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How Manitoba’s ‘green’ power dream became a nightmare of runaway costs

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By: Graham Lane
Posted 4/15/2016

Since the early 2000s, Manitoba’s NDP government has committed the province’s power system to expand and profit from the fight against global warming. With the federal government now developing a national energy plan with the same objectives — and Manitoba’s NDP fighting for re-election on Tuesday — there’s no better time to take stock of the provincial government’s efforts over the last 15 years.

And the results so far are clear: power sold at a loss to U.S. buyers, calls for federal subsidies, new debts and losses for Manitoba Hydro, a less-diversified power supply, and expensive rate hikes forecast to keep rising for the next 20 years. The few winners have been contractors and construction unions and some northern First Nations.

It started with an experiment to replace the fossil-fuel-power that back-up Manitoba’s hydro-electricity with wind power in the province’s gusty south. After that ended up too costly, the government turned its attention to the Far North.

Its first big green initiative there was the 200-megawatt Wuskwatim dam built on the Burntwood Diversion near Thompson. Approved in 2004, the project was expected to cost $900 million and rake in profits from exported power to the U.S. When it was finished eight years later, the capital cost including necessary transmission, came in at $2 billion. After all that, the cost of generating and conveying power came in at roughly 13 cents per kilowatt-hour, but buyers are now willing to pay only around three cents per kilowatt-hour.

The rise of fracking and the collapse in natural gas and spot electricity prices, combined with American solar and wind subsidies and better U.S. energy efficiency all killed any hopes for the “green premium” that Manitoba had banked its renewable-power plan on. And yet Wuskwatim’s failure would not deter the NDP government from pursuing yet more costly additional northern hydro-electric and transmission projects.

After a review and a recommendation from Manitoba’s Public Utilities Board, the government did at least suspend immediate plans for the massive northern hydro dam, Conawapa, planned with about seven times the capacity of Wuskwatim. But it continues to barge ahead with the ongoing construction of the 695-megawatt Keeyask dam, and its massive new meandering transmission line, which runs through valuable farmland. The dam is currently estimated to cost $6.5 billion; the transmission line another $4.6 billion. Given recent experience, it’s possible they could end up costing almost twice as much.

Some First Nations have done well thanks to these projects. To win their backing, the government gave them hundreds of millions of dollars in pre-construction inducements, along with one-third equity interests in Wuskwatim and Keeyask, acquired through no-risk loans from Manitoba Hydro.

And the government, as Manitoba Hydro’s sole shareholder, will see a windfall from the levies it imposes on the utility, leaving ratepayers with decades of higher bills to cover those costs. The Public Utilities Board’s review revealed that the provincial government could expect at least $25 to $30 billion of additional levies over the next five decades if these, and various other parts of Manitoba Hydro’s expansion plans all go ahead. The provincial levies include capital taxes, debt-guarantee fees, and water rentals, in addition to normal payroll and income taxes on contractors and Hydro employees and provincial sales taxes levied on consumer and business bills.

But for Manitobans themselves, the green future is looking dark. Thirty per cent of provincial households are lower income and the province has seen no major new industry spring up in 15 years. Meanwhile, there is downward pressure on domestic demand due to rising prices; export prices and demand are in the doldrums; and Manitoba Hydro is already sitting on 30 per cent more generation and transmission capacity than the province’s power demands actually require.

Back when oil was over $100 a barrel, then Manitoba NDP Premier Gary Doer frequently asserted that hydro-generated electricity was Manitoba’s oil. His government crowed about the “Manitoba Advantage” of cheap, green hydro power. Even as export prices and volumes fell, his successor, Greg Selinger, ignored the changing economics and continued to accept massive over-budget construction costs. That “advantage” is now fading fast, while Manitoba Hydro’s debt becomes instead an albatross around the province’s financial neck.

Graham Lane was chair of the Manitoba Public Utilities Board from 2004 to 2012. Tom Adams is a Toronto-based energy consultant.

Republished from the National Post – 4/15/2016

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