Newspaper article The Canadian Press

Muskrat Falls Is Cheapest Energy Option for Newfoundland, but It Has Risk: Study: Muskrat Falls Cheapest Energy Option: Study

Newspaper article The Canadian Press

Muskrat Falls Is Cheapest Energy Option for Newfoundland, but It Has Risk: Study: Muskrat Falls Cheapest Energy Option: Study

Article excerpt

ST. JOHN'S, N.L. - The proposed $6.2-billion Muskrat Falls hydroelectric project in Labrador is the cheapest option for the province's future energy needs, says a new report that warns of risky variables.

The review by Manitoba Hydro International released Wednesday was commissioned by Newfoundland and Labrador's Public Utilities Board to assess calculations by Crown corporation Nalcor Energy.

Nalcor and Nova Scotia private utility Emera (TSX:EMA) are hammering out a deal to jointly fund the megaproject that would bring power from Labrador to Newfoundland and then Nova Scotia.

Manitoba specialists in risk analysis, project management and thermal generation have concluded, based on Nalcor's data, that the Labrador link is about $2.2 billion cheaper over time than if Newfoundland remained isolated and reliant on an oil-burning plant along with smaller hydroelectric and wind sources.

But the report stresses that a megaproject based on pricing and load forecasts through to 2067 carries risk.

"With projects of this magnitude, and considering the length of the analysis period, there are risks and uncertainties associated with key inputs and assumptions," it says.

Those potential fluctuations "can impact the results of the analysis and shift the preference for what is the least cost option. Fuel costs and construction material costs are variable with world economic conditions.

"Load forecasts are a major input based on local conditions and must be carefully monitored to ensure that generation development occurs in compliance with future load requirements."

In particular, the report cites shortcomings in how Nalcor assessed the reliability of Muskrat Falls versus the so-called isolated island option, which means Newfoundland would rely on power it generates.

It says Nalcor did not compare the risk of power losses or blackouts using studies that are the standard for several utilities across Canada.

Manitoba Hydro International concludes "that choosing between the two options under review without such an assessment is a gap in Nalcor's work to date."

The report recommends that Nalcor complete such studies as soon as possible. It notes that such work is typically done earlier in the process of sanctioning a megaproject.

And the report finds that Nalcor has not completed integration studies that would determine whether Newfoundland needs more transmission lines to receive power from Labrador.

Still, it cites a high level of due diligence overall for calculations from Nalcor that were current as of the fall of 2010.

Nalcor CEO Ed Martin said reliability studies are being done but did not want to offer a deadline for results. He said the Muskrat Falls business case is also being updated with fresh numbers that will be assessed by "cold eyes" reviewers not directly involved with the project.

"No one's going to proceed with this project unless it has the reliability that we have to have, because that's the whole purpose of the thing," Martin told reporters Wednesday. …

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