By Ed Martin, President and CEO

In my previous blogs I discussed the need for new generation, our screening and analysis of the ways to meet this need, and outlined the preference for the Interconnected Island generation plan.

In this blog I’ll explain the analyses Nalcor completed prior to Nov. 2010 (we call this Decision Gate 2) to determine that the Interconnected Island alternative is the least-cost option to meet our growing electricity needs. As a refresher, the Isolated Island alternative continues to rely on increased use of thermal generation, the continued operation of the Holyrood plant, along with some additional wind and small hydro generation sources. The Interconnected Island alternative includes renewable hydropower from the Muskrat Falls generation facility with a transmission link to the island.

Cumulative Present Worth

To determine the least-cost option, in 2010 at Decision Gate 2, Nalcor completed a detailed cost analysis. We calculated all costs for both the Isolated Island and Interconnected Island alternatives that would be incurred over the generation planning period (2010 to 2067) to meet the island’s electricity needs and brought these costs back to 2010 dollars. This allowed us to define the Cumulative Present Worth (CPW) of the two proposed generation expansion plans.

CPW refers to the present value of the incremental costs incurred to meet our load forecast over a specified planning period. This includes capital and operating expenses, including interest and fuel costs, which will be incurred to meet our reliability standards and meet growing demand during that period of time.

We used Strategist® software to calculate the CPW for each alternative. For each year of the generation planning period between 2010 and 2067, Strategist® factored in costs related to power production (from thermal and renewable alternative resources); power purchases from third parties; annual capital-related expenses as new generation plants come on line as required; and, operating and maintenance costs.

The CPW for the Isolated Island alternative is projected to be (in round numbers) $8.8 billion, and for the Interconnected Island alternative, $6.6 billion. This shows a cost preference for the Interconnected Island alternative of about $2.2 billion in 2010 dollars. The lower CPW for Interconnected Island alternative with Muskrat Falls means lower electricity costs in the long term for consumers over the Isolated Island alternative.

The main reason for this cost preference is the continued reliance on fuel to generate electricity on the island. Fuel accounts for almost 70 per cent of the CPW for the Isolated Island alternative. With Muskrat Falls and the link from Labrador to the island, our electricity will be 98 per cent renewable.

Sensitivity Analysis

The generation expansion CPW analysis for the two alternatives has numerous inputs. Nalcor conducted sensitivity analysis to test the CPW preference for Muskrat Falls by examining the impact of changes in these inputs. We looked at load forecasts, fuel prices, capital costs, conservation and demand management results, and other factors and pushed them up and down to see how the cost preference would change. As shown in the table below, in each case there was a CPW preference for Muskrat Falls.

There are also a number of contingencies not included in our 2010 analysis, which would further benefit consumers. These include the Federal Loan Guarantee, which will lower interest costs for electricity customers and increase the CPW preference for the Interconnected Island alternative by $600 million, and possible future carbon pricing on fossil fuels, with a $500 million CPW increase in favour of the Interconnected Island alternative.

On the other hand, our sensitivity analyses identified cases where the CPW preference for Muskrat Falls would decrease. For example if capital costs increase by 50 per cent, the CPW preference would favour the Interconnected Island alternative by $194 million over the Isolated Island alternative.

This cost preference for Muskrat Falls has proven true under every analysis conducted by Nalcor. In addition, our Decision Gate 2 analysis of Muskrat Falls as the least-cost option to meet the island’s long-term electricity needs has been validated by independent reviewers such as Navigant Consulting and Manitoba Hydro International.

As we prepare for a project sanction recommendation, we are finalizing commercial arrangements and confirming project cost and schedule. The full economic and CPW analyses will also be updated. With this information Nalcor will make a recommendation to government on whether the Project should proceed to construction.

In my next blog, I'll discuss how Nalcor determined the price of Muskrat Fall's power.

