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Manitoba’s dream of becoming a hydro superpower doesn't add up: Taylor

This plan's not worth a dam

(Ed Freeman/Getty)

(Ed Freeman/Getty)

Made your plans for 2090 yet? As-yet-unborn Manitobans might want to circle that year on their holo-calendars. For only then will it be clear if they’ve been sold a bill of goods.

Mammoth hydroelectric projects have long held a particular fascination for politicians in provinces endowed with requisite water resources. They’re big, expensive legacy-building undertakings that create a lot of jobs (for a short time, anyway) in remote areas, and the power they generate is carbon-free.

“Hydro power is Manitoba’s oil,” Premier Greg Selinger likes to boast. To this end he’s promoting a plan that will see Manitoba Hydro build $7.8-billion worth of new dams and a nearly $3-billion transmission line (all figures in 2014 dollars) to export excess power to Minnesota and Wisconsin, turning his province into a clean-energy superpower version of Alberta. It sounds impressive—but only if you ignore all the other options.

A close look at how Manitoba is justifying its dreams of hydro supremacy reveals the many ways in which mega-project plans can be crafted and manipulated to distort economic reality and promote politically motivated folly.

Instead of spending $11 billion on dams and power lines, for about one-seventh the price Manitoba could build numerous clean-burning natural gas power plants to generate all the power it will ever need. How to decide?

In plumping for its grand vision, Manitoba Hydro claims the future value of its proposed power exports over the next 76 years will be many times greater than any capital cost savings from building cheaper natural gas plants. American electricity users will thus subsidize Manitoba ratepayers for the next eight decades. But picking such a distant date as your reference point is risky business. A lot can happen between now and 2090, and it’s future Manitobans who bear this risk.

A revolution in fracking technology has already unleashed a glut of shale gas onto the Midwest. This alone threatens to permanently depress electricity prices and pull the rug out from under Manitoba’s export plans. The hydro scheme is also crucially dependent on the U.S. government slapping a hefty price on carbon emissions in the next few years. This would certainly make hydroelectric power more attractive—but would you take an $11-billion bet on the U.S. Congress passing a carbon tax anytime soon? You’d get better odds on Niagara Falls flowing uphill.

Then there’s the matter of the discount rate. While this can be dry business, the rate at which future costs and benefits are compared has a huge impact on whether a mega-project appears sensible or not. Picking a low discount rate puts greater weight on electricity exports decades from now and minimizes the upfront costs of all that dam-building. A high discount rate, on the other hand, weighs near-term construction costs more heavily.

According to independent consultants hired by the Manitoba Public Utilities Board to review the plan, the 5.05% discount rate selected by Manitoba Hydro looks suspiciously low and can’t “withstand simple sensitivities to changing assumptions.” Tweak the discount rate up to a more realistic level and the natural gas option comes out on top from now until 2090.

Curiously, Manitoba Hydro itself served as independent consultant in the approval process for Newfoundland’s Muskrat Falls project—a similarly grandiose $7.7-billion hydro dam in Labrador that requires a massive undersea cable to deliver its excess power to Nova Scotia. While its economics are wobbly enough to require an unprecedented $6.4-billion federal loan guarantee to get off the ground, Muskrat Falls is based on a realistic 8% discount rate. Such an assumption would instantly kibosh Manitoba Hydro’s preferred project.

At Public Utilities Board hearings this month, Manitoba’s plans for hydro greatness—built on political dreams, a shaky export market and dubious financial assumptions—is going up against boring but sensible natural gas. If future Manitobans had a vote, they’d go for boring.

Peter Shawn Taylor is a writer specializing in economic issues