Show Us The Money
Posted August 7, 2012
There is a rather stark contrast between two recent announcements about new sources of power generation.
On the one hand we have the awarding of three wind generation contracts after a competitive bidding process. The winners are said to be providing electricity for a wholesale cost in the mid $70’s per megawatt hour (mwh). These will provide construction employment in different parts of rural Nova Scotia. Even after adding 10%-20% to compensate for the irregularity of wind power this is quite cost competitive with other sources. The outcome is green, useful and easy to understand.
On the other hand, we have the Muskrat Falls proposal requiring no fewer than 13 separate agreements between Emera and Nalcor, in addition to many more that will need to be negotiated with the governments of Nova Scotia, Newfoundland and Canada. The price for ratepayers, once said to be $1.2 billion, is now some unknown higher number which in any event will not be guaranteed by Emera.
Electricity consumers might therefore be wondering whether this deal is in their best interest:
1) To reduce greenhouse gases and meet federal requirements our coal generating plants should be phased out when they are 45 years old and near the end of their useful lives. Three quarters of them will thus be gone by 2030. The proposal will force them to be retired much earlier, but ratepayers will continue to pay off the mortgages.
2) The Muskrat project will create far fewer Nova Scotia based jobs than projects using wind, tides, or natural gas. If a commercially viable tidal technology emerges over the next decade the market opportunity in Nova Scotia will have been taken by hydro power from Labrador. (Although hydroelectric power is renewable, the construction phase will involve destruction of a substantial acreage of trees and therefore have an adverse greenhouse gas impact.)
3) The underwater cable to be financed by ratepayers is much bigger than what is needed to bring the power they will receive, in order to serve Emera’s and Nalcor’s other commercial interests. Although ratepayers are asked to accept the construction cost risk, the profits from other commercial interests will all go to Emera and Nalcor.
4) The current cost estimate has not been disclosed and apparently ratepayers will be asked to accept some or all of any cost overruns. The wholesale cost per mwh could be $140 or more, almost double the recent tender for wind. After 35 years ownership of the cable reverts to Nalcor so Nova Scotia ratepayers will have no protection against sudden price increases. The government, continuing its weak performance in business dealings, seems to have awarded this contract to Emera untendered.
5) The proponents say that this will cause prices to increase by 2%-3% per year, so that would be 10%-15% between 2015 and 2020. This is in addition to already planned increases of 3% in 2013 and 2014 plus $120 million to pay for the paper mill shutdowns. A further increase is anticipated for pension costs. Meanwhile electricity customers in New England are getting big price reductions by using the plentiful supplies of cheap natural gas.
6) We don’t need the power now and may not for another 20 years.
7) By imposing the 40 percent renewable requirement the government is preventing the Utility and Review Board from telling us how much unnecessary additional cost ratepayers are being asked to suffer.
What’s not to dislike?
The proposed deal may be good for Newfoundland, may be good for Nalcor, and may be good for Emera. It is not at all clear that it is good for Nova Scotians. Ratepayers are not interested in reading dozens of agreements. What they want is what we saw in the wind power competition—a firm commitment to a clear price.
Let Emera provide that clear price. Let it be compared with what is available from other sources in Nova Scotia and from other provinces. Let the timing be right for Nova Scotian needs, not those of the supplier. Then an informed decision will be possible.
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