By Ed Martin, CEO & President

In my last blog, I wrote about the options available for new power generation for the island of Newfoundland. After screening and assessing these options, two feasible, least-cost generation expansion plans were developed. These are referred to as: Isolated Island and Interconnected Island alternatives.

An isolated electricity system means the island will continue to generate its own supply of electricity, with no ability to import or export power. An interconnected system means the introduction of transmission links from the island to Labrador and the mainland, with the ability to import or export power to the island as needed. 

I should note that in their independent review of our generation options, conducted on behalf of the Public Utilities Board (PUB), Manitoba Hydro International (MHI) concluded we have “an exhaustive process for reviewing generation options that is in keeping with leading North American utilities.”

Here are some further details of the two generation expansion plans.

 

Isolated Island Alternative

The Isolated Island alternative represents the optimal scenario of all potential supply options available without a connection between the island and the North American grid. Essentially, we continue with our existing system and add new generation sources as we need them.

The Isolated Island generation plan relies on the increased use of the Holyrood oil‐fired plant, as well as the addition of some wind generation, small hydro plants and a series of gas turbines. We also need to add pollution controls on the Holyrood plant and complete work to extend the life of the plant. 

In this scenario, we’ll continue to have a dependence on fuel to generate electricity. This reliance on thermal generation means electricity rates for consumers will be subject to the volatility and continued projected increases of fuel prices in world markets.

We all know that future oil markets are uncertain and while it’s possible that costs could go down, expert world analysts such as the PIRA Energy Group and the National Energy Board indicate that fuel costs will continue to trend upwards. The reality is that under any reasonable pricing circumstance, fuel is a major cost and concern in the Isolated Island generation plan.

In addition to high fuel costs, there’s uncertainty on continuing to rely on the Holyrood plant, which is over 40 years old and nearing the end of its operating life. In an isolated electricity grid, we’ll continue operating the plant until 2036, but as MHI’s final report to the PUB notes, “there may come a point well before 2041 when the plant becomes unreliable to operate.”

If we have to replace the plant before this time, the cost estimate for the Isolated Island generation plan would significantly increase. The plan also doesn’t include any projections of costs related to potential federal regulations that would limit greenhouse gas emissions. These regulations appear increasingly likely.

Page 106 of our Nov. 2011 submission to the PUB details the Isolated Island generation plan and associated cost to 2067. 

 

Interconnected Island Alternative

The Interconnected Island generation plan moves the island from dependence on thermal generation to the use of clean, renewable hydropower from the Muskrat Falls generation facility with a transmission link to the island from central Labrador.

Along with Muskrat Falls, this generation plan includes some additional generation for both energy and capacity (I’ve explained energy and capacity in a previous blog) around 2033. Page 117 of our Nov. 2011 submission to the PUB details the Interconnected Island generation plan and associated cost to 2067.   

With the displacement of oil-fired electricity from the Holyrood plant, the Interconnected Island alternative will move us from relying on thermal generation to an energy future with 98 per cent renewable, clean power.

This independence from oil will mean long-term stable electricity rates for our province’s electricity consumers. And the interconnection with North America’s grid will lay a foundation for the development of additional wind and other indigenous sources, paving the way for future energy exports.

In my next blog post, I’ll provide in-depth information on the cost preference for the Interconnected Island alternative.

By Ed Martin, President and CEO

This week, Nalcor Energy is observing the North American Occupational Safety and Health Week. It’s something we do every year. Across the province, our employees are participating in activities to help improve our safe behaviours and ensure we’re doing everything we can to be safe every day. At Nalcor, safety is our top priority, and while Safety and Health Week is an opportunity for us to encourage discussion about safety, I know it’s top of mind for our employees all year.

This week, many of our leadership team members are putting on boots and hard hats and are spending time out in the field talking about safety. It’s a chance for first-hand discussions with front-line workers about what they do, and any safety challenges they may face. Our leadership and employees know that it’s critical our communication around safety is not limited to one week though.

