Monday, March 26, 2012

THE JAMICA EXPERIENCE: DUE DELIGENCE FOR DUMMIES



This weeks On-Point with David Cochrane featured Minister Kennedy repeating the same talking points on Muskrat Falls.  The message is perhaps best reflected in the following excerpt from the March 21 Hansard:

MR. BALL:
They were not allowed to ask those questions, remember? That was the restriction that government put on them. Mr. Speaker, the fact of the matter is that the Premier would not allow the PUB to look at other alternatives or even discuss the effect Muskrat Falls will have on ratepayers in this Province. I ask the Premier: Why are Newfoundlanders and Labradorian’s getting less of a review of the project than Nova Scotian’s when we have the most to lose?

MR. KENNEDY:
Yes, Mr. Speaker, as I have said in the past on numerous occasions, Muskrat Falls and the Lower Churchill development have been reviewed for forty years. In 1980, Vic Young, then Chair of Newfoundland Hydro, recommended to proceed with Muskrat Falls. Our PUB, Mr. Speaker, began their work in June and if I look at that, that is six or eight months, whatever period of time. During the Decision Gate 2 process, Mr. Speaker, wind in terms of more than just the eighty megawatts of wind was screened out by Nalcor as not being an answer to our problem, as was natural gas. Mr. Speaker, you do not need to do extensive studies, you do not need to go out and pay thousands and hundreds of thousands of dollars to see the obvious. The other obvious here, Mr. Speaker, is that Muskrat Falls is the best option.
The lack of a quantitative screening process has been one of my biggest concerns with the entire Muskrat Falls development.  Government and Nalcor has completed a screening assessment, but there has been limited cost data to back up their conclusions.

The results is that although there has been over 280 million dollars spent on this project since 2003  Nalcor can not provide real numbers to justify why natural gas, specifically LNG, or alternative energy sources were screened out. 

They have spent over 280 million dollars, and continue to spend at a rate of over 12 million a month  to develop a solution which delivers power to the Avalon Peninsula at a levelized rate of $210 MWh
 
For comparative purposes wholesale electricity rates in New England are currently selling in the $40 /MWh range. To quote from this ISO report:

The February 2012 New England ‘all hours’ total cost fell by 18% to $35.75 /MWh from its January value of $43.46 /MWh. Lower RT LMPs resulting from decreased input gas prices and lower load levels in February were responsible for this decrease. For the year to-date, the New England average total wholesale load cost averaged $39.74 /MWh, or 3.97¢/kWh
Energy will be more expensive in Newfoundland as we are geographically isolated. It is not fair to compare us to New England. However a 5 minute "due diligence for dummies" search on Google yielded this very comprehensive report which outlines an investigation to alternative energy sources for another isolated island - Jamaica

Aside from the love of rum, Jamaica is very similar to Newfoundland in that their domestic energy is currently being produced by Diesel or Heavy Oil generators. The report recommended that a conversion to LNG would effectively lower their domestic rates by about $100 per MWh. The conclusion was that in a LNG import scenario that electricity could be generated on a long terms at less than 10 cents per kwh, or $100 /MWh. This is 50% that of Muskrat.

It may be a wise decision to spend the 200,000 thousand dollars to investigate this properly before spending 6 Billion in pursuit of a dream. I for one would be very interested to see the economic comparison between the Muskrat Falls infeed versus the Isolated Option, where the latter consists of small hydro and LNG.

It is not obvious to me that Muskrat is the lowest cost alternative.  What is obvious is that this project is being accelerated through the House of Assembly with no real opportunity for debate. 

1 comment:

Cyril Rogers said...

Peter, other jurisdictions have repeated demonstrated that some of the various alternatives to MF are indeed much cheaper and should be given serious consideration. Here, we simply have a cursory review, based on NALCOR's assertions, and these options were dismissed out of hand. That suggests that other forces are driving this project and it has nothing to do with the most cost effective method of producing power.

We do have many options, if taken in an overall context, would provide any needed energy at a far cheaper cost than MF. Right now, it is some of the most expensive power on the planet, even if there are no additional cost overruns and we know this is not going to happen. You can see, from Kennedy's cavalier responses, that he is not serious about doing any analysis of other options. Why? What gives them the right to impose this expense and this burden on future generations? It is arrogance and possibly something worse. We don't know what is driving this but it is definitely not the best alternative from a cost perspective. They have manipulated the process to try to make it look that way but...it simply is not so!