Winnipeg Free Press - PRINT EDITION

Stick to building dams, board says

Better economic choice than cheap natural gas

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Manitoba is better off building big northern dams to generate electricity than toying with burning cheap natural gas.

That's the advice from the Conference Board of Canada, a non-partisan economic think-tank based in Ottawa. The conference board released a report this week on the role of natural gas in Canada's economy.

"Continuing the path with hydro is the more economic choice," Len Coad, the board's director of energy, environment and transportation policy, said in an interview.

"If you're looking at a 100-year cycle, it's still more likely that an electric utility would choose hydro if they have hydro projects that they can develop at the costs that are currently prevailing in that industry."

The conference board's findings are in line with what the Selinger government and Manitoba Hydro say about hydroelectric development in Manitoba's north.

Specifically, the province and Manitoba Hydro want to push ahead with the construction of the $6.2-billion Keeyask generating station, to be in service in 2019-20 despite recent huge losses in export power sales. Those losses are blamed on a stagnant U.S. economy.

Hydro and the NDP argue those sales will rebound when natural gas prices rise and more coal-fired power plants in the U.S. either close or switch to natural gas.

The Conference Board of Canada agreed.

"As the projection moves into the 2015-2020 period and beyond, wholesale natural gas prices are expected to begin to rise faster than inflation," the report said.

The conference board also found Manitobans enjoy among the lowest electricity rates in the country, next to Quebec and B.C. It also said those rates should not change dramatically, despite Hydro's request for approximately four per cent increases in each year over the next 18 years. Manitoba's Public Utilities Board is studying that request.

The PUB has already said Hydro should delay its dam-building plans and build a thermal plant to burn cheap natural gas until the hydroelectric market recovers. Opposition Progressive Conservative Leader Brian Pallister has also called for a delay.

But Coad said while the cost to build a natural gas thermal-electric generating plant is less than half the cost of a large hydro dam, the long-term operating cost of that dam is a lot less than that of a thermal generating plant.

The economics of a natural gas plant depend on the price of natural gas, whereas water is free, he said.

"The provinces that are based on thermal technologies tend to have higher prices," Coad said. "There isn't a province that is reliant on natural gas for more than half its generation, but typically the provinces with thermal generation (including coal and nuclear) like Alberta, Saskatchewan and Ontario, tend to have higher wholesale prices for electric power and higher delivered prices to consumers. In part, that's because of the higher operating costs of those thermal stations, essentially the fuel cost."

Innovation, Energy and Mines Minister Dave Chomiak, who is responsible for Manitoba Hydro, said the conference board's study backs up the province's position on Keeyask.

"Why would we switch to a fossil fuel when the price is going to go up faster than inflation?" Chomiak said, adding new hydroelectric development is needed to meet domestic demand alone, which is forecast to rise 80 megawatts a year.

Coad also said the current low price of natural gas, below $5 a gigajoule, will continue for about the next five years and then increase so that by the end of 25 years, the price would be $10 or more a gigajoule.

The conference board's report was funded by the Canadian Natural Gas Initiative, an industry lobby group.

bruce.owen@freepress.mb.ca

Republished from the Winnipeg Free Press print edition December 19, 2012 A6

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