We have a relentless commitment to safety, and our ultimate goal is an incident-free workplace, where no one gets hurt. This means keeping our safety progress on track through constant thought, discussion and action. Everyone across our five lines of business has a role to play in making the workplace safe for ourselves, our coworkers, and the public. From the men and women in the regions keeping the lights on across the province, to our teams working in Churchill Falls, on our oil and gas strategies, managing the Bull Arm Fabrication site and looking to the future with the Lower Churchill Project, our employees are dedicated to working safely.

Annually, we also hold a Safety Summit to help keep safety at the forefront of our work. More than 100 Nalcor employees – occupational health and safety committee members, supervisors, union representatives, senior managers – from every division of the company, from all regions of the province, will take part in the Summit, scheduled for next week.

The Summit is a key part of our overall safety strategy. As Nalcor grows and works toward our role in building a solid energy future for generations of Newfoundlanders and Labradorians, this kind of open forum has become even more important to keep safety top of mind. It can't only be management and the formal corporate safety team sitting together to plan safety strategy – safety is a discussion to be had across our company and by everyone.

I look forward to a-day-and-a-half of frank discussion, learning, and healthy debate. But it’s not just talk: recommendations and findings from the summit are worked into our plans and processes for the year ahead. Our employees bring their hearts and their minds to the table and we appreciate it.

Please, take some time this week – and every day – to think about safety, and what you can do to help keep your friends, family, and co-workers safe. Being safe is really about our families. Being safe means we will return home, safe and sound every day.

By Ed Martin, President & CEO, Nalcor Energy

Newfoundland and Labrador is rich in energy resources. We’re fortunate in this province to have many options for new sources of power.

In 2010, Newfoundland and Labrador Hydro (Hydro) determined new generation was required to meet the growing demand for electricity on the island (see my earlier blog Determining the need for new electricity sources). Following this our next step was to identify and screen a broad portfolio of supply options. These included: small hydro, wind, natural gas, biomass, electricity imports and enhanced conservation among many other options.

We considered and screened all supply options based on five key principles: 1) security of supply and reliability, 2) cost to electricity consumers, 3) environmental considerations, 4) risk and uncertainty and 5) financial viability of non-regulated elements. Screening allowed us to identify the alternatives that offered the highest potential for successful integration into the province’s electricity system and the best benefit to electricity consumers.

As the following chart shows, some generation options, including natural gas, LNG, solar energy and electricity imports, didn’t pass initial screening. They were either technically or economically not feasible to meet our growing demand. I’ll touch more on this in my subsequent blogs.

The generation options that did pass screening, including island hydropower, combustion turbines, small scale wind generation, and Labrador hydropower (Muskrat Falls), were entered into Hydro’s generation planning software, Ventyx Strategist^®. Strategist^® evaluated all the supply options that passed the initial screening together with the load forecast and reliability criteria to determine the optimized, least-cost generation expansion plan.

Strategist® is a software package used by Hydro to enable decision-making once it’s been determined that generation expansion is required to meet system demands. It’s an integrated, strategic planning computer model that performs, amongst other functions, generation system reliability analysis, projection of costs simulation and generation expansion analysis. Strategist® is used by many utilities throughout the industry and has broad acceptance by regulatory bodies.

Manitoba Hydro International reviewed our generation resource planning process and concluded: "Nalcor has an exhaustive process for reviewing generation options that is in keeping with leading North American utilities."

In the end, after all analyses were complete, two least-cost scenarios were developed from all the supply options - one from options available for an isolated island of Newfoundland, and the other from options available when the island is interconnected with Labrador. We refer to these two options as the Isolated Island and Interconnected Island alternatives, respectively.

In the Isolated Island alternative we’ll continue to rely primarily on increased use of thermal generation, and the continued operation of the Holyrood plant (which is already over 40 years old). The Interconnected Island alternative will move us away from our dependence on thermal generation to the use of clean, renewable hydropower from the Muskrat Falls generation facility with a transmission link to the island.

