There is no disputing that the World Energy GH2 wind-to-hydrogen proposal on the Island’s west coast is a wonderful opportunity for a Newfoundland resource to benefit the world; it might be the first of many. A number of details released about the project are quite positive, not least of which is a megaproject that does not require Government funding. How refreshing is that!
A review of the company’s environmental submission and various news stories covering both the proponent, primarily led by Nova Scotia billionaire John Risley, and Provincial politicians, indicates some things do not add up in terms of the public interest. It’s what those parties are NOT talking about, and seemingly avoiding, that raises real concern that the people of this province will get the short end of the stick. The long and large end will go to the project’s wealthy shareholders.
This Province is very experienced in establishing royalties and rents to be paid from the long-term exploitation of provincial natural resources. A long history of doing that in mines and energy development provides plenty of guidance. It seems GNL has chosen the path of willful blindness for what might be close friends of the Liberal Party over their responsibility to the citizens of the province.
This Island Has Exceptional Wind Resources
It’s not such a secret that the Island of Newfoundland has major wind energy potential. That potential was untapped due both to Government policy, in deference to the Muskrat Falls boondoggle, and to the fact that there was little or no local opportunity to consume large amounts of wind power on the island. It was a stranded resource; however, the prospect of producing green hydrogen is a gamechanger.
Wind data models on Global Wind Atlas show that among onshore locations (offshore energy is more costly to develop) the Island has stronger wind resources than anywhere else in North America with only the Great Plains, predominantly in central USA, offering something nearly as good. Mauritania and southern Morrocco might be the only rival location for largely undeveloped onshore wind resources. Few places also combine the preferred nearby port access, fresh water supply, and geopolitical stability that we have here. It’s a strong package.
To use an analogy most readers will easily understand, while a few other places might have some beef, this Island is loaded with tenderloin. The sites World Energy wants to lock up are premium triple-A – the best of the best.
The rest of the Island isn’t chopped liver, either! There are additional high-quality sites in the west and into central plus some pockets near Clarenville and Holyrood, among others, that appear to be solid prospects. Not seen in these views is the very attractive potential of the western Avalon coastlines of both Placentia Bay and Trinity Bay: these are probably the sites of interest for any hydrogen development centered at Argentia.
The key takeaway is that if wind-based green hydrogen can’t be a giant money-making success here, then it’s unlikely to succeed anywhere. The vibe across the world right now is for very long-term high hydrogen demand and that indicates high probability of elevated price and a very profitable outcome.
As World Energy proposes to use a relatively small fraction of the total potential resource area, there is potential for a lot more development. We may soon find proposals for as much wind power on the Island as exists in all of Canada (14,300 MW at the end of 2021).
Hydrogen Has Major Profit Potential
If there is anything we can be sure of, Risley, the main force behind the project, hasn’t put forward such an enormous wind to hydrogen plant proposal without being confident it’s a substantial money maker.
Given the newness of the green hydrogen industry and marketplace, benchmarking commodity prices, capital and O&M costs is a challenge. The political fervor to make hydrogen a preferred energy choice, however, includes many nations that are intent on breaking down barriers to supply and ensuring that fossil fuel competition is duly sidelined, gives confidence to the notion of profitability.
A literature review indicates that’s today’s technology is capable of producing green hydrogen at $3-6 per kg (all figures quoted here are USD). As World Energy’s proposal is at a scale not seen in today’s plants and the cost of energy and net plant utilization are predicted to be very high, it’s fair to expect that they might achieve costs no worse than the middle of that range and possibly nearer the low end. A review of the capital costs presented in their submission for environmental review, using rules of thumb typical of economic assessment of major industrial projects, validates that general assumption.
Some reports have pegged prices paid for green hydrogen this year at $16.80 per kg and it may be rising further still. At that price, the potential revenue from the Port au Port site alone is approximately $1B annually with as much as 75% being profit for the company. Assuming the true size of the enterprise is tripled, as CBC reported Risley saying, World Energy could earn $2B annual profit. Simple payback of the project would be achieved in 4-5 years.
Profitability is directly related to price and such high margins may not be there every year. However, even if only a fraction of the hype about the growth in demand for green hydrogen is real, the risk of not making significant returns seems very low.
Wind Energy Used to be About Reducing Costs for Ratepayers – Hydrogen is Not
In most jurisdictions, wind energy has been developed because it is more economic than fossil fuels. Even the small Fermeuse and St. Lawrence wind farms in this province are considerably cheaper sources of electricity than burning oil at Holyrood. In recent years in Canada, the US, and overseas, wind energy has been consistently cheaper than coal and natural gas resulting in the decline of market share of those fossil fuels. Besides the emissions advantage is the economic advantage: electricity consumers have typically been the main beneficiary of low-cost wind developments. Who doesn’t want lower rates?
The hydrogen wind energy business offers no direct benefit to consumers as the projects wants to convert all of their low-cost generation into hydrogen sales. This is a critical distinction local citizens need to recognize – this development is not for them.
