Sunday 19 September 2010

Watt kind of a deal is this?

Are you shocked and concerned that Manitoba Hydro is selling electricity to the U.S. for barely 1/3 the price that we pay here in Manitoba?

most of Manitoba Hydro's export sales last year were made on the spot market and sold for an average of 2.37 cents per kilowatt hour, down dramatically from 2008-09 and a fraction of what Manitoba homeowners pay. -fp-
You shouldn't be too concerned because spot market prices change, and we could be selling it for much more next year. Look at this as a blip. What you should be concerned about are the long term deals that Hydro is negotiating, and don't be surprised if the "locked in" prices are shockingly low. The hints are already on the Hydro web site:
  • The extension of our existing contract with Xcel Energy was signed for 'close to' $3b for 375-500 mW of power for 10 years. This works out to about $0.068 / kWh. No additional generating power required.
  • The new contract signed with Wisconsin Public Service is also for up to 500 mW of power, but it is for 15 years, will require new hydroelectric facilities and the bipole III line, but is only anticipated to be worth 'over $2b'. This works out to something more in the range of $0.03 / kWh
Although the details need to be worked out, what it looks like is we're selling 5 more years of power for almost $1b less than what we're currently selling to Xcel.

I don't know how much the Keeyask dam will cost, but Wuskwatim will cost $1.3b (if all goes well I assume) and it only produces 200 mW. I need to do some ball-parking here, but since Keeyask is a much larger dam (695 mW) I will guesstimate that it will cost as least twice as much ... say $2.6b. bipole III will cost $2.2b. How are we going to get our money back on this $6.1b investment? By selling our power for 3 cents?

If we sell our power to Wisconsin and to Minnesota Power (15 years, up to 250 mW) at that rate, the present value of that revenue using a modest 5% discount rate is only $2.08b. Using a 3% discount rate we'll break even after 100 years. With a 3.5% discount rate we never get our money back.

Of course it's much more complicated than that, but all I'm doing here is what we in the biz call a "sanity check", and to me the numbers aren't adding up. At the very least we can get a sense of the risk that the whistle-blower chick was talking about.


I took issue with M.A. Welch's statement in the paper that the east side bipole III route is "less green". I've suggested on this blog before that incremental line losses from the west side could have displaced coal power in the U.S. thereby eliminating 500 million pounds of CO2 pollution each year, or potentially much more.

I emailed Mary Agnes, who sent me a thoughtful response conceding that perhaps she could have worded it differently, but pointing out that all the environmental groups support the west side. My response (in part):
I'm not sure that every environmental group agrees the west side is greener. The ones that I've seen take a position on it -- Boreal Forest Network, CPAWS, etc. -- have a mandate to protect the forest. They may not be ambivalent towards pollution and global warming, but to them cutting down trees will trump the waste of 50 MW of power, even if the waste of power is more significant in the larger view.
I have difficulty accepting that any objective environmentalist could advocate the waste of that much power, and I maintain that picking the west side route has nothing to do with saving the environment. If you want to know what it's really about read my last post on this subject.


unclebob said...

somebody should send a copy of Laubensteins resignation over to Brennan just so he wilol know how to write his

cherenkov said...

Brennan resign? And give up his luxury million dollar office?

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