A memorandum of understanding between Quebec and N.L. involves a revised terms of the sale of 5,000 megawatts of power from Churchill Falls to Hydro-Québec. Currently the electricity now being sold to Quebec is less than half a cent.The Globe and Mail
An agreement in principle has been reached between the governments of Quebec and Newfoundland and Labrador on a new contract for the massive Churchill Falls hydroelectric project that will open the way for joint investments to generate even more electricity, three sources say.
When completed, the renegotiated contract will provide more money for Newfoundland and pave the way for Hydro-Québec to jointly invest in the modernization of the upper Churchill Falls power plant and the development of the lower Churchill Falls, according to one of the sources with direct knowledge of the matter. Another source described the agreement as a good deal for Newfoundland and Labrador.
Two of the sources said Quebec Premier François Legault will join Newfoundland and Labrador Premier Andrew Furey to make the announcement in St. John’s on Thursday, ending decades of bitterness between the two provinces over the Churchill Falls hydropower station at a time of soaring demand for renewable energy.
The Globe and Mail is not identifying the sources, who were not authorized to discuss the deal and the negotiations that have been going on for many months.
The Churchill Falls contract was originally signed in 1969. Under the current contract, which expires in 2041, Quebec purchases more than 5,000 megawatts of Newfoundland’s Churchill Falls power at 0.2 cents a kilowatt-hour. That’s a fraction of the energy’s market value, which Hydro-Québec resells for about 40 times more.
Newfoundland launched a legal bid to reopen the contract, but the Supreme Court of Canada rejected the challenge in 2018.
The agreement in principle sets out the overall terms of development for both the upper and lower Churchill Falls that is expected to take about a year or more for Newfoundland and Hydro-Québec lawyers to complete a binding deal, one of the sources said.
The source said the agreement involves new terms of the sale of 5,000 megawatts of power from Churchill Falls to Hydro-Québec, which would take Newfoundland from “a small payment on an annual basis to a very material payment for the existing power.”
The agreement will also see Newfoundland acquire significantly more revenue from joint investments in modernizing the upper Churchill Falls through the purchase of new turbines as well as expanding additional output. The joint partnership will also commit both provinces to develop the lower Churchill, which could generate another 2,500 megawatts of electricity.
The source said the joint investments will involve tens of billions of dollars of money from Hydro-Québec and the Churchill Falls Labrador Corp., which operates as a subsidiary of Newfoundland and Labrador Hydro.
Neither Mr. Furey nor Mr. Legault would comment. Mr. Furey’s office said he has a significant announcement Thursday.
Speaking to reporters in Quebec City on Wednesday, Mr. Legault confirmed that he was flying to Newfoundland but declined to say more. Hydro-Québec has called a separate news conference for Thursday.
Newfoundland originally agreed to the 1969 deal, signed before the Churchill Falls site was completed, because Quebec agreed to shoulder any project cost overruns. Since then, the price of energy has risen dramatically.
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More recently, however, Newfoundland’s position has been unexpectedly strengthened by Quebec’s own looming electricity supply problems.
That, in turn, has led Mr. Legault to take a more conciliatory position as he tries to keep Churchill Falls in the supply picture for Quebec beyond 2041. When the Premier travelled to St. John’s in February, 2023, he acknowledged that the 1969 contract disadvantaged Newfoundlanders.
“The contract has become a bad one for Newfoundland,” Mr. Legault said at the time. “We can’t rewrite history but we can try to find ways to work together for the mutual benefit” of both provinces.
Quebec is facing mounting pressure on its power supply, most of which is generated by Hydro-Québec’s network of dams and hydroelectric stations in the province’s north that were built decades ago. About 15 per cent of the power that the utility sells comes from the Churchill Falls hydro site in Labrador, one of the world’s largest. Hydro-Québec is a minority owner of the site and buys 85 per cent of the power it generates.
The utility, one of the world’s biggest hydropower producers, is predicting an end to its electricity surpluses by 2026, and says the province will need more than 100 terawatt hours of additional power – more than half of its current annual generating capacity – if it wants to achieve carbon neutrality by 2050.
Michael Sabia, Hydro-Québec’s chief executive, laid out the utility’s five-year strategic plan last year that calls for spending as much as $110-billion on new generating facilities and transmission lines over the next decade in a bid to ween the province off fossil fuels and transform the economy. The plan will see the province step up energy efficiency, refurbish existing hydroelectric stations and aggressively ramp up wind power projects.
Hydro-Québec’s legacy dams generate power for three cents a kilowatt-hour, but new dams face costs at least four times greater. The utility’s most recent hydro development is the Romaine River project, which was built in four phases starting in 2009 and finished late last year.
Mr. Legault is keen on expanding the province’s hydropower resources to lure investment and drive growth, particularly to attract companies in transformative industries such as electric-vehicle battery development.
Meanwhile, Newfoundland’s experience in undertaking on its own the 824-megawatt Muskrat Falls hydro development, which has gone billions of dollars over budget and led to a federal bailout, has underscored the need for the government to attract outside partners to proceed with any other development. That includes the much larger 2,250 MW Gull Island hydro project downstream from Churchill Falls.
One obvious partner is Quebec, given that Hydro-Québec has a 34-per-cent stake in the Churchill Falls project and that selling Gull Island’s power will likely mean transmission lines through Quebec. But partnering on any new hydro development would mean putting aside any lingering bad feelings.
Quebec premiers have long seen Gull Island as an opportunity for development. The two provinces had a draft agreement in place two decades ago to build a dam on the site, but the plans never went ahead, in part because then-premier Roger Grimes’s Liberals were defeated by a Progressive Conservative government that was more hostile to Quebec.
“The time has come” to push ahead with Gull Island now, Mr. Grimes said in an interview, adding anti-Quebec sentiment has dulled over time in Newfoundland. “There’s a window of opportunity here.”
On any hydroelectric deal between the two provinces, Quebec and Newfoundland will need the co-operation of First Nations communities whose lands would be affected, and they are in a more powerful position than they were when the provinces concluded their original Churchill Falls agreement in 1969. The relationship between Hydro-Québec and certain communities in particular is heavily strained.