So, Google - you may have heard of them, small plucky start-up - has decided that a core competency of any good search-engine company is building the most ambitious underwater electricity transmission grid ever attempted. Good for them and good luck with the regulatory, technical and financial elements of this project. Really, I hope it goes well. Where the heck is the number for my broker?
All jokes aside (and please, in case you were tempted, do not ever take investment advice from me), the Google investment in an underwater transmission grid could have some serious implications for Newfoundland and Labrador and indirectly, Quebec.
There are a number of reasons why the Lower Churchill hydro project - the largest undeveloped hydro facility in North America -has been stalled. Most of them involve Quebec and economics, likely in that order. The economics of the project are still very challenging in no small part because of low electricity demand and even lower natural gas prices in most northern U.S. energy markets. Natural gas prices are likely to stay low for years to come (though lots of people have looked awfully foolish over the years predicting gas prices) and a medium-term power demand rebound is still an open question. Over time, however, most studies I have seen conclude that Lower Churchill is an economically viable project if wheeled into the United States via Quebec.
Newfoundland Premier Danny Williams has often pitched as a solution to the historic and geographic challenges posed by Quebec around Lower Churchill the starry-eyed notion of running underwater transmission cables from the facility to the grid in Nova Scotia from which power would be wheeled into U.S. markets (hence the Premier's vociferous opposition to the NB Hydro-Quebec Hydro deal last year). If it sounds dead simple, well, it isn't.
I have always taken the underwater cable "plan" as something only slightly short of proposing flying cars to solve traffic congestion; it would be awesome if it could be done, there are just a few tiny little obstacles that need to be overcome first. In other words, I take it as a given that the only way Lower Churchill gets built is if the governments of Quebec and Newfoundland and Labrador negotiate a deal (or if a deal is forced on Quebec by the U.S. regulator).
Well, Google's announcement yesterday doesn't quite create flying cars but it is an important if small step in that direction. Google may be able to help drive down the cost of underwater transmission construction and prove that the economics can work. They are also likely to attempt to drive some innovative regulatory changes in the United States to help get through the baffling approvals currently required that could be replicated here.
It should also be noted that based on the currently available information that I have read (which may not be complete), Google is not relying on government subsidy for their project. Neither should Newfoundland - either the economics of the Lower Churchill work on their own or they don't. Canada is not in the business of subsidizing transmission lines and it isn't a business we should be getting into.
So overall, this is far from a short-term game changer in the United States or Canada but it is a development that will be played out over the second half of this decade worth keeping an eye on.