An Ontario-based energy industry analyst is warning about similarities between the Muskrat Falls hydro plan and a Manitoba project whose costs have spiralled well above budget.
"The parallels between the situation in Manitoba and the situation in Newfoundland [have] very, very important analogies," Tom Adams said in an interview with CBC Radio’s St. John’s Morning Show.
The Wuskwatim dam in northern Manitoba started generating power earlier this summer.
According to Adams, Wuskwatim was initially supposed to cost around $900 million.
But costs turned out to be 85 per cent higher than expected.
Manitoba Hydro was one of the two partners in the over-budget Wuskwatim project.
The company’s subsidiary, Manitoba Hydro International (MHI), is helping crunch the numbers to assess the feasibility of Muskrat Falls in Labrador.
"I think that raises important questions about the quality of their assessment, particularly in light of Manitoba Hydro’s demonstrated failure to deliver their projects on time, and on budget," Adams said.
The decision to proceed with Wuskwatim was made when energy prices for exports remained high. Adams says they have since plunged.
Among the factors contributing to that decline, he notes, are conservation and a downturn in demand because of a softening economy south of the 49th parallel, a stronger loonie, and a bounty of natural gas from shale.
Historically, Adams says, Manitoba has made money exporting power to the United States, while keeping domestic prices low. But no longer.
"The market for export power into the U.S. has dropped through the floor," he said. "Now, the unfortunate situation for consumers in Manitoba is that they find themselves in the situation where they’re going to be subsidizing exports to the U.S."
Adams says money can still be made exporting surplus power from existing facilities, which have been already paid down.
'The market for export power into the U.S. has dropped through the floor.' —Tom Adams
"But if you’re building new facilities to try and serve the New England market, you’re going to lose your shirt," he said.
Adams has been critical of Muskrat Falls in the past.
Earlier this week, energy companies Emera Inc. of Nova Scotia and Crown-owned Nalcor of Newfoundland and Labrador announced the signing of the final legal agreements to develop the project.
A block of up to 40 per cent of the Muskrat Falls power will be available for export or industrial development purposes.
Earlier this year, Manitoba Hydro International released a review that favoured the project — albeit with some caveats.
MHI was commissioned by the province’s Public Utilities Board to review Nalcor's plan to tap power at Muskrat Falls on Labrador's Churchill River, and then move the power to Newfoundland.
Specifically, it was asked to determine whether the plan was cheaper or more expensive than generating power on the island through small-scale hydro and also replacing the aging oil-burning plant at Holyrood, outside St. John's.
The provincial government has since hired MHI to crunch the final numbers prior to a final decision on whether to sanction the project.