The Gazette (Montreal)
March 14, 1998
Churchill Falls II might not be Great Whale, but Hydro-Quebec faces some familiar skepticism over its calculations of `no-risk’ power generation
Job-hungry politicians. Angry Indians. Worried environmentalists. The cast of characters was all too familiar this week as Quebec and Newfoundland announced a $9.7-billion hydroelectric megaproject on the Churchill River.
Premier Lucien Bouchard and Newfoundland Premier Brian Tobin unveiled the proposal in Labrador, but it was hard not to think of James Bay and this decade’s other great hydroelectric project, the ill-fated Great Whale scheme.
Billed as the project to make Quebecers electricity sheiks of the North, the $13-billion Great Whale scheme was quietly shelved in 1994 after years of bickering and slackening demand in key U.S. export markets.
Now, Bouchard, Tobin and their respective utilities are promoting a new megaproject. They’re betting they can write a different ending to the story but they face many of the same forces that succeeded in stopping Great Whale.
“We see many parallels with Great Whale and definitely believe we have the power to kill this project,” warned Innu leader Daniel Ashini after his people blockaded and harassed Bouchard and Tobin relentlessly as they tried to announce the project Monday in the tiny town of Churchill Falls.
The Innu have been joined in attacking the project by energy analysts who question its economic underpinnings and environmentalists who decry the proposed destruction of habitat in Labrador and the North Shore of Quebec.
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The Churchill River project is being touted by its promoters as the best remaining storehouse of hydraulic power left on the continent – an endless supply of cheap and clean energy that will power the economies of both provinces for years to come.
And in keeping with the mega-rhetoric that seems to naturally go with megaprojects, Hydro-Quebec president Andre Caille is claiming there “is absolutely no risk” that Quebec taxpayers can lose on the deal.
As part of the bargain, the two provinces are burying the hatchet on their 20-year feud over the 1969 contract on the original Churchill Falls development that gives Hydro-Quebec all of the power produced at rock-bottom prices until 2041.
While that contract remains in place, Newfoundland gets a much bigger piece of the pie this time around. The new development is to be built and operated by a joint venture owned 65.8 per cent by Newfoundland and Labrador Hydro Corp. and 34.2 per cent by Hydro-Quebec.
The proposed deal would add 1,000 megawatts of capacity to the existing 5,400 megawatts at the Churchill Falls site by adding two new turbines. The Smallwood Reservoir feeding the station will be expanded by partially diverting the Saint-Jean and Romaine Rivers on the North Shore of Quebec.
Another 2,200 megawatts of capacity would be installed downstream at the Gull Island site. New transmission lines will connect Gull Island to Churchill Falls and into the Quebec power grid. Hydro-Quebec is on the line for $4.3 billion in capital costs and has also agreed to roll the $3-billion cost of service of the new transmission lines into its rate base.
In addition, Newfoundland wants to build a $2.2-billion transmission line that could carry 800 megawatts of power from Labrador to the island of Newfoundland. And finally, the two utilities will also study another 800 megawatt generating station on the lower Churchill River, estimated to cost $2.1 million.
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Hydro-Quebec will market at least 2,200 megawatts from the Churchill project and most of the power is destined for the energy-hungry northeastern United States, where deregulation is creating an open, price-based market for electricity.
Indeed, the electricity is part of Hydro president Andre Caille’s master plan to use electricity exports to increase Hydro’s profits from $760 million last year to $1.9 billion in 2002.
“If the price is right, the market is there,” Caille said of the market for power in the U.S.
But will the price of the Churchill River power be right? That’s not easy to predict regardless of Caille’s assertion that the project is risk free for the Quebec and Newfoundland taxpayers who will own it.
“There isn’t anybody who has a very good idea of what the market price of power in the U.S will be when this project comes online,” said Gordon Weil, an energy consultant in Augusta, Maine. “I can’t believe that anyone of the quality of Mr. Caille would say this a deal with no risk.”
Here are some of the concerns that energy experts have about Churchill River electricity, which is scheduled to begin flowing between 2006 and 2008:
– Some believe the utilities won’t be able to produce electricity as cheaply as they are claiming and, in particular, that Hydro will have higher transmission costs than it has acknowledged. Toronto-based Energy Probe estimates the true price of getting the new Churchill power to U.S. customers will be just over 5 cents a kilowatt-hour, well above the 4.5 cents Hydro-Quebec has cited.