A comprehensive review of these options can be found on pages 54 to 103 in our November 2011 submission to the Public Utilities Board.

In my next two blogs, I’ll provide more detail on these two alternatives and explain the cost preference for Muskrat Falls.

By Ed Martin, President & CEO, Nalcor Energy

 When you consider that Newfoundland and Labrador has experienced years of population decline, it's easy to see why people are sometimes surprised to hear our province's need for electricity is growing.

 

The chart below shows the historical provincial population and the island residential customer growth (referred to as domestic customers in the chart). As you can see, between 1981 and 2009 the number of customers continued to grow despite the province’s declining population.  This has occurred because the creation of households, and therefore customers, is primarily related to the 25 years and older population. This is the age group which predominantly forms households and drives the demand for housing.   

In any region the demand for electricity will change over time, reflecting the overall growth or decline in an area’s economy. For many of the island’s homes, heating costs impact people’s use of electricity, as well as their use of hot water, major household appliances and the many home electronics used in their home.  We’ve certainly seen how these factors, as well as others, impact electricity demand in Newfoundland and Labrador.

 Provincial economic outlook

Our province is experiencing significant economic growth. Part of this growth is driven by major project development, including construction on the Vale nickel processing facility as well as developments related to the province’s offshore oil resources. Over the past few years, our province has had strong gains in Gross Domestic Product, personal income and employment.

As I mentioned in my previous blog, Hydro’s load forecast is broken down into two sectors: utility and industrial load.

 Utility load (homes, businesses and schools)

The province’s population is expected to increase in the near term but then slowly decline out to the end of 2029. However, while the overall population is expected to decline, there is projected to be an increase in the number of people 25 years and older. As I mentioned above, this is the primary age group who buy or build houses and form households, thus driving an increased demand for housing.

An increased housing stock will mean an increase in electricity consumers on the island. The strong preference for electric heat across both residential and commercial customers will also continue to be a primary driver of load growth on the island with an expected 86 per cent of new homes installing electric heat.

We also see a steady increase in personal disposable income which contributes to increased demand for electricity as we use more electronics and appliances in our homes.

Industrial load (large industrial customers)

Hydro forecasts growth for the island load based on continuation of two of its three current industrial customers (Come-by-Chance Refinery and Corner Brook Pulp and Paper), as well as the start up of Vale’s nickel processing facility in Long Harbour.   

Also, there is considerable opportunity for industrial growth in Labrador associated with expansion within the mining sector. Ensuring there’s a supply of power for industrial customers in Labrador is at the top of our minds, and we’ll continue to work with prospective developers, providing information to them as they move through their feasibility studies towards a decision whether or not to proceed to development. When there are firm requests and contracts for power, we’ll work with the developers to make sure they have the power they need – that’s the standard practice for electrical utilities.

So how does all of this impact the future demand for electricity?

Future electricity use

As shown in the table below and based on our 2010 planning work and analyses, between 2009 and 2029 the compound annual electricity growth rate is expected to be 1.3 per cent on the island. This growth will be linked to three primary sources:

(1) ongoing provincial economic growth resulting in more residential and commercial customers;

(2) increased use of electric heat in new and existing homes; and,

(3) increased industrial use at the Vale nickel processing facility. This is the biggest contributor to the island’s load growth between now and 2017.

Electricity shortfall

At Hydro, we must address two types of demand:

Capacity (or peak) refers to the highest level of electricity consumption that the utility can supply at any one time. For residential customers, capacity is measured in kilowatts (kW). Peak demand on the electrical system is measured in megawatts (MW). One MW equals 1000 kW or one millions watts.

Energy (or consumption) refers to the total amount of electricity that the utility supplies throughout the year. In the home, the amount of energy used is measured in kilowatt hours (kWh); to Hydro industrial customers it is measured in gigawatt hours (GWh). A gigawatt hour is equivalent to one million kilowatt-hours (kWh).

