Newfoundland utility defends 3,074-MW Lower Churchill as least-cost option

ST. JOHN'S, Newfoundland, Canada 11/23/11 (PennWell) -- Challenged by Canada and Newfoundland governments to justify development of the 3,074-MW Lower Churchill hydroelectric project, Nalcor Energy has submitted a report to the province supporting the big hydro project as the least-cost option for future power generation.

The environment ministers of Canada and the province of Newfoundland and Labrador released an environmental assessment in August in which the Joint Review Panel for the proposed Lower Churchill project urged more study of energy alternatives. The panel then said if viable alternatives are found, the first-phase 824-MW Muskrat Falls hydro plant should not be built.

The Joint Review Panel had said Nalcor, parent of province utility Newfoundland and Labrador Hydro, failed to justify the C$6.4 billion (US$6.1 billion) project in either energy or economic terms. It said there were outstanding questions about both hydro plants' ability to deliver long-term financial benefits to the province.

In response, Nalcor submitted Nov. 10 a summary of the process it used to select Lower Churchill to the Newfoundland and Labrador Board of Commissioners of Public Utilities. The province has directed the board to review whether Lower Churchill represents the least-cost option to supply power from 2011-2067 by interconnecting the mainland Labrador utility grid to Newfoundland Island.

Nalcor said it found it would have electric capacity shortfalls beginning in 2015 and firm energy shortfalls in 2021. To meet the demand, it said it identified a broad range of alternatives, comprising traditional and relatively newer technologies, including the proposed Lower Churchill project's 824-MW Muskrat Falls and 2,250-MW Gull Island hydro plants.

Nalcor said its screening process examined reliability and security of supply, ratepayer cost, environmental considerations, risk and uncertainty, and financial viability of non-regulated elements. That process eliminated a number of alternatives as unsuitable for feasibility studies.

Muskrat Falls, island link selected as least-cost option

Remaining alternatives were analyzed in two categories, an isolated Newfoundland Island alternative and an interconnected island alternative.

"The outcome of this system planning process found that the least-cost option for the long-term supply of generation for the island was the interconnected island alternative, featuring the development of Muskrat Falls coupled with the construction of a transmission interconnection between central Labrador and the island of Newfoundland," Nalcor said. "This recommended investment alternative has a CPW (Cumulative Present Worth) preference of almost C$2.2 billion (US$2.1 billion) over an isolated island alternative, and is robust under a broad range of sensitivities."

Nalcor said a secondary benefit is a proposed transmission link from Newfoundland to Nova Scotia, which would allow 60 percent of Muskrat Falls' power to be exported for "significant value" for 40 years until the power is needed in Newfoundland and Labrador.

The utility said Lower Churchill also provides value in environmental benefits by displacing emissions from the Holyrood oil-burning power plant. It said once Lower Churchill goes on line in 2017, Newfoundland power generation will be 98 percent greenhouse gas free. The government of Canada said in August that it would provide a loan guarantee for the Lower Churchill project to help reduce up to 4.5 megatons of carbon dioxide emissions and generate up to C$3.5 billion (US$3.58 billion) in economic benefits.

Nalcor said that projected increases in the province's electricity costs are driven by expected increases in fuel oil costs for Holyrood. It said it cannot recover any Lower Churchill development costs until the plant is completed. At that time, with fuel oil costs eliminated, Nalcor said power prices would stabilize.

Nalcor also has released an independent review of Lower Churchill by Navigant Consulting, which Nalcor said validated Muskrat Falls and the Labrador-Newfoundland transmission link as the long-term, least-cost supply option for ratepayers on the island.

The Joint Review Panel's executive summary is available on the Canadian Environmental Assessment Agency's Internet site at http://www.ceaa.gc.ca/050/documents/51706/51706E.pdf.

Governments, Innu sign agreements advancing Lower Churchill

The Canada and Newfoundland governments signed three agreements Nov. 18 with the Innu of Labrador, enlisting the support of the native peoples in exchange for recognition of rights and pledges of economic benefits to the Innu.

Three documents signed by the parties, termed the "New Dawn Agreements," included a Land Claim and Self-Government Agreement-in-Principle, an Upper Churchill Redress Agreement, and a Lower Churchill Innu Impacts and Benefits Agreement.

The land claim agreement clarifies land ownership and management of resources, including forest resources, fish, migratory birds, and wildlife.

The Upper Churchill Redress Agreement provides compensation to the Innu for impacts of the 5,428-MW Churchill Falls hydroelectric project. The Innu would receive C$2 million (US$1.9 million) annually until 2041 after which they would be entitled annually to 3 percent of Nalcor's revenue from Churchill Falls.

The Lower Churchill Innu Impacts and Benefits Agreement provides 5 percent of net project revenue, C$5 million (US$4.8 million) annually from approval of Lower Churchill until commercial operation, employment and training, and a target of C$400 million (US$385.2 million) in contracts for Innu businesses.

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