On July 28, the Prime Minister Justin trudeau announced $ 5.2 billion in assistance (grants and loan guarantees) to Newfoundland and Labrador (NL). The federal government has thus assumed part of the cost of the Muskrat Falls hydroelectric project.
My goal is to show that Prime Minister Trudeau and representatives of political parties have presented erroneous positions on the economic effects of this aid.
The construction of this plant with a capacity of 824 megawatts (MW) and an expected production of 4.9 terawatt hours (TWh) began in 2013 and will come to an end this fall after a few years of delay. The project also includes submarine lines connecting the powerhouse to the island of Newfoundland and the latter to Nova Scotia.
The cost of the entire project, which was initially estimated at $ 6.2 billion, now exceeds more than $ 13 billion. For comparison purposes, note that Hydro-Québec’s La Romaine project was launched in 2009 and will be completed in 2022. The latter has a capacity of 1550 MW, an expected production of 8.0 TWh and a total cost of 8, 5 billion.
The estimated cost per kilowatt hour (kWh) of the La Romaine project by the Crown corporation is 6.4 ¢. That of Muskrat Falls, which had already received a loan guarantee from the Harper government in the amount of 6.3 billion in 2013, is 16.1 ¢ / kWh. The cost difference between the two projects is huge.
When a project becomes operational, its costs are integrated into the rate base of the electricity service, which supports this new production. In this case, the TNL electricity service is responsible for it. In 2020, the average residential price before tax for electricity was 7.3 ¢ / kWh in Quebec and 13.6 ¢ / kWh in TNL. It is estimated that incorporating the cost of Muskrat Falls into the rate base would double the electricity rates in that province. This is the main reason for the intervention of the Trudeau government, which assumes part of the cost and thus lessens the tariff shock for TNL.
Prime Minister Trudeau also presented the federal subsidy as support for the production of renewable electricity, which helps reduce greenhouse gas (GHG) emissions.
1re Wrong political position: the federal subsidy for the Muskrat Falls project does not result in the production of a single additional kilowatt hour of renewable electricity.
The Muskrat Falls generating station is about to begin production. The federal grant only covers the sharing of costs already incurred and does not change the initial design of the project. In fact, this is an electricity consumption subsidy for TNL, since electricity prices will be lower there than in the absence of this subsidy. We can be sorry for Newfoundlanders who face very high electricity prices, however, a subsidy is still a subsidy.
2nd erroneous political position: the federal subsidy for the Muskrat Falls project does not constitute unfair support for a competitor of Hydro-Québec on the export markets.
Representatives of Bloc Quebecois, from Quebec Party and you Quebec Liberal Party have in turn criticized the federal granting of the Muskrat Falls project which, in their opinion, constitutes support for a competitor of Hydro-Québec, since the submarine lines connecting Labrador to Nova Scotia will allow new electricity reach the New England market.
The new production from the Muskrat Falls power station will potentially be found in all the markets that will be accessible to it, with or without the federal subsidy, since the equipment is already in place. What it obtains from sales in these markets will depend on the specific conditions of those markets and not on the costs already incurred in carrying out the project. In export markets, a kilowatt hour is a kilowatt hour, whether it comes from Muskrat Falls or Hydro-Québec.
Production at Muskrat Falls is about to begin and, at this stage in the development of this project, the federal subsidy announced by Prime Minister Trudeau plays no role in its production and export capacity. . This reality was not taken into account by the Prime Minister himself and by representatives of parties based in Quebec in their assessment of the economic impact of this subsidy.
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