The Canadian provinces of Quebec and Newfoundland, have announced that they will be scaling back some of the environmental and engineering work planned for this year.

The two provinces were jointly planning the development of the 3200MW Lower Churchill Falls hydroelectric project in Labrador, Canada.

A joint statement issued by the premiers of the two provinces said that the delay was necessary before committing the substantial funds required to bring the project to the next phase of development. Prior to the joint statement, the talks between the two provinces had stalled over pricing issues, aggravated by the deregulating energy market in the US. A majority of the power developed by the project is to be sold in northeastern US.

The statement by the premiers said the trend towards very short term pricing contracts in the North American power market had made it difficult for the provincial utilities, Hydro-Quebec and Newfoundland and Labrador Hydro, to garner long term power purchase agreements for the Gull Island project.

The absence of any long term pricing has prevented the establishment of a floor price for Lower Churchill power at the Labrador-Quebec border. The floor price is the price at which Newfoundland Hydro would sell power to Hydro-Quebec. Frustrated with the slow progress in the negotiations with Hydro-Quebec, Newfoundland is also looking for other potential partners to develop the project.

The existing Upper Churchill Falls project, built 30 years ago, produces 5200MW. However, its development was the cause of much bitterness between the two provinces. The existing plant gives Quebec preferential access to power, at prices way below market prices, which is sold in the US by Quebec at market prices. Churchill is just inside the Labrador border from Quebec, and power from the plant must be transported through Quebec to reach US markets.

The new Lower Churchill project, which would include partially diverting one river in Quebec, would add 2200MW to the development. The cost of building the new proposal is estimated at C$6.5B, and it is expected to take six years to complete.

The project will supply power to Newfoundland by an underwater transmission line to the island costing an additional C$2B.

Meanwhile, Newfoundland has announced plans to build a 40MW hydroelectric plant at Granite Canal to meet the island’s expected electricity demand by 2003. This project will cost C$135M.