tim Hudak, has mocked his opponents dithering and promised the nuclear industry would receive clear direction from him shortly after a Progressive Conservative victory in the fall.  
Mr. Hudak might want to move up his timetable for having an opinion.