Lights out

It has a booming population, a flock of crumbling power plants, and no money. Is Nunavut’s electrical system about to blow a fuse?

On August 29, 2011, as workers with Qulliq Energy Corporation performed regular maintenance on one of Iqaluit’s old diesel powered generators, the turbo system on another generator in the same plant had a meltdown, and suddenly, QEC could only produce 5.2 of the 7.5 megawatts Iqaluit needs to function on an average summer day.

The result: two days of rolling blackouts that effectively shut the city down, but gave it a strangely festive vibe as office workers flooded into the streets, only happy to get a couple days off work.

But in 2008, when two diesel generators in Rankin Inlet failed in the middle of February, residents had a decidedly less festive time of it. The crippled power plant could produce only a third of the electricity required by the community of 2,700 people. Pipes started freezing, and the hamlet declared a state of emergency.

Qulliq – which was formerly the Nunavut Power Corporation, and before that, constituted half of the Northwest Territories Power Corporation until Nunavut was created in 1999 – has a problem. Nunavut’s electricity system relies on old, rundown power plants that serve communities that are now much larger than the plants were designed for. All of them run on diesel, a dirty fuel that is prone to wild price fluxes and has to be shipped thousands of kilometres from southern markets to even the tiniest, most remote Nunavut hamlets.

In essence, Nunavut inherited the oldest, dirtiest and least efficient part of the old Northwest Territories Power Corporation, and it’s been paying the price ever since, with a totally-fragmented power system that creates enormous overhead and capital costs, and consequently, the most expensive electricity in the country.

There is no grid to speak of, let alone a “smart grid” capable of rerouting power and managing plant output almost automatically. Each community huddles around its own power plant, most of which were built in the middle part of the 20th century, when most communities in what became Nunavut were afterthoughts – outposts of administration where televisions, microwaves and computers were scarcely imaginable for Inuit trying to hold on to some semblance of a traditional way of life.

But things changed. Better medical care reduced infant mortality and increased life expectancy, creating a young and booming population. Southern media, first radio, then television, and later the internet, arrived. Nunavut itself was negotiated into existence, bringing with it new institutions, which needed new buildings and new staff, many imported from the south, who in turn needed places to live. Nunavut had rapidly been thrust into the modern world.

But the facilities that produce its electricity never were. Today, 17 power plants are at or near the end of their design lives. Six are more than 40 years old. In the five hamlets of the western Kitikmeot region, the average age of a power plant is 38.

These problems shouldn’t have come as a surprise to anyone. As far back as 1994, analysts at the Canadian Energy Research Institute were warning that the federal government was leaving the territories “to fend for themselves, as debt and budgetary pressures force continued cutbacks to federal spending … The continued provision of energy services under the current system has the potential to become financially crippling under the current pressures of expanding population and urbanization.” For QEC, that future is now. And it’s not pretty.

For the better part of the last three years, Peter Mackey, Qulliq’s president, has been telling anyone who will listen about how badly QEC needs an infusion of cash to pay for widespread capital needs. Since 1999, only one new power plant has been constructed in Nunavut, in Baker Lake, and QEC didn’t even build it. It was the Northwest Territories Power Corporation, before Nunavut’s own power entity was christened in 2000, which means that the territory’s Crown-owned utility hasn’t built a single new power plant.

“With the division of the two territories to create Nunavut, the construction of political infrastructure created huge growth in Iqaluit. The city tripled in size in 20 years,” Mackey says. “Coupled with that was the decision to create a decentralized government, which led to huge growth in a lot of communities throughout Nunavut.”

As a result, Qulliq Energy has, since division, simply struggled to keep the lights on. Without the money to build new power plants, the utility has been forced into a situation where it can only afford to patch up existing plants.

Nunavut has Canada’s smallest and poorest population, and already has the highest cost of electricity in Canada. A user in Halifax pays about 13 cents per kilowatt hour. In Montreal, the rate is seven cents. But in Nunavut, the cheapest residential power rate, in Iqaluit, is 52.4 cents per kilowatt hour (not including the subsidy all residential users receive). And that’s after the territory’s Utility Rates Review Council approved an 18.8 per cent rate increase.

