The Keeyask dam is springing leaks, and the possibility of further cost overruns and delays, as recently reported, is just the start.
The dam, now estimated to cost between $8.7 billion and $10.5 billion, was officially approved in 2014, based largely on Manitoba Hydro’s projection that demand for energy in Manitoba would grow by 1.5 per cent annually for 20 years, outstripping current supply.
Hydro’s mandate, and the basic justification for Keeyask, is to power the province, with exports helping to pay for the dam.
But now Hydro tells the Public Utilities Board that demand in Manitoba will instead shrink for several years and only rebound to current levels by 2035.
That flatly negates the fundamental justification for the most expensive infrastructure project in the history of our province. Manitoba does not need Keeyask, which is expected to be completed in 2021 or 2022.
A portion of the reduced demand is due to the cancellation of Energy East. Forty per cent of the dam’s output had been earmarked to pump oil across our province through three new pipeline projects. Two of the three projects are complete or proceeding, but Energy East, by far the largest, is dead, thus poking another big hole in an already leaky dam.
If Manitoba does not need Keeyask, who will buy the power?
Alberta is committed to 5,000 megawatts of new renewable energy by 2030, which could be good for us, except that the government-mandated initiative is open only to projects in the province.
Plus, the wholesale price for the first round of renewables in Alberta — 600 MW of wind — averaged 3.7 cents per kilowatt hour. The cost of producing power at Keeyask is estimated at roughly three times that.
Saskatchewan, which gets a third of its power from coal, has signed up for 18 per cent of Keeyask power until 2040, but, like Alberta, is unlikely to outsource any major additional shift to renewables.
Manitoba has long wished Ontario would buy from us, but the cost of building transmission lines to southern Ontario compounds our already serious competitiveness problem.
That leaves the U.S.
On July 11, Utility Dive, an industry news service, published an article based on an extended interview with Ben Fowke, CEO of Xcel Energy, the Minneapolis-based utility that has long been Hydro’s largest single customer.
Fowke talked about Xcel’s dramatic move to renewable energy sources. That should be good news for Manitoba, but he said nothing about hydro power. Nothing.
Two pie charts published with the interview include the only mention of hydro. One shows that in 2015 hydro power made up seven per cent of Xcel’s Upper Midwest energy mix, some of that from Manitoba, some from Xcel’s own dams. By 2030, hydro power drops to two per cent.
Xcel is moving aggressively to low-carbon energy, but we’re not invited to the party. Wind and solar are cheaper, and bring local jobs and investment.
Manitoba Hydro has signed four export contracts tied to Keeyask that are worth more than $4 billion. That is significant, and Hydro notes it has the option to sell more.
Still, the future is not on our side.
Hydro’s main contract with Xcel extends until 2025, just a few years into Keeyask’s productive years, and about the time Xcel’s charts show a drop off in hydro.
And while price provisions in the contracts are not public, we do know that in 2008 — about the time Hydro informally locked into the Keeyask plan — the company predicted that the average export price it would get for combined contract and spot sales in 2016 would be nearly 10 cents per kilowatt hour. The actual price was less than four cents.
In 2013-14, the Public Utilities Board spent $9.2 million scrutinizing Hydro’s expansion plan, including Keeyask. It concluded that Hydro’s bet on the pipeline projects was "prudent," that Hydro’s projection of 1.5 per cent increases in Manitoba demand was solid and that while the company’s export price predictions were "optimistic," they were not cause for alarm.
What happened? Has Hydro just hit some really bad luck? Does the company bend numbers depending on whether it wants to justify a major project or a major rate increase?
The bigger question is what to do with the excess electricity from Keeyask, assuming Premier Brian Pallister does not reverse his March decision to stick with the project.
Some energy thinkers talk about "deep electrification" — replacing as many fossil fuel-powered motors as possible with electric ones, whether in cars, factories or wherever. Electric motors are far more efficient than internal combustion engines, which lose much energy in the form of heat.
Becoming a leader in deep electrification would not solve all Hydro’s woes, but it would help make good use of a bad project.
Or perhaps our government and utility have better ideas, other than just plugging the holes in Keeyask with money from rate increases.
*Will Braun works for the Interchurch Council on Hydropower.