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 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. "We're going to take MHI's points and we're going to incorporate them and see if we can improve our decision."
The Public Utilities Board needed the report before it starts public consultations for a review that the province says must be completed by March 31.
The Progressive Conservative government has vigorously defended Muskrat Falls as the cheapest option to meet provincial power needs, and to ultimately generate profits, into the future.
Natural Resources Minister Jerome Kennedy said Wednesday that fresh numbers from Nalcor will help the province assess any potential cost overruns.
He also noted that the Manitoba report does not consider a promised federal loan guarantee or equivalent that could shave hundreds of millions of dollars off borrowing costs.
Premier Kathy Dunderdale, who said the Manitoba report was positive, wants to debate the issue this spring before her government decides whether to green-light the project.
Critics point out that Nalcor and Emera have twice missed self-imposed deadlines for reaching legal contracts on the deal, while the Public Utilities Board has been denied a requested extension for its own review.
Opposition politicians have raised concerns about potential cost overruns and whether the project is truly sound. They quote the findings of a joint federal-provincial environmental review panel that found proof lacking for both the need and viability of Muskrat Falls.
Environmental activists say the proposed hydro dam will flood animal habitats.
NDP Leader Lorraine Michael said Wednesday that the government still hasn't fully explored other options that could incrementally meet power needs.
"So I think the public really has to keep questioning: Why weren't other alternatives looked at in depth, and offered?"
Dunderdale says harnessing power from Labrador's lower Churchill River has been studied for decades. She also cites a report last September by global energy analyst Navigant Consulting. It used Nalcor's data to conclude that the project is the cheapest energy option.
Under a term sheet reached in November 2010, Emera would fund a 180-kilometre subsea link between Cape Ray, N.L., and Lingan, N.S., at a cost of $1.2 billion.
A further $2.1 billion would be spent to build a transmission link from Labrador to Newfoundland, $600 million of which would be provided by Emera.
Nalcor would spend $2.9 billion to build a power generating facility at Muskrat Falls capable of producing 824 megawatts of electricity.
Nova Scotia would get 170 megawatts of energy a year, about 10 per cent of the province's total energy needs, for 35 years.