Hydro forecasts that in 2015 without the addition of new generation on the island, the island electricity system will exceed the generation reliability criteria Hydro has set with the Public Utilities Board (PUB). What this means is that the probability of not meeting forecasted demand is greater than Hydro has agreed to with the PUB and increases the probability that some customers on the island electricity system could experience a power outage due to insufficient generating capacity. To bring this risk of outages down within the reliability criteria approved by the PUB, Hydro needs to add new generation to the system by 2015.

By 2021, as the province’s load continues to grow, the island is expected to experience an energy deficit, in a low rainfall year, if new generation capability is not added. This deficit exists when the island’s overall electricity requirements are greater than the supply that is available.

Summary

Our 20-year load forecast clearly shows the need for a new source of power for island electricity consumers. This has been validated by Manitoba Hydro International and Navigant Consulting.

In my next blog, I’ll outline the options Nalcor examined to meet this demand.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

By Ed Martin, President & CEO, Nalcor Energy

To determine the timing and the amount of future generation sources required, employees at Newfoundland and Labrador Hydro (Hydro) prepare a long-term load forecast to establish the anticipated electricity needs for consumers. The chart below shows the island load from 1989 to present and shows the forecast period out to 2029.

For more than 40 years, Hydro has been responsible for planning the province’s electricity needs. To ensure resources are in place to generate enough electricity for households, businesses and industries across the province, we continually refine our approach. Our submission to the Public Utilities Board (PUB) in November 2011 provides detailed information on load forecasting as well as key inputs and drivers used in our long-term load forecast. More information can be found on pages 12-29 in our submission.

In reviewing Hydro’s load forecast methodology, Manitoba Hydro International confirmed our forecasts were prepared with due diligence and care using generally accepted practices.

Preparing a long-term load forecast is the first step in our generation planning process. In doing this, Hydro analyzes how much electricity has been used in the past, and combines this with an assessment of current and expected economic conditions.

We all know that electricity demand changes over time. This reflects the overall growth or decline that is happening in our economy. Other factors that impact electricity demand include the price we pay for home heating fuels, our use of technology in our homes (such as computers, number of televisions and appliances, etc.) and changes in energy efficiency.

Hydro’s load forecast is broken down into two sectors:

1) Utility load – refers to domestic (residential) and general service (businesses and institutions) consumers across Hydro’s and Newfoundland Power’s service territory.

2) Industrial – refers to large industrial customers directly served by Hydro.

The chart above shows that although industrial load has declined over the 1970- 2010 period, utility load (residential and commercial) has continued to increase over this same period. Following the closure of the paper mills in 2006 and 2009, industrial load declined by 45 per cent. In contrast, the island’s utility load grew at a compound annual rate of 1.1 per cent.

The benefit of long-term load forecasting

Through long-term load forecasting and prudent generation planning, Hydro is able to ensure we continue to meet consumers’ electricity needs. Long-term forecasting also gives our system planners the time needed to plan any new generation projects. Once we’ve determined new generation is required, several years of lead time are needed to design and construct new facilities.

Hydro normally completes one long-term load forecast analysis annually. This ensures, to the extent possible, that the constantly shifting set of inputs and factors (like the ones mentioned above) affecting the province’s electricity demand are incorporated into our current operating and generation investment plans.

Our determination that new generation sources were required on the island to meet the growing electricity demand is based on our long-term load forecast we completed in 2010. This was used in our decision gate (DG) 2 analysis for the recommendation to proceed to the next step with the Muskrat Falls Project.

The DG or staged process is an industry-accepted best practice approach for decision making for major capital projects. Nalcor uses a DG process (shown below), which is recognized as a credible and proven process that provides checks and balances decision makers require to demonstrate that an acceptable level of readiness has been achieved to progress the project through a decision gate. I’ll explain more about the DG process in my later blogs.

In my next blog I’ll discuss what’s driving electricity demand.

  

 

By Ed Martin, President & CEO

This is a question I get asked a lot as I’m sure many Nalcor employees do as well.

