The Lower Churchill Project is one of the most attractive undeveloped hydroelectric sites in North America and is a key component of Newfoundland and Labrador’s energy warehouse. The Project’s two proposed installations at Gull Island and Muskrat Falls will have a combined capacity of over 3,000 megawatts. The clean, stable, renewable electricity provides the opportunity for the province to meet its own domestic and industrial needs in an environmentally-sustainable way, and also export electricity to other jurisdictions where the demand for clean, renewable energy continues to grow.
Nalcor Energy is progressing Phase One of the development, Muskrat Falls, the Labrador-Island Transmission Link and the Maritime Link to Nova Scotia. This development will bring with it many short and long-term benefits for Newfoundlanders and Labradorians, the Atlantic provinåces and the rest of Canada.
Our province will benefit in many ways from this development, including: 1) delivering the lowest-cost power for homes and businesses in our province; 2) providing stable electricity rates; 3) supporting industrial development; 4) providing long-term revenue to our province; and 5) economic and employment activity.
Detailed analysis shows Muskrat is best option
The decision gate (DG) or staged gate process is an industry-accepted best practice approach for decision making for major capital projects. Nalcor uses the DG process, which provides checks and balances required by decision makers to demonstrate that an acceptable level of readiness has been achieved to progress the project through a decision gate.
In late 2010, Nalcor passed through DG2 and completed a detailed analysis. At that time Nalcor recommended the Interconnected Island alternative (Muskrat Falls and the Labrador-Island Transmission Link) as the least-cost way to meet the province’s growing electricity needs. That was concept selection. Our main objective as we move to the next gate, DG3, is to obtain as much certainty as possible to make the best recommendation to our shareholder, the Government of Newfoundland and Labrador.
Demand for electricity is increasing
Nalcor’s subsidiary, Newfoundland and Labrador Hydro (Hydro), has a responsibility to meet the province’s growing energy needs. In 2010, Hydro determined new generation was required to meet growing demand and electricity use on the island.
Based on our DG2 planning work and analyses, between 2009 and 2029 the compound annual electricity growth rate is expected to be 1.3 per cent on the island. This growth will be linked to three primary sources: 1) ongoing provincial economic growth resulting in more residential and commercial customers; 2) increased use of electric heat in new and existing homes; and, 3) increased industrial use at the Vale nickel processing facility. The Vale facility is the biggest contributor to the island’s load growth between now and 2017.
Comprehensive review of alternatives conducted
Nalcor examined a broad selection of generation supply options to meet the island’s growing and long-term electricity needs. Two scenarios were developed from these options – one from options available for an isolated island of Newfoundland, and one developed from options available when the island is interconnected with the mainland. Nalcor refers to these two generation supply options as the Isolated Island and Interconnected Island alternatives, respectively.
The Isolated Island alternative continues to rely primarily on increased use of thermal generation, including continued operation of the aging Holyrood Thermal Generating Station. The Interconnected Island alternative moves the island from dependence on oil-fired generation to the use of clean, renewable hydropower from the Muskrat Falls generation facility with a transmission link to the island.
Muskrat Falls provides consumers with least-cost power and stable electricity rates
The Interconnected Island alternative will mean lower electricity costs for consumers over the Isolated Island alternative. There’s a $2.2 billion present value cost difference between the two alternatives in favour of Muskrat Falls (present value means what the alternatives are worth in today’s dollars).
Electricity rates on the island of Newfoundland are directly influenced today by the price of oil used to generate electricity at the Holyrood plant. Rising oil prices and rising demand for power means that electricity rates are increasing on the island. As long as this province remains dependent on burning fuel at the Holyrood plant, electricity rates will continue to be volatile.
In 2017, with stable and renewable hydropower from Muskrat Falls, rates for consumers will stabilize with minimal variation or increases of less than one per cent per year long into the future.
Strategic partnership with Emera
Nalcor has entered into a strategic partnership with Nova Scotia’s Emera Inc. that will see Emera invest $1.2 billion to construct the Maritime Transmission Link. Nova Scotia will receive 20 per cent of Muskrat Falls’ power over a 35-year period. At the end of 35 years, ownership of the Maritime Link will revert to Newfoundland and Labrador. Emera is also facilitating Nalcor’s transmission of electricity to the Maritimes and northeastern U.S. markets using its transmission capacity.
Under the terms of the contract, Nalcor will have access to the Maritime Link’s capacity at no cost. Nalcor can use the link to transmit any surplus power from Muskrat Falls, as well as energy from any new renewable generation sources developed in Newfoundland and Labrador. The link will also allow imports of power as well facilitating increased reliability for consumers.
Development will bring short and long-term benefits
Nalcor is committed to ensuring Newfoundlanders and Labradorians benefit significantly from the Lower Churchill Project.
As the province’s energy corporation, Nalcor Energy is committed to building strong relationships with the people of the province and securing long-term benefits for future generations. The development of Muskrat Falls and the future development of Gull Island and the associated transmission lines offer substantial employment, income and taxation benefits to all Newfoundlanders and Labradorians, Atlantic Canadians and the rest of Canada.
Economic and employment benefits
For the Muskrat Falls Project, it is estimated that in the peak construction year, employment will reach 2,700 people, with thousands more indirect jobs created over the life of the Project. Direct employment benefits during engineering and construction will reach more than 70 occupations.
Hydro projects have a long-term life with low operating and maintenance costs that benefit electricity consumers across many generations. Unlike thermal generation where price is controlled by global factors outside domestic control, domestic hydropower is a secure and stable source of electricity.
With Muskrat Falls, electricity generation in Newfoundland and Labrador will be 98 per cent renewable. Electricity consumers and businesses will benefit from the rate stability and predictability that comes from hydropower. An investment in Muskrat Falls also lays the foundation for future electricity exports.
In addition to the employment, income and taxation benefits, importing clean, renewable energy from Newfoundland and Labrador will allow Nova Scotia to reduce its greenhouse gas emissions.
The time to invest in secure and stable electricity generation is now
In addition to Muskrat Falls being the least-cost way to meet the province’s increasing demand for power, the timing to develop Muskrat Falls is ideal. Interest rates are low and the federal government has agreed to a loan guarantee for the Project. As well, an agreement is in place with the Labrador Innu and a water management agreement has been signed with Churchill Falls (Labrador) Corporation. The provincial and federal governments have also released the generation project from environmental assessment.
In summary, our analysis at DG2 has determined the least-cost option to meet our future electricity needs and this is the development of Muskrat Falls and the transmission link to the island. This will ultimately mean lower and stable electricity costs for consumers over the Isolated Island alternative.
As we prepare for DG3 and a Project sanction recommendation, we’re pursuing the certainty we require to make an informed recommendation. This includes finalizing commercial arrangements and confirming project cost and schedule. The full economic analyses will also be updated. With this information Nalcor will make a recommendation to its shareholder on whether the Project should proceed to construction.
While I’ve covered a significant amount of information in this commentary, more detailed information on the Muskrat Falls Project can be found in my blogs at: www.nalcorleadershipblog.com, on the Nalcor Energy website at nalcorenergy.com, or follow the conversation on Twitter @NalcorEnergy.