The Newfoundland and Labrador government has announced increased cost estimates for the proposed multibillion-dollar lower Churchill River hydroelectric project, but Nova Scotia’s portion of the bill remains unclear.
Crown-owned Nalcor Energy said Tuesday that capital costs for the Muskrat Falls project, which include the construction of a dam, generation station and transmission lines, increased to a total of $7.4 billion from $6.2 billion.
With the new estimates, Nalcor will be on the hook for $6.2 billion, while a subsea-cable power link between Newfoundland and Cape Breton proposed by Emera Inc., Nova Scotia Power’s parent company, is projected to cost $1.2 billion, the same number as when the megaproject was announced two years ago.
But that figure could change because Emera is working toward finalizing its numbers, which will be filed with the provincial Utility and Review Board this year.
“We’re working toward filing later this fall, but the filing is dependent on us receiving finalized information on the … loan guarantee from the federal government,” Emera spokeswoman Sasha Irving said in an interview.
An agreement with Nalcor stipulates that Emera would receive 20 per cent of the energy from Muskrat Falls for 20 per cent of the total project’s cost, Irving said.
However, she declined to say how much the new Emera estimates would differ from the original projections or whether there is a ceiling at which the company would back out.
“Nova Scotians, through the (review board) process, will decide if this makes sense economically for this province and if this project has value to customers.
“We absolutely believe it has value for customers, and it’s the right project moving forward, but Nova Scotians will ultimately decide that.”
Newfoundland and Labrador Premier Kathy Dunderdale said she expects the terms of the federal loan guarantee to be finalized in the next few weeks.
“It’s not a done deal at this point,” Dunderdale said at a St. John’s, N.L., news conference. “It’s not a done deal until it’s a done deal and we sign on the dotted line. We’re very close on the loan guarantee, but I am not going to assume anything.”
The overall increase in the so-called Decision Gate 3 cost estimate is attributed to several factors, including cables built to withstand harsh condition such as wind and ice, increased concrete, labour excavation costs, design changes such as plans to reorient the Muskrat Falls powerhouse to maximize the amount of energy generated, and anchoring the dam deeper into the riverbed.
The project includes two dams along the lower Churchill River in Labrador. An 824-megawatt Muskrat Falls facility would be the first portion of the project, while the 2,250-megawatt Gull Island facility would be constructed second.
The new numbers were included in an updated 84-page analysis by Manitoba Hydro International Ltd., also released Tuesday. It stated that the project was the lowest-cost option for Newfoundlanders.
In particular, the report noted a $2.4 billion preference in the overall costing of the Muskrat Falls project over the so-called isolated island option, which included the construction of small hydroelectric plants in Newfoundland, the refurbishment of the oil-burning Holyrood generating facility near St. John’s and the development of new wind farms.
Ed Martin, president and chief executive officer of Nalcor, said that preference assumes that the Maritime Link does not go ahead, numbers that were not submitted in the analysis because they wanted to be “prudent and conservative.”
But Martin told media in St. John’s that a Maritime Link would enhance the entire project for Newfoundland and Labrador, Atlantic Canada and Canada.
“With the Maritime Link, the economics improve. (Even if) there is an opportunity to monetize the excess power that is not utilized if we don’t have a Maritime Link, there is an opportunity to do other things with our partners in Atlantic Canada with respect to adding value.
“In the highly unlikely event that that didn’t occur, the project remains robust, and it’s the right thing for Newfoundland and Labrador.”
Tom Adams, an independent energy consultant, said the increase in projected costs should be cause for alarm.
“This is a shocking increase, especially for a project that had very questionable economics before,” Adams said in an interview from Toronto.
Such a large “increase in two years is a very rapid rate of inflation, and I think it’s important to point out that this is not a final cost estimate, this is just another cost estimate,” he said.
Earlier this month, the Atlantic Institute for Market Studies in Halifax released a report stating that the hydroelectric project was “highly desirable in terms of energy policy,” but the report called for an independent, in-depth review that would provide a comprehensive look at all aspects.
The report’s author, Gordon Weil, president of Standard Energy Co. in Maine, said the increased cost estimate adds importance to that independent review.
“I think as the cost goes up, the risks goes up and the risks are to the Newfoundland and Labrador customers in terms of how much they may have to pay if not all of the power is sold,” Weil said in an interview.