Dear Editor,
The final decision on Muskrat Falls is fast approaching and the adversarial rhetoric on both sides should be replaced with facts. There are factors in favour and against and its analysis should rule the decision.
In June 2012, the Hamilton Project at the Brookings Institution in Washington, D.C., valued the current full cost of electricity generation from natural gas at four cents per kilowatt hour (kw/h). The fuel component is 1.4 cents.
Even with a tenfold increase in cost for the fuel over time, the cost of the electricity would only be 16.6 cents, which is much less than the incremental rates that the consumers in this province will be charged for Muskrat Falls and approximately equal to $100 oil power from Holyrood.
Given that shale gas has set the U.S. electricity market on its ear and, in the early years, 40 per cent of Muskrat Falls energy will be sold into this market, it would not be prudent to make a final decision on a $6-billion to $10-billion project without a full independent evaluation of the natural gas option whether local supply or imported.
To put it in perspective, the proven gas reserves for the three offshore Newfoundland and Labrador projects could fuel the current electricity demand at Holyrood for more than 500 years.
The Muskrat Falls option is not without merit and offers certain strategic long-term value, but it all comes down to three main factors: capital cost, cost of capital and revenue generation for electricity both locally and exported.
The capital cost will most likely have a range and never be completely certain until the project is finished.
The cost of capital will be somewhat dependent upon the capital requirements.
The more the project goes over budget, the more the incremental borrowing will cost.
The federal loan guarantee is a big factor in the equation and any public figure who states that the project can proceed without it should be forced to answer the question “where will the incremental $100 million in annual interest costs be sourced?”
The revenue from sales should be approached from a long-term perspective.
If the capital costs are on budget, low interest money is available through a loan guarantee for the bulk of the project and a market is found for the excess power, then it may be the best option.
If the project goes over budget and the cost of capital is pegged at eight per cent or more, as per some economic models, then it will be an expensive project for the ratepayers. There is also another option. Build the link to Nova Scotia ($1.2 billion) and purchase the inexpensive natural gas electricity either from them through their new Deep Panuke project or wheeled through from the U.S. or shale gas reserves in New Brunswick.
The line could be reciprocal and sell the surplus 700,000 to 800,000 megawatt-hours of island energy currently spilled from reservoirs on the island, which would fetch $30 million at four cents per kw/h.
It would also add the desirable operational situation of being linked to the North American grid.
If Muskrat power is needed for Labrador mining projects in the future, then build it for them and build the link to the island in 2041 when the Upper Churchill becomes available.
George Power
St. John’s
