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Thursday, 23 June 2011

Of Hurricanes and Hydro Projects.

So it feels like I've been writing about Igor and Muskrat Falls quite a lot lately. But in all fairness to me, and I have to be fair to me :), these are two significant issues currently being discussed that have serious potential to impact all of NL. The other issue is the closure of the SAR Sub-Centre and I'll have more to say, and hopefully show, about that following the rally on Saturday.

Igor Vs O'Brien Vs The Packet
As I mentioned in previous posts here, here and here this issue seems to be something that would be straight forward but yet is not. One would think that the Minister responsible for public safety and communities in NL would be completely open about improving the emergency response based on a significant event such as Igor. If you haven't read it I first suggest you go read this week's edition of The Packet, especially the front page story, the editorial, and the letter to the editor. Oh and also the editorial in today's Telegram. I think you'll see a few unfortunate comments by O'Brien that lead me to feel less then reassured when it comes to the next big storm.

To summarize he has said the following:
  • He wouldn't change a thing.....yet they are conducting an internal review. 
  • Everything went according to plan.....yet there is no actual plan. 
  • He is open to suggestions on improvements.....yet he has openly attacked the only suggestion to come forward to date: to call in the Feds earlier.
  • He has defended the work of staff and volunteers....yet no one ever said anything negative about the contributions of staff or volunteers.

Bottom line and last comment on O'Brien and the Igor response. The staff and volunteers with Salvation Army, Red Cross, fire departments and so on deserve nothing but respect, and for the Minister to drag them into this conversation is a despicable attempt to shield himself from valid criticism. We need to all work together to improve the response. That means good analysis of past actions and constantly improving planning and partnerships with first responders. Period.

Assumptions can be very costly...
I spent just over 4 hours at the Holiday Inn in St. John's yesterday for the NALCOR AGM. It was an enlightening experience. There was a very specific feel to the event as the focus was obviously on the Muskrat Falls project. President and CEO Ed Martin gave a lengthy and detailed presentation on the rationale, details, and financing of the project. The basic crux of the rationale is that power demand in NL is continuously rising and that by 2019 we'll have to turn the lights off because we won't have the power supply We need. Based on that forecast, he says, we need a greater supply of energy, and fast. When they forecasted the two main options for power supply, Muskrat Falls and an Island option of smaller projects, the difference comes out about $2 billion in favor of Muskrat Falls. Therefore it's needed and it's the cheapest option. But...

What happens if those forecasted demand numbers are wrong? They are looking pretty far into the future, 2067 in all I think it was. He indicated that the demand has been rising an average of 2.3% per year since 1970 and they are only forecasting a conservative 0.8% per year until 2067 so the numbers should be reasonable right? Well check the letters to the editor section of today's Telegram and you'll hear a different story. Maurice Adams argues that the increases in the past are inflated because they went back so far. In fact the demand in 1992-95 was about 7500 Gigawatt hours, and in 2011 guess what it is? About 7500 Gigawatt hours. Take a look at this picture I shot of the slide concerning the demand increases. Apologies for the quality but if you click on the image you will get the full size.

If you can see the detail there was indeed constant demand increases from 1970 to 1990 or so. Then the graph levels a little, heads up and then back down again. So over that last 20 years the average increase in demand should be near zero. To be fair we have had the closure of two pulp mills and the Vale Inco site will be coming on line in the near future, but the forecasted demand indicated on the right side of the chart seems to indicate that we will always need to find new sources of energy to meet our insatiable need for huge amounts of power.

My issue is largely that I have a difficult time taking these numbers at face value. I'm not willing to get into a $6 billion dollar project that could double our rates based on a possible forecast. Martin also says that by 2017 our rates are going up by 37% regardless of any mega-hydro project. Again I have doubts about those kinds of assumptions that involve the commodity markets and some pretty big assumptions.

In the end I still want more detail and I need more convincing. The numbers still do not seem to provide the rationale for the cash. There are too many gaps, and I applaud Martin for saying that they still have work to do to nail down the numbers. But I can't help but wonder if we'll be willing to come back down once we've gone half way up that mountain.

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