To help answer this question, over the coming weeks my blogs will take readers through the detailed analysis Nalcor completed to recommend to our shareholder, the Government of Newfoundland and Labrador, Muskrat Falls with a transmission link to the island (the Interconnected Island alternative) as the least-cost alternative to meet the long-term electricity needs for our province. I’ll also focus on areas where the majority of questions or concerns have been raised by the public.

Power is needed for the island and Labrador

Nalcor’s subsidiary, Newfoundland and Labrador Hydro (Hydro), has a responsibility to assess and recommend supply options to meet the province’s growing energy needs. This is a function the company has been performing since the 1970s and its predecessors before it. In 2010, Hydro determined new generation was required to meet the growing demand for electricity on the island.

Comprehensive review of alternatives conducted

Nalcor examined a broad selection of generation supply options to meet the island’s growing and long-term electricity needs including: nuclear, natural gas, liquefied natural gas, coal, continued oil-fired generation at Holyrood, simple and combined cycle combustion turbines, wind, biomass, solar, wave and tidal, hydroelectric developments on the island and Labrador and electricity imports.

Two least-cost scenarios were developed from these options – one from options available for an isolated island of Newfoundland, and one developed from options available when the island is interconnected with the mainland. Nalcor refers to these two "buckets of options" as the Isolated Island and Interconnected Island alternatives, respectively.

The Isolated Island alternative continues to rely primarily on increased use of thermal generation, including continued operation of the aging Holyrood plant. The Interconnected Island alternative moves the island from dependence on thermal generation to the use of clean, renewable hydropower from the Muskrat Falls generation facility with a transmission link to the island.

Muskrat Falls provides consumers with least-cost power

The Interconnected Island alternative will mean lower electricity costs for consumers over the Isolated Island alternative. There’s a $2.2 billion present value cost difference between the two alternatives in favour of Muskrat Falls (present value means what the alternatives are worth in today’s dollars). Based on the analysis completed by Nalcor in 2010, continuing with the Isolated Island alternative represents 32 per cent greater costs to electricity consumers over time, than the Interconnected Island alternative.

Manitoba Hydro International (MHI), the Consumer Advocate, his consultant Knight Piesold, and Navigant Consulting all validated Nalcor’s analysis of the Project as the least-cost alternative for meeting the province’s future energy needs.

Their reports are available at the links above.

Stabilizing electricity rates for NLers

Electricity rates on the island of Newfoundland are directly influenced today by the price of oil used to generate electricity at the Holyrood Thermal Generating Station. Rising oil prices and rising demand for power means that electricity rates are increasing on the island. In 2017, with stable and renewable hydropower from Muskrat Falls, rates for consumers will stabilize with minimal variation or increases.

With Muskrat Falls, generations of Newfoundlanders and Labradorians will benefit from low-cost hydropower. The benefits of clean, renewable hydropower can be seen in other jurisdictions in Canada with low stable electricity rates such as British Columbia, Manitoba and Quebec as shown in the chart below.

Development will bring short and long-term benefits to NL

Benefits agreements
The finalization of the Impacts and Benefits Agreements and the signing of the New Dawn Agreement means the Labrador Innu will see substantial annual revenues from Muskrat Falls.

Economic and employment benefits
The development of Muskrat Falls and the future development of Gull Island and the associated transmission lines offer substantial employment, income and taxation benefits to all Newfoundlanders and Labradorians and the rest of Canada.

Long-term benefits
With Muskrat Falls, electricity generation in Newfoundland and Labrador will be 98 per cent renewable. Electricity consumers and businesses will benefit from rate stability and predictability that comes from hydropower. An investment in Muskrat Falls also lays the foundation for future electricity exports.

I’ll expand on many of these topics in my blogs over the next few weeks. I encourage you to participate in this public dialogue.

