Quebec’s outcry over the loan guarantees that the Conservative government will provide to the Muskrat Falls hydroelectric project was about as predictable as Christmas jingles in shopping malls come December. You could hear it coming a mile away.
The Parti Québécois government lives and breathes for a good fight with Ottawa. And Stephen Harper is provocative enough. Coming from the Prime Minister who torpedoed the Kyoto Protocol, the decision to back the Lower Churchill power facility, an electoral promise Mr. Harper made to “significantly reduce greenhouse gas emissions,” smacked of hypocrisy.
“Quebeckers have always paid for their own electricity. This creates unfair competition,” fumed Intergovernmental Affairs Minister Alexandre Cloutier.
As outbursts go, however, this was a feeble one. Mr. Cloutier conveniently chose to ignore that Quebec never asked for any help. Nor would it have tolerated a federal intervention in a domain, natural resources, it guards fiercely as its own. Besides, it’s unclear that there will be any competition at all.
Quebec fears it will face a new challenger for its electricity exports in its New England backyard, as Newfoundland will use underwater cables to go around its territory, first from Labrador to Newfoundland, then to Nova Scotia and eventually Maine.
But by the looks of things, the Lower Churchill electricity will be outmatched by the cheap power that American thermal plants will produce using plentiful shale gas, as the United States is fracking itself into energy self-sufficiency.
In its submission to the joint federal and provincial panel that conducted an environmental review of the Lower Churchill projects, Newfoundland’s hydroelectricity producer, Nalcor Energy Corp., estimated that the nominal cost of Muskrat Falls electricity would average 14.3 cents per kilowatt-hour, including transmission costs. This was even before the price tag for the project rose to $7.4-billion from its initial $6.2-billion – although the federal guarantee will significantly reduce financing costs, as Nalcor will be able to borrow funds at a lower interest rate.
Even Hydro-Québec’s latest projects are currently uncompetitive. The new La Romaine hydroelectric complex is expected to produce electricity at 6.4 cents per kwh, while the state-owned utility just started selling electricity to Vermont at 5.8 cents per kwh under a new 25-year contract.
While crossing its fingers for price increases, Hydro-Québec is quick to point out that its average cost is a mere 2.1 cents per kwh. Thanks in part to the dirt cheap electricity – try a quarter cent per kwh! – it acquires through the Upper Churchill contract that Newfoundland reviles.
Speaking in front of the Canadian Club in Toronto on Monday, Newfoundland Premier Kathy Dunderdale again lambasted the “shameful” 65-year contract. Her province is still attempting to amend it through a new legal challenge in the Quebec Superior Court – despite a previous Supreme Court setback.
Quebec can hardly blame Newfoundland for aspiring for autonomy. The island, unconnected to the continent’s grid, faces a particular predicament. By 2015, the province won’t have enough generation capacity to satisfy its electricity requirements. And it rightly hopes to get rid of its costly and polluting Holyrood power station, a 500-megawatt plant that burns oil. Muskrat Falls’ more than 800 MW would do the job.
If Hydro-Québec had held out an olive branch, Quebec and Newfoundland could even have partnered for the development of the Lower Churchill Falls, as was attempted a decade ago. Some concessions might have worked better than having an arch-enemy that is doing everything in its power to derail Hydro-Québec’s Atlantic ambitions, including the botched acquisition of N.B. Power.
Lower Churchill Falls may not be the best solution. Nalcor maintains that the business case for Muskrat Falls doesn’t rest on the expected electricity exports to the United States, which would account for up to 40 per cent of the power generated by this facility. However, the joint review panel has questioned the project’s raison d’être as the least costly way of meeting Newfoundland’s needs.
Once the contract with Hydro-Québec expires, in 2041, the province will inherit close to 5,430 MW in extra generation capacity. Could a combination of wind farms and thermal gas plants have been a more cost-effective solution to the province’s problems in the mean time? Could a lone submarine transmission line between Labrador and Newfoundland have done the trick? Critics of the Lower Churchill complex still fear a white elephant despite the independent studies in support of Nalcor’s project.
It could be that Newfoundlanders will come to dislike the Lower Churchill Falls project and their electricity bills as much as they despise Hydro-Québec. But then, that would be Newfoundland’s mistake. Not Quebec’s.