You may have read the article The MOU and Existing Churchill Falls Power, it describes the giveaway that arises from the MOU in regards to the replacement of the power contracts for the existing plant. In this article the focus is on another mega-project proposed under the MOU – Churchill Falls Expansion.
Churchill Falls Expansion
The Churchill Falls expansion refers to the construction of a new power plant adjacent to the existing power station at Churchill Falls (CF). This proposed new plant would have a generation capacity of 1,100 MW. It is planned that two – 550 MW turbine generators be installed in the new plant.
The expansion plant would be built underground similar to the existing CF plant which would require penstocks, one-mile tunnels for access and tailrace, as well as a power house and surge chamber to be drilled from the granite rock that houses all the existing CF underground infrastructure. This is a very large project. Its estimated cost for construction is $4.6 billion. The plant is proposed to be built by CF(L)co the existing owner of the CF plant. Therefore, the current owners NL Hydro (65.8%) and HQ (34.2%) will be making the large capital investment.
What is its Purpose?
The MOU does not speak to the purpose of the new CF power plant. We are left to speculate what the development means and how it benefits NL particularly, as we are the majority owner and investor in the plant.
The plan for a new power plant at CF is not new. In the late 1990’s the Tobin administration was seeking redress from HQ under the existing CF contract because costs of generation at that time were about to exceed the revenues from power production at CF. CF(L)co was headed for insolvency. One of the considerations at the time was to expand CF and new sources of water were explored to expand the power generation at the CF site. Quebec at the time explored the diversion of a number of rivers into the CF reservoir (including the Romaine which has since been fully developed by HQ). The plan was dropped because the water diversion was not deemed to be feasible.
The question today should be – why are we building a hydro plant that has no water? Without water there is no energy. And without energy- why spend $4.6 billion? It is illogical, of course.
The existing CF plant, once upgraded, will efficiently produce all of the energy that is possible from the existing reservoir, some 35 terawatts annually. Expanding the CF plant by adding 1100 MW of new capacity, which is the sole purpose of the new development, can only be for one of two purposes. One is that HQ plans to take energy at peak demand periods, when pricing is very high, to sell and further maximize its profits. Or HQ plans to use the new capacity to stabilize power within its electricity network, to replace power during times that facilities, such as wind, are offline. In effect, it would use the reservoir at CF as a battery bank for power with other renewal energy sources that lack reliability, such as wind power. To the extent HQ takes energy from the existing plant and diverts it to the new plant of course the costs will increase. But from NL Hydro’s perspective, it has no need for more capacity at CF, all the power it can get is easily derived from the existing plant and that power is virtually free from a cost standpoint.
Costs/ Benefits to NL Hydro
The costs of this development are significant, NL Hydro is committed to put up 65.8% of the equity, or $757 million, and its share of the debt, is a further $2.27 billion. For what? Absolutely Nothing!
And why would CF(L)co, a company majority owned by NL, even consider such a development. It has no value to NL, or to HL Hydro. To the extent energy gets transferred from the existing power plant to the new expansion, one is transferring power at virtually no cost, to something that has incrementally, a very high cost. It makes absolutely no business sense for NL, or NL Hydro. All of the benefit is 100% for HQ. Yet, NL Hydro is taking the majority of the investment risk – over $3 billion. Maybe our investment is intended solely as an expensive make work project? Someone needs to explain why? Of course, we know the answer HQ wants it! And we are paying for it.