Monday, 16 July 2012

Muskrat Falls: NO POWER TO EXPORT (Part 1)

The distinctively loud and rapid sound of the gargoyle, which serves as a knocker on my front entrance, confirmed that a visit from Uncle Gnarley was imminent. I opened the door quickly and the grey bearded eminence himself entered in a flourish.  A day old newspaper covered his favourite ‘river warrior’, but could not hide its delicious aroma.  Uncle Gnarley had caught a salmon. 

Gnarley did have a sense of timing. He had been absent for several weeks and I had begun to miss the irascible old man.  Luckily, the day held no impediments and a dangerous shortage of our favourite elixir had just been remedied.
“Nav”, Uncle Gnarley barked, as he pushed the parcel towards me, “I thought I might invite myself to dinner.  I suggest you put a lid on this one, he was a real fighter”.

As Gnarley headed for the only chair that fit his broad frame, he allowed that we had some business to discuss and quickly held out a whiskey glass for an ample serving of 15 year old Macallan’s; a perfectly suitable reward for his victory on the Gander River.
“I have had a lot of time to think”, Gnarley bellowed, now anxious to share what was clearly bothering him. “I have never felt more unsettled”, he continued”. 

“Well”, Uncle Gnarley, I responded, “isn’t that why trips to the Gander are important, to put matters of state out of your mind for awhile; I don’t sense the masses are letting Muskrat get them upset; any bromides likely won’t be required until after the postman cometh with those pesky power bills”.  With a wave of his hand, Gnarley waived off any attempt to calm his unsettled spirit.

“I was re-reading some Nalcor material after my morning ablutions, which of course, are rather minimal, on the river.  I came across an item from Ed Martin of Nalcor, giving rebuke to Tom Adams Energy, a Consultant, who had suggested Nalcor overestimated the usable output of  energy from Muskrat Falls. Tom Adams might have raised Ed Martin’s blood pressure, but he succeeded in eliciting a vital piece of information. What is interesting, is that even Ed Martin admits, and this is a direct quote:  “Muskrat Falls will generate 4.9 terawatt hours of energy per year”.  Now, Nav, terawatt hours is the unit used when you want to convert megawatt capacity of a power plant to a term for ‘usable’ electricity. What Martin’s is acknowledging is that this figure of 4.9 terawatt hours actually works out to about 70% of the 824 megawatt capacity the facility is designed for”.

Startled by this announcement, the drink, that was supposed to glide smoothly and pleasantly down my expectant gullet, was exhaled, on reflex, in disbelief.  To my embarrassment, I had caused the whole room to descend into tumult.  Having regained my composure, I saw that Uncle Gnarley was sympathetic to my untimely outburst. “But isn’t it a fact, Uncle Gnarley, I asked, simultaneously trying to clear my throat and show a sense of disbelief as to his assertion, “if the water is running through the Upper Churchill, it also has to go through the Muskrat Falls generating station, down river. Why can’t Muskrat produce at full capacity rear round?” 
“Excellent question and the answer is not nearly as complicated as you might think”, Uncle Gnarley responded.

“First off, you have to remember, Nav, that Muskrat will not have a large dam structure, as does the Upper Churchill, to retain spring run-off.  Nalcor gives us the impression that they have overcome the problem by invention called a Water Management Agreement or WMA.  Now this WMA is between Nalcor and CFLco.  Hydro Quebec is not a party to it. Yet, the Agreement requires that both the Upper Churchill and Muskrat facilities operate “as an integrated system” to maximize power generation.  I suggest Nav, ‘le Regie’, and the Quebec’s PUB, will have some problems with that terminology, he laughed.

“As you know, this Province has justifiably tried every available legal manoeuvre to limit Hydro Quebec’s water rights to the Upper Churchill, all without success.  Now, Nalcor wants us to believe that the WMA corrects a problem that repeated trips before the highest courts could not.
Before Nalcor goes running off, spending $10 or $12 billion, at a minimum, you would expect them to be sure enough water was available, even assuming you were able to make the case that Muskrat Falls, going flat out, was economically viable.  Nav, they can’t even do that much! You need water on a timely basis to run a hydro facility – Nalcor doesn’t have the right to the water they need, when they need it!

“You see, Nav, Quebec Hydro has the water rights and a ‘take or pay’ contract, and that entitles them to say how much power the Upper Churchill must produce on any given day; that gives them the ability to decide how much water will be released to run downstream. 

“As distasteful as we might find the Upper Churchill contract, ‘the rule of law’ will prevail, as it must. 
But aside from that fact, Hydro Quebec is not a party to the Water Management Agreement and, in fact, the WMA specifically exempts Hydro Quebec’s rights under the Upper Churchill contract.  So tell me, what is the point of the WMA, if it doesn’t change anything? 

“Indeed, the Hydro Quebec representatives who showed up at the PUB hearings on the WMA,  did so, only to acknowledge that the WMA did not impact their rights under the Upper Churchill contract.  So I ask, Nav, who is fooling whom?  What we have here is a completely meaningless agreement.  As one commentator was heard to declare, the WMA was the equivalent “of you and me agreeing how we were going to share the use of the neighbour’s car, without asking him!  A fine comparison, indeed”, Gnarley bellowed, as he let out a loud roar.  “On what basis, I ask, are we supposed to trust Ed Martin, that enough water will flow from the Upper Churchill reservoir, to satisfy Muskrat’s needs”?
“Indeed, I would echo Tom Adam’s view, continued Gnarley; he has studied the Muskrat project extensively.  He argues, quite persuasively, too, that Nalcor must first show us a binding agreement with Hydro Quebec.  And the Agreement has to show that HQ will allow use of the Upper Churchill for Spring storage of water and thus the delivery of energy to Newfoundland and Labrador, “beyond current recall rights”.  Otherwise, it is not worth the paper it is written on.