The move came despite howls of outrage from business owners (who pay around 43 cents per kilowatt hour) and the City of Iqaluit. “Our diesel generating plants are pigs,” Arctic Ventures owner Kenn Harper told a public hearing about the rate increase last January. He went on to chastise QEC for barely keeping ahead of maintenance demands. “We may not be putting lipstick on them, but we are putting Band-Aids on them.”

Iqaluit mayor Madeleine Redfern says the rate hike resulted in a $400,000 hit to the city’s budget. That increase will ultimately be paid for by ratepayers, which means home- and business-owners effectively get hit twice. “It would have been much easier if there had been nominal increases over multiple years,” Redfern says.

A second hike could be on the way, too. Qulliq wants to move to a territory-wide rate structure, which would essentially see the six communities where power is cheapest subsidize power in the 19 communities where it costs more. While Mackey says the proposal would be “revenue neutral” for QEC, Redfern is upset that Iqaluit could be facing another increase in its rates so soon.

As it happens, the biggest businesses in the territory aren’t hooked into the electrical system at all. The mining industry has to produce its own power and build its own power plants from scratch. At Agnico-Eagle’s Meadowbank gold mine near Baker Lake, a diesel powered generator has the ability to produce 26 megawatts of power – with peak demand reaching 17 to 18 megawatts in the winter – easily dwarfing anything in Qulliq’s fleet.

“Compared with the same kind of project in Quebec, where we could be connected to the grid, we’re talking at least 25 cents per kilowatt more. That’s huge in terms of cost,” says Denis Gourde, Agnico-Eagle’s general manager for Nunavut, who adds that electricity makes up about 20 per cent of the mine’s costs.

Chris Hanks, the vice president of environmental affairs for the Newmont Mining Corporation – which recently mothballed its Hope Bay gold property near Cambridge Bay – says his company had a similar situation. It shipped up around 24 million litres of diesel every year to power the project. “Diesel is one of your most important commodities, it’s your largest commodity, and you use a lot of it.”

Gourde suspects the cost of developing hydro power (about which more later) in the Kivalliq region – home of Meadowbank and another promising Agnico-Eagle gold property – would be such that his company would end up footing a large portion of the bill through rates. For Agnico-Eagle, a hydro plant might not be worth it.

Nunavut’s overall lack of infrastructure is what really hurts the bottom line, Gourde says. Second on Meadowbank’s list of operating costs is logistics and transportation, which amount to around 18 per cent of total costs. The mine brings in 50,000 pounds of freight by air every week, and another 35,000 to 40,000 tonness on sealift every year. If the Government of Nunavut wants to lower the cost of doing business, it would be best served by focusing on building and improving roads and airports, he says. “Those are the kind of things that are drastically missing in Nunavut.”

Hanks says no one in the industry is asking government to fund infrastructure specifically for mines, but he says funding community infrastructure – he also mentions local airports, in addition to power plants – would lower transportation and operating costs, and encourage companies to locate offices in Nunavut communities, instead of centres like Yellowknife.

For all its myriad problems, Qulliq has made some headway. Last year, it announced the replacement of three of Nunavut’s oldest power plants, ranging in age from 39 years in Taloyoak to 48 years in Qikiqtarjuaq. A third new power plant, in Cape Dorset, is being designed to include future wind and hydrogen capacity.

In 2010, the utility spent $14 million – including $5.8 million from the federal government – on new generators for eight communities. They still run on diesel, but the newer models are more fuel-efficient. A small wind turbine in Rankin Inlet, which had been out of commission for years, produced around 70,000 kilowatt hours since coming back online in May, 2011, displacing 19,000 litres of diesel.

Work on a new wing of Iqaluit’s power plant, which will add two new diesel generators at a cost of $30 million, began this past September. That project will add 10 megawatts to QEC’s generating capacity in Iqaluit, and allow it to decommission a backup power plant on Federal Road, parts of which date back to the city’s founding as an American airbase in 1947. And Qulliq is upgrading Iqaluit’s antiquated system of power lines, much of which also dates to the Cold War, from five-kilovolt capacity to 25, the modern standard. The new lines reduce what’s called “line loss” – the amount of electricity that turns into heat as it passes through the wires and ends up wasted.