Wind projects have been accepted elsewhere because they exist solely to serve customers with energy and to maintain the least cost of energy possible to them. World Energy is not doing that for the people of this province. World Energy appears to want free rent of crown land to produce massive windfall profits that will be taken almost, if not entirely, outside this province and so far Government appears to be a willing enabler.
Benefits Must be Shared with the People of the Province
As the public will not benefit from the consumption of the wind energy themselves, it’s vital to devise appropriate royalties and rents for the use of public assets, the crown lands on which 100% of the wind farm will be built. Nothing in the communications from the proponent or Government indicates there is any plan to extract a penny from the company for the use of crown lands.
Before granting any permissions to develop, Government should be developing a framework for fees that non-utility energy companies must pay or be liable for.
One key revenue generating component of such a framework might be a fixed payment on energy generated. Hydro projects in the province have done something similar, however, as non-utility projects provide no beneficial energy to consumers, the rate levied should be significantly higher. Given that over 11 TWh of energy production from the full World Energy development, a notional fee of 1 c/KWh as a form of land rent, would generate $110M. Should the operation be turning profits as high as $2B USD, this level of rent should not be the least bit objectionable.
There could be a second fee constructed as a royalty on hydrogen production and relative market price similar to what has been done with the local oil industry. The royalty can respect the company’s desire to recover invested capital and ensure that the Province only shares in the high reward profits if and when they occur. With the company’s profitability protected, how could sharing some of the wealth with the public be wrong? The scheme should also have measures to ensure that any tax avoidance measures the company may take will result in a higher royalty. The royalty benefits could conceivably be in the many hundreds of millions.
Again, the public must realize that the Liberal Government of Premier Furey has not paused to develop any plans for royalties or rents for this new industry. In their haste, they appear to want to give World Energy a free pass and maximum profit. Is that the level of care we elected this Government to exercise on our behalf?
Are Sensitive Regions off Limits
Among World Energy’s proposed development sites are the Lewis Hills and Blow Me Down Mountain. The Province has long classified them as sensitive wildlife zones, refused to as much as allow anyone to build a cabin in these areas to avoid any risk of ecological destruction. Yet, GNL officials have no comments against having World Energy blasting and excavating an enormous network of wide roads and installing huge wind turbine bases and electrical infrastructure.
The risk of such work upon sensitive habitats is immense. Biologists might tell us, if they were asked, that it is improbable that the landscape could ever repair itself and that in fact opening tears in the fragile soils may potentially lead to substantial and irreversible erosion and die-off of native species. These places are not at all like the cultivated Ontario farmlands some in the Stephenville area recently went to see.
Whether such industrial development should proceed in sensitive areas is a very large question unto itself. It certainly does not have to be done in those locations as there are plenty of alternative high-grade sites, presumably much less ecologically sensitive. Those alternate sites may need a bit more capital investment in turbines and transmission lines, but they would still be among the most high-quality investment grade projects on the continent and in the world. Profitability (including Government royalty, if there is one) would be a little impacted but, again, considering the potential margins involved, is respect for nature and the environment really too tough a hardship to impose?
The people of the province should ask if helping to defend against climate change and making billionaires richer is worth cynically sacrificing the habitats of our own province. Some might say yes if the price is right. The potential for a healthy debate exists, yet Premier Furey’s Liberal Government projects silence and passivity. The opposition parties also have yet to wake up.
Government has Abdicated Responsibility
Sadly, it appears that a great resource giveaway is firmly in motion as the wealthy friends of the Liberal Party receive preferential treatment when seeking speedy approval to exploit public resources for next to nothing. The Liberals might tout the small number of jobs created, but employment is only a tiny part of the potential for fair benefits to the public.
If Premier Furey has any sense of loyalty and responsibility to the people of the province, he will formally advise World Energy that a comprehensive policy plan will be developed and that it will apply to them. There will be no sneaking in under the wire.
Furthermore, what a proactive Government should have done before now and still could is develop a wind resource inventory model that can be partitioned into zones and lots of interest. The matter of sensitive wildlife zones would also be settled. Industry would then be invited to submit proposals in an auction setting where rents and royalties may exceed those of the Government’s framework. That’s how it should be done.
To seize the opportunity to generate hundreds of millions in new revenues seems like the obvious and honourable work that a responsible Government should be doing. The public certainly understands that those revenues are vital to improving the quality of public services. Yet it appears Furey and the Liberals have a lot of catching up to do as their minds seem entirely elsewhere, intent only on making their rich friends richer.
Note: a separate post is planned regarding opportunities and risks related to World Energy’s proposed connection and “energy exchange” with NL Hydro.
Key References:
Project Nujio’qonik GH2 (gov.nl.ca) – World Energy GH2’s Environmental Assessment Registration document (125pp PDF)
Green hydrogen prices have nearly tripled as energy costs climb: S&P | Utility Dive
Wind energy developer says Port au Port proposal is just the start | CBC News