By: Ed Martin
President & CEO

As I look back at the years since 2008 when Nalcor Energy was formed as the province’s energy company, I see a period of immense activity and progress. Our company has grown to include five lines of business - Newfoundland and Labrador Hydro, Churchill Falls, Oil and Gas, Lower Churchill Project, and Bull Arm Fabrication with one vision. Our vision is to build a strong economic future for successive generation of Newfoundlanders and Labradorians. And we are taking steps towards this every day.

From improvements in our safety performance and dedicated focus on long-term asset management, to partnerships in three offshore oil projects, we are building for the future focused on maximizing the value of our energy resources.

One of the most enjoyable parts of my job is the opportunity to share the work being done by the dedicated people across all our lines of business lines, and their contribution to the company and the province.

Through all our work, Nalcor’s responsibility lies in ensuring we make strategic investments for the benefit of Newfoundlanders and Labradorians and for the prosperity of future generations. We take a long-term approach to our work, which guides us in making the right investments at the right time.

And, of course, the most important investment proposal facing our company today is the development of Lower Churchill Project. The public’s interest and discussion on this Project, particularly the Muskrat Falls Project, is important and valuable.

Over the coming weeks, I plan to dedicate a number of my ongoing blogs to the Project. I’ll highlight the analysis that led to our recommendation of the Interconnected Island alternative (Muskrat Falls with a transmission link to the island) as the least-cost alternative to meet the long-term electricity needs for our province. I’ll also focus on areas where the majority of questions or concerns have been raised by the public.

I encourage you to share your comments. As always, we welcome the feedback.

Gilbert Bennett, P. Eng
Vice President – Lower Churchill Project

Labrador, with its rich mineral deposits, has tremendous future potential for industrial growth, and we know that with that growth may come a need for a lot of electricity. For more than a decade, Newfoundland and Labrador Hydro (Hydro), and more recently Nalcor, have worked with existing and future industrial customers in Labrador to understand their potential future electricity needs.

We understand that potential mining developments in like the proposed Rio Tinto expansion in Labrador West, underground expansion at Voisey’s Bay, uranium developments at Michelin Lake, and the Grand River Iron Sands could all have substantial electricity requirements in the years to come.

Ensuring there’s a supply of power for industrial customers in Labrador is at the top of our minds, and we’ll continue to work with prospective developers, providing information to them as they move through their feasibility studies towards a decision whether or not to proceed to development. When there are firm requests and contracts for power, we’ll work with the developers to make sure they have the power they need – that’s the standard practice for electrical utilities.

Under the 1969 Power Contract, there’s still more than one terawatt hour (TWh) of energy available through recall power from Churchill Falls to meet the industrial needs in Labrador, and 40 per cent of the production from Muskrat Falls (2 TWhs) will be available to support development in 2017. Another 12 TWh of energy will be available by developing Gull Island. Once there’s an interconnection to the island, Labrador has access to more than 2 TWh from small hydro and wind, as well as markets outside the province to support industrial development.

Today, mining activities in Labrador West require about 2 TWh of energy each year, and with the Lower Churchill Project and a link to the island, there’ll be access to more than 17 TWh of energy for development.

Developing Muskrat Falls, and later, Gull Island, will bring many benefits to all Newfoundlanders and Labradorians, including low-cost, stable rates for consumers, a long-term source of revenue for the province, and support for the electricity needs for industrial development in our province.

We will continue working with our customers and future customers to ensure we meet their power needs today and in the future.

 

Below is an open letter by Ed Martin, President and CEO, Nalcor Energy,  to Tom Adams in response to his blog on Muskrat Falls posted on his website on Sunday, January 29, 2012.

Your blog posted on Sunday, January 29, 2012 displays a clear lack of understanding of the Lower Churchill Project, including the Muskrat Falls Development. I'm compelled to correct the statements made by you, and request the prompt apology you said you would make if your arguments were wrong.

Usable output

Contrary to your statement that “Nalcor has vastly overstated the usable output from Muskrat Falls,” Muskrat Falls will generate 4.9 terawatt hours of energy per year. This analysis is based on several studies completed by reputable engineering consultants. It’s not based on an average water flow study as stated in your blog.

