Don’t rely on assumptions of what will happen decades down the road when renegotiating Churchill Falls deal

Newfoundlanders and Labradoreans know all too well that the 1969 Churchill Falls contract failed us, and failed us badly.

While the inclusion of an escalator clause would have prevented that failure, the root cause was not a failure to include a remedy; the root cause was the failure to recognize that assumptions and forecasts that go beyond 20 years are meaningless.

A recent communication from a former N.L. premier’s chief-of-staff said, in part, that, “If you look at what has changed in our climate and in our own technology and society over the past 17 years, it is scary to … look ahead to the next 17… Everything is changing exponentially.”

On the topic of exponential growth, Michael Liebreich, senior contributor, Blooombergnef recently wrote that “20 years ago…it took an entire year to install a single gigawatt of solar PV (power)…last year saw single days on which a gigawatt of solar PV was installed… Cumulative solar PV installations have doubled 10 times in that period, and it is doublings that drive down costs. … The wind sector has doubled six times over the past 20 years … In 2004, eight gigawatts of wind power were installed; in 2023 the figure was around 110GW… Wind’s costs too have plummeted, from $0.12/kwh for the best projects twenty years ago to around $0.02/kwh for onshore wind”. [https://about.bnef.com/blog/liebreich-net-zero-will-beharder-than-you-think-andeasier-part-ii-easier/].

Clearly, we are no longer in the slow-moving days of the late 20th century. As a result, it is now much more likely that over the next 10, 20 or so years and well beyond, this province will experience exponential and unforeseen changes (and challenges).

As to the reality of exponential growth, Liebreich also went on to speak of other energy-related changes. For example, he writes that in the past energy had to be transmitted over long distances to where industries were actually located, while now industries (hence jobs/economic growth) are locating where green, renewable energy already exists.

In Newfoundland, the WH2 wind/hydrogen/ammonia project is focused on the west coast. And there is also a potential for increased synergy between the already existing Churchill Falls power facility and industrial development in western Labrador — unless of course Churchill Falls power, along with the resulting economic growth, is given to Quebec.

Furthermore, the terms of reference for the Commission of Inquiry Respecting the Muskrat Falls Project [section 4(a)(i)] asked whether the “... forecasts on which (Nalcor’s) analysis of options was based were reasonable”. The Inquiry responded — “No. The assumptions or forecasts on which the analysis of options was based were not reasonable” (expert witnesses testified that forecasts that go beyond 20 years are ‘meaningless’).

Accordingly, in the ongoing preliminary discussions with Quebec we must not make contract decisions that rely on assumptions and forecasts that are meaningless and whose effects reach well beyond 2041 — into the realm where meaninglessness and unreasonableness reign.

With respect to any new or revised Churchill Falls contract “The error is ... not in whether we are forecasting that... prices will rise or fall, but whether any forecasts beyond 20 years should be relied on, used and considered as a sound basis, and particularly, as a primary basis, for ... multi-billion-dollar ... decisions. It is in this way ... that we must not repeat the errors of the Upper Churchill project. Instead, we must learn from, and this time around, avoid them.” [“The danger of long-term forecasts”, https://saltwire.pressreader.com/thetelegram-st-johns/20111217].

Maurice E. Adams

Paradise