Muskrat Falls and HVDC transmission line cost

In my previous blog posts I pointed to costs as being the key issue in the Muskrat Falls controversy.

The main difference between Hydro Quebec projects or Churchill Falls and the Muskrat Falls project are the subsea component of the transmission lines as well as 1100 KM of new HVDC lines to the island substation on the east coast.  Muskrat Falls will involve HVDC submarine transmission between Labrador and the island of Newfoundland (30 KM), and a lower capacity submarine HVDC line between Newfoundland and Nova Scotia (180 KM).

According to the backgrounder document at Nalcor, the link between Labrador and the island (1100 KM) will cost 2.1 billion, while the link to Nova Scotia will cost 1.2 billion.

If we only look at the portion of the equation related to Newfoundland, the cost for Muskrat Falls is 5 billion (2.9 generation and Labrador transmission plus 2.1 Labrador-Island link).  From what I understand, the 2.1 billion covers the 30 KM submarine link plus 1100 KM over land transmission.

This is a big chunk of the total cost.  Again, I like to compare it to something similar.

World-beating €1.1bn under-sea cable to connect England and Scotland

This diagram is from one of the only news articles I could find mentioning a cost with HVDC transmission lines.  There are many stories, but usually the cost is not mentioned.

I found this sentence at the wikipedia entry on "Costs of high voltage DC transmission":

Normally manufacturers such as Alstom, Siemens and ABB do not state specific cost information of a particular project since this is a commercial matter between the manufacturer and the client.

This is a strange business requirement, as I would think the public have a right to know the price of things being done for public utilities.

Like SNC Lavalin, only a handful of companies have expertise in this.  The way news articles avoid mentioning the costs with HVDC would make it seem they prefer it isn't on anyone's minds.  Why?  Is there something to hide?  Is there collusion in this industry, or do they have some of the same problems as SNC Lavalin?  How much is the markup on this?  Do the power companies have no choice but to say yes to whatever the quoted price is?

I realize there are great engineering challenges to these projects which may push up costs.  Here is an example, the "Review of in-cloud icing on the Long Range Mountain Ridge"...

http://www.pub.nf.ca/applications/muskratfalls2011/files/exhibits/Exhibit91.pdf

European example of in-cloud icing

Power lines in proximity to the sea can involve icing problems which never happen in the interior of Labrador.  For the 13 years I lived in Churchill Falls, we never saw ice or snow stick to any hydro towers, guy wires nor power lines.  On a snowy day, while standing under the line, the snowflakes sizzled.  The temperature dipped far below -40C on many days and the lines were always bare.

Rime ice and in-cloud icing is a problem which will exist along the Labrador coast and through the long range mountains of western Newfoundland.  One can expect there will be additional costs with whatever defenses must be built-in to combat this problem.

The question remains, are quotes like 2.1 billion for 1100 KM HVDC transmission a reasonable price to pay?  With the HVDC industry's "we no talk" policy, it is hard to compare this project to any other.

Comparison of Muskrat Falls with Romaine Complex

The Romaine Complex is a hydro project which is contemporary of Muskrat Falls and nearby.  Hydro Quebec has the summary information published here:

http://www.hydroquebec.com/projects/romaine.html

Here is a table comparing the two projects:

Muskrat Falls	Romaine Complex
824 MW	1550 MW
$ 2.9 billion (excl subsea and island links cost)	$ 6.5 billion
3,519,417 dollars per MW	4,193,548 dollars per MW
existing transportation links	150 km of new roads need construction
two damns at one river point	four dams and four generating stations
Engineering and Construction contractor SNC Lavalin	Engineering and Construction contractor SNC Lavalin

The Romaine Complex has a much more work to be done and greater difficulty with transportation over land, while Muskrat Falls is close to the sea port at Happy Valley-Goose Bay.

SNC Lavalin is a giant in this area, doing hydro power construction as well as transmission lines in many countries around the world.

Lately there have been news articles about their ex-CEO being charged with fraud and a VP being fired.

Here is a Financial Post article discussing the general concerns raised about this company and the impact it has on our trust in public-private partnerships.

http://business.financialpost.com/2012/11/30/snc-lavalin-fraud-charges-a-wake-up-call-for-stakeholders-in-public-private-partnerships/

Quote from the above article: The massive scale of public-private partnerships — which can cost hundreds of millions of dollars — make the projects more of a magnet for greed, experts say in the wake of a corruption scandal involving construction giant SNC-Lavalin Inc.

This and my comparison with Churchill Falls (previous blog post) via the inflation calculator, raises the question of how much markup is there in engineering and construction work by SNC Lavalin.  Do we just say yes to whatever billion dollar figure is quoted?

Another piece of coverage by Canadian Business magazine:

http://www.canadianbusiness.com/companies-and-industries/snc-lavalin-case-signals-corruption-crackdown-in-canada/

Some interesting reader comments at the end of that story as well.

