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Economist Jim Feehan sees the logic in developing the smaller part of the Lower Churchill project first. ((CBC) )

A St. John's economist thinks the latest plan to develop hydroelectric power in Labrador is more expensive yet more realistic than other options.

Jim Feehan, who teaches economics at Memorial University, says the government's decision to focus on developing just one of the two sites of the Lower Churchill megaproject is more expensive but could work because it can create a steady market in Nova Scotia.

Premier Danny Williams told delegates at a recent Tory convention in St. John's that Nalcor, the Crown-owned energy corporation, is working on the Muskrat Falls site of the hydroelectric project, leaving the larger Gull Island site dormant for now.

Instead, Nalcor is working with Nova Scotia-based Emera to ship power from Labrador to Newfoundland and then across the Cabot Strait.

Feehan said divvying up the megaproject seems feasible.

"This is a big plus compared to doing the larger project where you might have power that's produced more cheaply, but you may not be able to sell it," Feehan said.

Environmental headaches

The Muskrat Falls project would solve two environmental headaches by allowing Newfoundland and Labrador Hydro, a Nalcor subsidiary, to stop burning oil at its generating plant in Holyrood.

In Nova Scotia, hydroelectric power would be pitched as a clean replacement for coal.

"We're not talking cheap power, but again, it doesn't have to be that cheap," said Feehan, who said burning oil and coal are both expensive and dirty.

Former Newfoundland and Labrador premier Roger Grimes has spoken out against Williams's plan, telling the St. John's Telegram in a report published Tuesday that the 800 megawatts from Muskrat Falls will not cover the overall development cost.

Grimes said the larger Gull Island development, such as one that his Liberal government had tried to negotiate years ago with Quebec, would be a better priority.

Feehan agreed that Muskrat Falls is more expensive but sees the appeal for Nalcor.

"Gull Island doesn't have a market. Muskrat Falls would have a market for the power," he said.

"Therefore, you don't have any wastage of power. It's all going to be sold, and it's going to be displacing energy that is already pretty expensive."

Feehan said it still is not clear if Muskrat Falls can turn a profit and that that will not be known until more details of the possible deal with Emera are made public.