Canada's large hydro projects inch toward completion with bleak prospects

Two of Canada's three large hydroelectric power projects, all years behind schedule and billions of dollars over initial budgets, are poised to start pumping megawatts into the North American power grid in 2021.

Manitoba Hydro's 695-MW Keeyask project and Nalcor Energy's 824-MW Muskrat Falls power plant each started operation of single units at their multi-unit facilities in 2020. BC Hydro's massive 1,098-MW Site C Clean Energy Project remains under construction, with an estimated in-service date of 2024. The three projects are estimated to have a combined cost of C$32.1 billion, billions more than initial estimates and perhaps billions more than the final tally as some projects, like Keeyask, have not released revised budgets since 2017. The strain of carrying the power plant construction, along with the transmission infrastructure to carry their output to market, has put pressure on the finances of the government owners of the three utilities and their ratepayers.

Most recently, the government of Newfoundland and Labrador found itself in need of a bailout from the government of Canada, which agreed to defer upcoming payments of C$844 million on debt the federal government guaranteed for Muskrat Falls. Building the project has almost bankrupted the tiny province, which has just over 500,000 residents. Despite the soaring costs, dismal demand projections and environmental concerns about massive flooding of Indigenous territories for reservoirs, Prime Minister Justin Trudeau continues to hail Muskrat Falls for its contribution to a lower-emission future for Canada.

"When we invest in clean, renewable energy, we are also making an investment in our environment, our people, and our economy," Trudeau said Dec. 17, 2020, in announcing the Muskrat Falls bailout. That package includes waived payments, restructuring of the C$7.9 billion in debt the federal government has guaranteed for the project, and a potential equity injection. Despite the need for the federal government backstop to keep the Muskrat Falls project alive, Trudeau promised to revisit the Atlantic Loop, a multi-province transmission project to reduce emissions from high-polluting power plants that supply the sparse populations of Canada's easternmost provinces.

With development and construction costs estimated at approximately C$12.3 million/MW, the price tags for the projects far exceed comparable gas and wind projects, which in 2015 cost about US$696,000/MW and US$1.66 million/MW, respectively, to construct, according to data compiled by the U.S. Energy Information Administration. Current owner-governments in all three of the Canadian provinces blame their predecessors for grossly underestimating the cost of the projects while overestimating future demand and prices, particularly for power exports to the U.S.

Nalcor had anticipated exporting power to the northeastern U.S. through a massive Emera Inc.-operated network of transmission lines amid expected demand for clean power in those states. In the decade since Muskrat Falls was first approved, improvements in wind and solar generation, and electricity storage, have increased domestic supply of renewable power. Nalcor rival Hydro-Québec has also stepped up its export game in the U.S. northeast, securing large supply contracts and improving its export-transmission capability.

Manitoba Hydro has started exports to Minnesota through a transmission network that was completed years before Keeyask will reach full production. Touted by the government that started the project as a source for surging clean energy demand in the Midwest, Manitoba Hydro has been able to easily fill its contractual obligations with existing surplus production.

BC Hydro, which sells power to the U.S. Northwest and as far south as California, said when Site C was approved it would provide clean power to more than a dozen proposed LNG plants on Canada's West Coast to reduce emissions from the natural gas-fired generators that traditionally power such facilities. Since Site C was approved only a single LNG plant has been started as developers walked away from the expensive projects amid slumping global prices.

Canada's government has helped British Columbia and Manitoba market their surplus power by kicking in funds for transmission projects to neighboring regions. Although the contributions are far lower than the largesse shown to Muskrat Falls, the projects will help move Manitoba's surplus electricity to neighboring provinces, and British Columbia will build a line to send power to natural gas infrastructure in the prolific shale regions that straddle the province's border with Alberta.

With comparatively low maintenance costs and virtually no fueling costs — and predicted operating lifespans of more than 100 years — the large hydro facilities may yet prove to be profitable investments for their government owners. For now the trio of large projects appears to be the last of their kind as hydro developers have pivoted to cheaper run-of-river plants, and companies including TC Energy Corp. and TransAlta Corp. have pumped storage projects in their plans. Still, the Trudeau government sees hydroelectricity as a key part of its plan to shift Canada to net-zero emissions by 2050.

"Investing in infrastructure and clean energy is key to building strong communities, and a more sustainable and resilient economy," a government press release on the Muskrat Falls aid package said. "The Government of Canada is committed to working collaboratively with provinces and territories, and Indigenous peoples, to build a healthier and cleaner future, and an economy that works for everyone."