Price tag, timeline for N.L. Hydro expansion questioned in new report

A new independent report calls into question the price tag, timelines and demand forecasts underlying nearly $2 billion in construction projects proposed by Newfoundland and Labrador Hydro.

In the 89-page document, consultants Bates White say they're convinced N.L. Hydro has proven it needs to increase power generation on the island, but they're concerned the Crown utility may be building too much, too fast — statements roundly rejected by the corporation on Wednesday.

In a March application to the Public Utilities Build, N.L. Hydro proposed to build: 

• a new 150-megawatt diesel-burning combustion turbine in Holyrood on the Avalon Peninsula, and;

• a new 154-megawatt turbine at the existing Bay d'Espoir hydroelectric station, adding an eighth unit to the plant in southern Newfoundland. 

N.L. Hydro has repeatedly said the projects will help meet the growing demand for power, given the province's continuing transition to electric cars and heating, and that its plans are based on the most "conservative" projections, which allow it to keep construction costs low.

However, the Bates White report questions whether the load-growth projections are in fact as cautious as advertised. 

"The slow decarbonization forecast, while a reasonable scenario for consideration in the build application, is not the lowest plausible load scenario over the planning horizon; lower population growth, lower EV adoption rates and lower industrial load growth are possible and could coincide", reads the 89-document.

Bates White worries of "excess" generation on the grid given that island ratepayers, along with a government rate mitigation program costing billions, are already sponging up cost overruns at the Muskrat Falls hydroelectric project in Labrador.

"Hydro is confident that these projects remain the least cost, reliable, environmentally responsible supply solutions for customers, and stands by these projects and their budgets as they are based on sound estimates, appropriate consideration of risk, and standard industry practices," wrote N.L. Hydro spokesperson Mark King in a statement Wednesday.

The statement added that the Crown utility will submit additional information to the PUB "to clarify some of the assumptions made and analysis completed by Bates White, to ensure fulsome consideration of the electricity system and its hydrological resources."

Need to retire old, polluting assets

Hydro's building plan is predicated on growing demand but also the need to retire aging assets, including the 490-megawatt Holyrood Thermal Generating Station — a heavy oil-burning plant meant to close years ago once Muskrat Falls came online. 

While the 824-megawatt Muskrat Falls dam has been in service for years, doubts remain as to the reliability of the project's 1100-kilometre transmission system, the Labrador Island Link (LIL). 

Until new generation is built, the Holyrood plant, the province's second-worst industrial emitter, can't be retired, although maintenance and operation costs beyond 2030 could cost on average $138 million per year, according to the report.

Questions over 2031 in-service date

While the report concludes that Hydro has made the case for new generation, it questions why both the new Avalon combustion turbine and eighth Bay d'Espoir unit must enter into service at the same time.

"There is not a demonstrable need for both projects in 2031," reads the report. "Hydro's capacity expansion modelling also demonstrates that the optimal timing of the firm capacity additions is 2031 (for one resource) and 2035 (for the other)."

While the report notes bringing both facilities into service in 2031 acts as "a form of insurance" against an extended Muskrat Falls outage during the coldest months of the year, doing so will cost about $200 million more.

Hydro rejected the comments Wednesday, arguing that "to meet all of Hydro's resource planning criteria, both the Avalon CT [combustion turbine] and the eighth unit at Bay d'Espoir are required."

Transmission bottleneck

The report argues, however, that Hydro's application "may overstate the reliability contribution" of the new Bay d'Espoir unit.

Sufficient water resources may not be consistently available at Bay d'Espoir, according to the report, and there are also transmission constraints on existing lines linking the Bay d'Espoir plant to the Soldier's Pond power station outside St. John's.

The report says Hydro is actively "exploring solutions" to the transmission bottleneck, but that the build application currently before the PUB "leaves unanswered the question of how this constraint will ultimately be alleviated, and at what cost."

A May 2023 report from TransGrid Solutions pegged the "least-cost option" of upgrading transmission at $150 million, but the Bates-White report says Hydro is "exploring alternative steps to maximize transfer capacity through existing assets."

Hydro said Wednesday that "transmission capacity issues could arise if a LIL pipole outage (where both LIL lines are offline) were to coincide with a period of elevated demand" but that it was "pursuing a number of options to address system limitations and avoid expensive new transmission."

"Hydro expects to complete its analysis of these solutions before the end of the year, and believes it would be premature to include any potential new transmission infrastructure in the current application before that is complete," it said.

The Bates White report says that given the questions surrounding the eighth Bay d'Espoir unit and possible "trapped off-Avalon generation," Hydro should first focus on building the Avalon combustion turbine, which it believes could also be built quicker.

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