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