As regular readers of this blog probably know I have been interested and concerned about what Parry Sound Power and Parry Sound town council have been discussing with respect to a major investment in power generation at the Cascade Street facility.
Rather than review these concerns I’d like to address a couple of more recent developments that I hope are part of the discussion related to the investment.
The first concerns nature. This is not meant to be a cheap shot, but it’s been pretty obvious that there has been little or no revenue from power generation at the Cascade Street facility for at least the last couple of months. Nature is like that, even if you don’t believe in Climate Change. You may be able to ‘make hay while the sun shines’ but you can’t generate hydroelectric power without rainy days, preferably lots of them. Unfortunately principal and interest costs are payable whether or not you are generating income. That’s the rub with any multimillion dollar investment in expanded power generation. In theory and practice there should be a positive payback over the long term based on historical flow data and favourable prices for the power generated. But as many investors have found you may have been right in the long term but you went bankrupt in the short term as expenses exceeded revenue and your financial reserves.
Parry Sound unfortunately doesn’t have the ability to ‘inventory’ water and release it as required to optimize revenue. There is no large reservoir that can be tapped. Water levels in the lakes upstream of the dam need to be carefully managed to prevent flooding and can’t be used as reservoirs. This means we need to generate power when there is flow. This is perhaps why an investment in additional power generation is being considered, to capture the very large flow that arises every spring with the winter snow melt. It doesn’t do any good the rest of the year, and needs to pay for itself in a relatively short period, at most two months every spring.
I’m sure the cost/benefit analysis of a power generation upgrade is based on precipitation levels for the past fifty years or so. To quote the standard disclaimer for brokerage firms “past performance is no promise of future returns”. In the same way we can no longer rely on past climate data as a reliable indicator of future weather. There is no doubt there are real changes in our climate, possibly a ‘celestial’ related event outside of our control and current understanding, or human activity related global warming. The net/net is that precipitation levels and temperatures are not as reliable as they once were. Less water would mean less power generation, more would mean more. But warming is more of a concern. If our winters continue to stay warmer there will be much less of a snow pack to melt and yield the spring runoff that supports an increased power generation capacity. Rather there will probably be a more continuous flow of water all winter that should not exceed our current generating capacity. But who knows what will and won’t happen going forward. Are you willing to bet $15 million that it will all work out in the short as well as long term?
And then there is the politics, not local but provincial. The only way that a major investment in power generation can pay off is if Parry Sound Power receives a higher price per kilowatt hour generated than the current market prices. The Ontario Government, to stimulate the construction of new renewable power generating capacity, has promised to pay a higher than market price for power from these sources. But this promise and these prices may not be as reliable as once thought based on complaints related to their promises to the solar power community (CBC article link).
Despite promises, and even contracts, it is clear that governments are not always able or willing to meet their obligations. People change, governments change, and markets change. This means that any investment based on a government commitment to subsidize, or support initiatives must be carefully scrutinized to ensure there is the possibility of life even without government support. Parry Sound finds itself even now dealing with challenging budget issues not because of unreasonable cost increases, or reckless spending, but rather a loss of provincial and federal funding.
Weather and politics are perhaps the two most unpredictable forces that we face. Depending on both for a favourable outcome seems a little too risky.
Here’s a recent photo of the “Festival Tree”. As the days grow shorter and the Festival of the Sound approaches the end of its season we are reminded that summer is a limited time opportunity. It’s time to head outside and enjoy the summer for all it has to offer before it’s gone.