I’m not sure if you are aware of legislation in our province that requires a water management agreement to be in place between Nalcor and Churchill Falls (Labrador) Corporation (Churchill Falls). The legislation requires the two power producers to use available storage, primarily in the Churchill Falls reservoir, and their respective generating facilities to optimize the production of power while maintaining the contractual obligations of Churchill Falls to its customers.

The terms of the agreement, which have already been established, requires Muskrat Falls and Churchill Falls to operate as an integrated system. This provides the Muskrat Falls hydroelectric facility with access to over 30 billion cubic metres of storage upstream in the Churchill Falls reservoir. With production at Muskrat Falls completely integrated with Churchill Falls, this means that during May and June Muskrat Falls will be producing at full output, and the resulting production not required on the island will be displacing production at Churchill Falls.  This energy will be drawn down when rivers flows are lower, and during peak winter periods when electricity demand is higher on the island.

Finally, the only water not utilized at Muskrat Falls is the amount spilled during the spring freshet when runoff is greater than the capacity at Muskrat Falls. On the island, we have significant storage capability in our reservoirs and the amount of water spilled in the spring freshet on the island is small.

Evaluating the costs

The Government of Newfoundland and Labrador has asked the NL Board of Commissioners of Public Utilities (Board) “to provide a supplemental review of the process used to determine that Muskrat Falls represents the least-cost option for the supply of power to Island Interconnected Customers compared to the Isolated Island development option.”

I appreciate that you’ve read some of Nalcor’s over 400 responses to information requests as part of the Board’s review. However, I'd like to draw your attention to some of the material you may not have had an opportunity to review.

The terms of reference for the review requires that Nalcor compare costs on a system basis, and consider the least-cost expansion for the island. All of the costs associated with both generation expansion plans are posted on the PUB website, and can be found in Exhibit 99: http://www.pub.nf.ca/applications/MuskratFalls2011/files/exhibits/Exhibit99.pdf

Nalcor has publically answered this question and the annual costs for Muskrat Falls and the Labrador-Island Transmission Link are included in our modelling. The methodologies for recovering costs associated with Muskrat Falls (escalating Power Purchase Agreement) and with the Labrador-Island Transmission Link (cost of service) as well as the annual amounts recovered are disclosed and shown annually.

Costs of the Isolated Island (current system) and Island Interconnected (Muskrat Falls) are disclosed in our analysis. When compared to the Isolated Island expansion alternative, there is a cost preference for Muskrat Falls of $2.2 billion ($2010).

Muskrat Falls is the least-cost supply for Newfoundland

Muskrat Falls (824 megawatts (MW)) will provide us with clean, stable, renewable electricity that will allow our province to meet its own domestic and industrial needs in an environmentally-sustainable way and also provide export opportunities.

Nalcor and its subsidiary Newfoundland and Labrador Hydro have a mandate to meet the province’s growing electricity needs. The recommendation we’ve put forward is that the lowest-cost alternative to meet our future energy requirements is Muskrat Falls with a transmission link to the island.

Nalcor’s immediate priority is to meet the increasing need for electricity in Newfoundland and Labrador and replace the 40-year old 500 MW oil-burning plant in Holyrood, thereby eliminating our dependence on oil for generating electricity.  

Muskrat Falls will enable our province to be powered by 98 per cent stable, clean renewable energy. It’ll also significantly reduce greenhouse gas emissions in eastern Canada and northeastern US.

Future Benefits

The development of Muskrat Falls, and in due course Gull Island, will have far reaching benefits, including: lowest-cost electricity to our province’s consumers, stable electricity rates, support for industrial development and a long-term source of revenue for our province. There are also tremendous benefits regionally and nationally from these hydro developments.

Ed Martin
President and CEO, Nalcor Energy

Tom Adams’ website is located at: http://tomadamsenergy.com/