– Fluctuations in currency, interest rates and construction overruns are all variables that have the potential to make the electricity more expensive, given its 8-to-10-year lead time.
– Canadian utilities aren’t the only players eyeing the northeastern U.S. market. Companies already have over 3,000 megawatts of new natural-gas-fired capacity on the drawing board, with new gas supplies on the way from Sable Island and Western Canada.
– Some analysts believe that efficient gas-fired plants can produce electricity for the equivalent of 4.5 cents Canadian per Kwh, well below the 5.7 Kwh claimed by Hydro.
– It’s difficult to foresee the effect of such new technologies as fuel cells or small-scale turbines on the price of electricity over the decades-long life of the Churchill project.
– Hydro-Quebec has guaranteed Newfoundland a minimum price of 2.2 cents/Kwh on electricity sales, presumably as compensation for the terms of the 1969 contract on power from the original Churchill Falls project. The minimum price – equal to the cost of generating the power – means Quebec ratepayers would shoulder the risk if power is sold below cost.
But Quebec and Newfoundland insist their forecasts are conservative and the price for the electricity includes enough room for a healthy return on equity of at least 11.5 per cent.
Thierry Vandal, Hydro-Quebec’s vice-president of planning, said the price of electricity from the new project can’t be touched by gas generation in the U.S..
“How can we lose?” Vandal asked. “We’re the Wal-Mart of electric generation. You can cut it anyway you want, these are great projects.”
U.S. energy forecaster Vito Stagliano agrees the new electricity will likely be “in the market” in the northeastern U.S. when it comes on line.
“Any delivery of clean, emission-free electricity in the range of 2.5 to 3.5 cents U.S. likely will find a market ,” said Stagliano, a director of Energy Security Analysis Inc., a Washington, D.C. consulting firm.
Stagliano said a key selling point for the Churchill project will be its value in helping to meet greenhouse gas-reduction targets set at the Kyoto conference in December. The project’s promoters say the hydro power is expected to account for 15 per cent of Canada’s commitment at Kyoto to reduce emissions by 6 per cent of 1990 levels by 2012.
Still, the Churchill River development looks to be facing a tough fight from the Innu and their allies in the environmental movement.
The utilities say the Indians will be invited to participate as partners in the project. They will be offered shares in the company that will develop the project and thus will receive a share of the profits.
But Innu leader Daniel Ashini said his people’s claims for land and compensation for flooding by the original Churchill Falls development must be addressed before Indians will negotiate the latest Churchill River project.
He said the Innu are in contact with the Cree of northern Quebec and are willing to resort to the same tactics used to such devastating effect against the Great Whale project.
Those include court actions, more protests, public relations in the U.S. and appealing to the United Nations.
“People are standing up and saying: We’ll make certain our rights are respected,” said Ashini, vice-president of Innu Nation, representing two Labrador communities.
Environmentalists will be equally tough, said Tom Holzinger, a spokesman for Vigie Energie, a coalition of environmental, consumer and labour groups opposed to Hydro-Quebec’s development plans.
“Environmentalists will fight this tooth and nail and we’ll beat it,” Holzinger said.
The project will flood 700 square kilometres as a result of the partial diversion of the two rivers, which themselves are home to precious Atlantic salmon. Holzinger also complained the project would disturb wildlife in Labrador and Quebec with new roads and transmission lines.
But despite the opposition and concerns, Hydro-Quebec ‘s Vandal said he’s confident the Churchill River project will go ahead.
“We’ve learned the lesson of Great Whale,” he said. “If people sit down and have good-faith discussions, I think people are going to realize the tremendous benefits for all communities to getting this development done.”
“And I’m totally convinced that these projects are going to get done.”
Economic impact of the Churchill project
Investment in $ billions (1998 dollars)
Gull Island 3.2 Churchill Falls upgrading 1.3
Transmission infrastructure 3.0
Lines to Newfoundland 2.2
Total investment: $9.7 billion
Plus Muskrat Falls (if developed) 2.1
Canadian jobs created (in person-years)
Direct employment 16,900
Indirect employment 32,100
Total: 49,000 person-years