All these changes improve efficiency, allowing QEC to burn less diesel per kilowatt hour of electricity produced. Upgrading Iqaluit’s power lines will eventually save more than 500,000 litres of diesel annually. And Qulliq’s own figures show the amount of diesel it burned actually declined a little: from 44.6 million litres in 2009 to 44.5 million in 2010.

But the problem is that Nunavut is home to Canada’s youngest and fastest-growing population, one that is adopting power-hungry electronics – smartphones, video game consoles, tablet computers, iPods, digital cameras – along with the rest of the world. Nunavut’s 21st century wired generation is running on the territory’s decidedly ad hoc 20th century power system. In Iqaluit alone, electrical demand is forecast to grow from 9.7 megawatts in 2011 to 11.2 megawatts in 2016. Mackey estimates the utility needs a quarter of a billion dollars over the next decade to pay for all the power plants the territory needs.

With all this in mind, it would appear to make less and less sense to produce virtually all of Nunavut’s electricity by burning 45 million litres of diesel fuel, shipped North in tankers every summer at colossal expense, in power plants that are partly or completely obsolete. Diesel fuel cost the utility more than $35 million in 2011.

That’s why, in 2005, Qulliq, out of a combination of optimism and desperation, started to conceive of a hydroelectric dam that would provide power to Iqaluit and, in theory at least, possibly other communities on South Baffin. The company spent millions on pre-feasibility work, conducting geographical surveys, consultations with local politicians, hunters, elders and the wider public.

What came back in 2008 was a proposal for a 15-megawatt dam at Jaynes Inlet on the south side of Frobisher Bay that would be connected to Iqaluit by 84 kilometres of transmission lines. The cost? Somewhere in the neighbourhood of $150 million to $200 million.

Around the same time, Qulliq also produced a less rigorous desktop study of possible sites for hydro dams in the Kivalliq region. It examined nine possible sites, the likely best being a location on the Quoich River near Baker Lake that would produce about 16.5 megawatts and serve Baker Lake, Rankin Inlet, Arviat, Chesterfield Inlet and Whale Cove. The (highly speculative) cost for that project: a cool $367 million.

It’s safe to say the Government of Nunavut doesn’t have this money lying around. In fact, it can’t even borrow enough to fund either of these projects. Thanks to a clause in the legislation that made Nunavut a reality, the territory can’t carry more than $200 million in debt. While the figure varies from year to year, the territory is sitting at somewhere between $150 million and $175 million of debt right now.

That’s led to calls for the federal government, which ultimately covers more than 90 per cent of Nunavut’s budget, to step in. After all, the reasoning goes, in a territory that spends around $140 million per year on energy of all sorts, a hydro dam would eventually pay for itself.

There are signs the idea is on the Harper government’s radar. At an all-candidates debate in the lead-up to last May’s federal election, Conservative incumbent Leona Aglukkaq – also the federal health minister – promised she’d push for money to help fund hydroelectricity. Aglukkaq says she’s still working on it, though offers no details: “Making sure that Nunavummiut have access to reliable, affordable hydro power is a key priority for me.”

Until that money arrives, QEC can’t go any further on hydro for Iqaluit, the most advanced project. Mackey, the corporation’s president, says officials at the Canadian Northern Development Agency are receptive to QEC’s request for funding. He puts the cost of a feasibility study at around $4 million and the cost of securing regulatory approvals at more than $2 million. From there, it would take at least five years from the start of a feasibility study to the first jolts of hydroelectricity into Iqaluit sockets.

Mackey won’t go so far as to say the dream is dead, but he acknowledges the utility may have gotten somewhat ahead of itself planning for hydro. “There was a sincere desire within Qulliq Energy to see a hydro project funded, developed and in place,” he says. “Unfortunately, I think too much hope went into that.”

Up Here Business, March, 2012.


One thought on “Lights out

  1. Not a worth it… Manitoba hydro will have disagreed that to export sell power to Nunavut… $$$ cost too much money to run ac 230 kV line to kivalliq region area.. Baker lake, Rankin in,chester in ,whale cove, and arviat ,nunavut

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