The whole picture feels like one of those Fifth Estate stories digging into details of a story from the past.  Typically they might ask: "what did you know and when did you know it", for which some people will cover their butt, and others will be saying they could not say anything.  The problem is, that time might be the present, and wouldn't it be better to do something now rather than wait for the deal to be complete?    If it isn't questioned now, everyone is stuck with another insane long term mistake like the Churchill Falls/Hydro Quebec deal.

Muskrat Falls issue: essentially, the problem is cost

I lived in Churchill Falls, Labrador in the 70's and early 80's.  I have waited for years for news about Gull Island being developed.  Now Muskrat Falls is on the way.  Great, I thought, we need more of this cheap, carbon free and renewable energy to reach Newfoundland and Nova Scotia, where we currently burn mainly gas, oil and coal.

Churchill Falls, generating over 5000 MW of power, cost $1 billion back in the 60's (6.5 billion dollars in 2012, by Bank of Canada's inflation calculator).

Cut-away view of Churchill Falls underground power station

Churchill Falls made a profit even while selling power to Hydro Quebec at 0.3 cents per kWh (kilowatt hour).  That's right, 3/10ths of a penny per kWh, was enough for Churchill Falls to bring in more revenue than its costs.  At this point you might be thinking: he's cracked, that can't be right.  http://www.releases.gov.nl.ca/releases/1996/exec/1119n06.htm.  You might read this speech by then premier Brian Tobin where he discusses how terrible this deal was and is.  Search for "Let's see how much Hydro Quebec pays for Churchill Falls power."

Maintenance on one of the 11 units at Churchill Falls

Nalcor financial reports show a 24.4 million profit from Churchill Falls for 2011.   http://www.nalcorenergy.com/uploads/file/2011%20Nalcor%20Energy%20Business%20and%20Financial%20Report.pdf , page 27.  Granted, the profit margin has been helped by selling a trickle of power within Labrador interior's population of roughly 25,000 citizens, and selling some of the surplus beyond contract to Hydro Quebec at better rates.  However it was also making a profit in 1974 before either of these extra revenue deals existed.

If we ignore the incredibly bad deflation built into the Churchill Falls deal and imagine it did have an index for inflation built in, that 3/10s of a penny turns into 2 cents in 2012 Canadian currency.  This is an interesting number, because it jives with the numbers from Hydro Quebec.

Manic 5 generating station, 214 KM north of Baie-Comeau

Hydro Quebec has 59 hydro power sites and an average production cost of 2.11 cents for one kilowatt hour.   http://www.hydroquebec.com/publications/en/annual_report/pdf/annual-report-2011.pdf

Over 90% of the power generated in Quebec is from hydro power, and the citizens there have the cheapest power rates in North America.

It is clear that on average, hydro power is very cheap, and it has always been cheap, even when oil, gas and coal were very cheap in the 60's and prior.

I was very surprised to hear that after Muskrat Falls, power rates will have to go up in Newfoundland and Nova Scotia, because of the high cost of developing hydro power.  This makes no sense, and should cause everyone to ask, why is the cost so high?

The answer can't be inflation, or we'd also see high costs in Quebec.

The answer can't be the difficulty of the project, because Muskrat Falls is a simple project compared to something like Churchill Falls (Churchill Falls has an underground powerhouse hollowed from granite, measuring 3 football fields long and 15 stories deep, and the second largest reservoir in the world).

Powerhouse excavation on left, surge camber on right, 300 metres (1000 ft) underground

The answer can't be the remoteness: there is already a highway near Muskrat Falls, while Churchill Falls in the 60's required a new 180KM road, built across bog and Canadian Shield rock from the railway at Esker.  The Churchill Falls project also relied heavily on air transport (see reference to May 1969 and "the biggest airlift since the Berlin blockade" http://news.google.com/newspapers?id=9BZbAAAAIBAJ&sjid=lU4NAAAAIBAJ&pg=705%2C4874998 ) yet it came in under budget, and was completed on time.

Although many blogs and critics of Muskrat Falls tackle the problem from political and legal angles, I don't see anyone questioning the sources of the high costs being quoted.  For many of the critics, I think there would be no issue if we were being told our power bills will go down.  The cost is the core issue.   Questions about these costs need to be asked.

Comparison of Muskrat Falls with Churchill Falls:

Muskrat Falls	Churchill Falls
824 MW	5428 MW
$ 2.9 billion (excl subsea links cost)	$ 6.5 billion (convert to 2012 dollars)
3,519,417 dollars per MW	1,197,494 dollars per MW
existing transportation links	roads and airport needed construction
two damns at one river point	64 KM of remote dykes and 7 remote control structures
traditional generation station	underground power house in hard granite