“I understand, Uncle Gnarley, that Quebec still has us over the proverbial barrel, but it is, clearly, not merely an academic point.  I need some clarification.
“Please return to the remark you made earlier, that Muskrat will only produce, on average, 70% of its capacity.  If Ed Martin uses that number, he is counting on Quebec to act reasonably when it comes to water management. What you are saying, is that even accepting Ed Martin’s numbers and good water management, 30% of the project power capacity, on average, cannot be generated because not enough water is available to maximize power output.

“You have nailed it, Nav.  Now, let’s be clear.  Many hydro sites do not generate their full power potential unless they have plenty of reservoir capacity.  But Muskrat Falls is different because it has been bolstered by Nalcor and the politicians who have given the impression that such power export would help defray the huge capital cost of the project; in other words, it is an integral part of the justification for the project.  Bottom line: either forget those export contracts or expect to see Holyrood stay open for a very long time, just to ensure they can be honoured! 
“So, that’s the reason we are not hearing more about the potential revenue from those contracts? I asked.  “Well Nav, you don’t need to be an economist or a mathematician to do simple math; 70% of 824 megawatts amounts to 577 MW. 

So, where are we?  With 330 MW assigned to replace Holyrood, 165 MW for Emera, for free, in return for the Link to Nova Scotia, that leaves 82 MWs…Muskrat will, in fact not have quite enough guaranteed available power for Alderon Iron Ore.  Danny won’t be happy about that, laughed Uncle Gnarley, but not in a kind way. 
“As for the balance, it is subject to water flows and can’t be guaranteed except on an intermittent basis”.  Scowled, Uncle Gnarley, “no genius is needed to figure out what that power is worth; it will be little, if anything.  Ed Martin knows that; I doubt that Dunderdale or Kennedy does; but then, these two will rubber stamp anything Ed Martin sends up to the ‘Hill’!”

Uncle Gnarley paused and wiped his forehead showing exasperation after his extensive oration on what, he says, is just one of the problems of that ‘cockamamie’ project.  I nodded that Dinner was ready.
“Now, Nav, the only conclusion one can evince is that the link with Nova Scotia is completely unnecessary; for all intents and purposes, there is little or no power available for export. Hence, there is no reason to give away 20% of the project to Emera? Someone had better ask some tough questions and soon! 

Uncle Gnarley, “let’s continue this conversation over a plate of fresh salmon.  It’s hard to contemplate, on an empty stomach, what the federal loan guarantee is going to cost us”.

3 comments:

  1. Uncle Gnarley, there is one legal recource not tried. The Upper Churchill proceeded on aboriginal land without their consent. If the Innu Nation took Quebec Hydro and Nfld to court, they could very well be successful.This may require the New Dawn deal to be cancelled, if this is possible if MF is not sanctioned.There was never a treaty with the Innu to turn over their lands to the crown. I would like to see the result of an Innu claim in court. w. adams

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  2. Uncle Gnarley

    Again another very good dissertation, with some valid points for further clarification by Nalcor.

    Of interest is Table 32 of Volume II of the MHI report which indicates that within the Infeed option there is 5900 GWhr of Energy added to the system in 2017 when the Labrador Link comes online. I can only deduce that this is 1400 GWhr of firm energy remaining from the Upper Churchill RECALL arrangement, combined with the 4500 GWhr of firm energy from the Muskrat Falls facility. For clarity the 4900 GWhr is the average annual production.

    Therefore the “gaps” you have identified may be met by the RECALL power from the Upper Churchill.

    From the term sheet Emera get 1 TWhr of energy annually for 35 years in exchange for a 1.2 Billion investment in the Maritime Link. According to my back of the envelop calculation this will cost Nova Scotian’s ~8-10 cents for kwhr of energy delivered to their grid. Even when considering Natural Gas, or Hydro Quebec purchases this is a reasonable deal. Compare this to the 23 cents that NL rate payers will pay (RFI – KPL – 27) over the life of project for MF energy.

    What is not clear from anything I have reviewed is what is the real benefit of the Martime link in the current environment?

    1) With the potential in Labrador mining (alderon 100- to 120 MW alone) there will be minimal energy left for export.

    2)The NL ratepayer will take the risk on cost over-runs on the Maritime Link. Why increase our risk profile, if the potential upside is minimal?

    3) It is unclear if the Emera deal will actually increase the cost to the Newfoundland ratepayer. There is certainly the loss revenue associated with the RECALL power being given to Emera. This is loss to the government coffers which was not included in the CPW analysis presented to the PUB. However within the same Table 32 there is additional CT generation added to the mix later in the development scheme. There is also fuel spent in these generators. These generators are there for the “peak” energy demands when as you have pointed out MF cannot meet the combined demand. Are we buring fuel later in the project life to only meet the Emera committment? Will this be worse with Alderon? Will this cost be passed on to the NL rate payer.

    4) Considering a reasonable growth in Labrador mining will we actually be able to decommission Holyrood considering our 167 MW committment to Nova Scotia.

    Simply, I would like to know if I will have to pay more or less on my energy bill because of the the Maritime Link.

    Now that is one to ponder over your next “wee dram”.

    You are correct. Someone needs to ask these questions soon. But more importantly we need answers and not more rhetoric.

    I look forward to Part III

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  3. With MF we are betting the shop on whether the residential demand goes up one percent per year. An older population and higher prices can easily make the demand shrink one percent. And efficient heating can actually drive the demand on the grid down 2 or 3 percent per year.Nalcor is ignoring this, at their peril. WA

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