(Bloomberg) -- The Canadian province of Newfoundland and Labrador reached a new electricity supply agreement in principle with Quebec, apparently ending a long-time dispute with a deal that will increase hydroelectric power in the country’s eastern region.
The two provinces agreed on a new 50-year contract worth C$34 billion ($24 billion) at an average cost of 6 Canadian cents per kilowatt-hour (kWh).
Churchill Falls Labrador Corp. will increase its generating capacity and a new run-of-river generating station will be built on the Churchill River at Gull Island.
All together, the projects will cost C$25 billion, creating the second-largest hydroelectric complex in North America after Baie-James. About C$20 billion of debt will be needed, the rest being equity, according to government-owned Hydro-Quebec, which would cover most of the costs.
Building the transmission lines required to transport the electricity could cost between C$2 billion and C$3 billion more.
Hydro-Quebec, owned by Canada’s second most populous province, holds a 34% stake in the Churchill Falls Labrador Corp. and will have 40% stake in the Gull Island project.
Churchill Falls provides 4,800 megawatts to Hydro-Quebec, representing about 15% of Quebec’s overall supply or enough to power 1.7 million households. The new projects will boost power capacity coming from Labrador by 50%, or 2,400 extra megawatts.
The agreement is in a tentative phase, and many changes could happen before a definitive deal is reached. Among the risks — building the Gull Island project and the transmission lines may hit roadblocks with Indigenous communities.
“We negotiated this agreement carefully and rigorously,” Hydro-Quebec Chief Executive Officer Michael Sabia said in a statement. “We are confident that we will be able to control the construction costs of the new infrastructure.”
Sabia is currently working on what he calls an “action plan” that may amount to as much as C$185 billion to build new power-generation capacity and improve transmission reliability by 2035.
In 1969, Newfoundland and Quebec entered into a contract ending in 2041 in which Quebec could buy almost all the electricity output produced at Churchill Falls’ generating station for 0.2 Canadian cents per kWh. Meanwhile, Hydro-Quebec exported electricity outside of Quebec, including in the US, at an average price of 10.3 Canadian cents per kWh in 2023.
Newfoundland considered the contract an injustice and tried to reopen it, but the Supreme Court of Canada upheld its terms in 2018.
“It is a win, win, win,” said Newfoundland Premier Andrew Furey, just before tearing up a copy of the 1969 contract in a press conference. “With this agreement in place, we will have a generational impact on the growth and the prosperity of Newfoundland and Labrador.”
The province says it has received less than C$20 million per year since 1969 on a net basis, and the new deal would increase annual revenue an average of C$1 billion per year by 2041.
“There was something wrong,” said Quebec Premier Francois Legault about the deal, which didn’t include an indexation clause. “It was also urgent for us to see what would happen after 2041.”
(Corrects the price paid by Hydro-Quebec under the current contract with Newfoundland and Labrador in the 11th paragraph. A previous version of this story corrected the value of the contract in the headline and second paragraph.)
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