Reviewing the energy hub concept

I am way over my head in this area so I won’t attempt to talk about specifics when it comes the energy sector. I’ll just make a few comments given the TJ story today about the possibility of a second or even third nuclear reactor.

First of all, Jeannot Volpe’s “can’t do” attitude is fascinating. He says “Why is it that we want to produce power for the States with a nuclear reactor when they’re not ready to do it (themselves)?” he said. “Build it in the States if you need power in the States.” That is a ridiculous statement prima face. You could easily say that about the massive electricity going from Quebec to the US. You could say that about any economic endeavour. Manufacturing, call centres, etc. Based on a very limited view, every type of economic activity would be best positioned within the market for that activity.

But, as anyone with a third grade education knows, there are other reasons why economic activity can be better positioned outside a specific market. Cost structures, access to land/resources, access to human resources, regulatory enviornments, etc.

Using Volpe’s logic, the Irving Refinery should be in the US. Why not? Why produce it here and then ship it there? How about manufacturing? Why produce it in New Brunswick if you just have to ship it there? Why use call centres in New Brunswick? Why not in Waltham?

Volpe’s argument is just plain silly and should have been countered in the TJ story. Maybe they could have got a First Grader to counter.

But it does represent an attitude that I have felt and heard in economic development circles for years. An ADM at the former ED&T department once told me “why would company x ever want to locate here”? Another pundit said it is “silly to think that an auto plant could ever be sited in New Brunswick”? (this despite the fact that every new auto plant in the U.S. in the past 20 years has been sited everywhere except Michigan)

It gives me the heebie jeebies just thinking that we have Volpe at the helm of the Finance Department for years. It’s no wonder we didn’t see any real private sector economic development (except for call centres) during his tenure in office.

The truth is simple. There hasn’t been significant large scale energy infrastructure development in the USA for a long time because of FERC. It’s extremely hard to get projects past the regulatory process. We have seen that with LNG, with oil refining and nuclear energy (in the face of US fears over terrorism).

Now, am I saying that New Brunswick (Canada) has less regulatory hurdles? Refer to my first sentence in this blog. I really don’t know the answer. The truth is that the Americans are jittery about nuclear power plants. So, there may be – and I stress may – an opportunity here – regardless of Volpe’s outrage.

However, Volpe diatribes aside, the government needs to study this stuff long and hard. Volpe is right that any new nuclear power plant would have to be viable for the long term – i.e. have secured markets for its power. The government needs to cross reference the plan with the rise of alternative energy sources. Any new nuclear power wouldn’t come on stream until at least 2016 and would have to have markets for at least 20-30 years (refer to my first sentence). So, one assumes that the world will look quite different in 2025 or 2035 than it does now.

Further, NB Power is among the most indebted power utilities in all of North America (last time I checked). There is a strong financial model that would have to be put in place to justify making NB Power the most indebted – by far – power utility in North America.

Finally, there is the opportunity cost. If the government is going to invest $2 billion in a nuclear power plant what is the total economic benefit? How many sustained jobs? What are the royalties (taxes) taken off the export of power?

And what are the alternatives places to invest that $2 billion? Should we invest in becoming a world leader in “cleantech” (called the biggest economic opportunity of the 21st century)? $2 billion would go along way to that goal. Should we become a North American hub for data centres (we would need some of that power)? $2 billion would go along way to that goal. Should we become the prime location in North America for nearshore manufacturing? $2 billion would go along way to that goal. Etc. Etc. Etc.

You see, it seems that New Brunswick is in a frightful box. We can’t seem to think outside of it to throw in a 1990s metaphor. Tourism and energy. Tourism and energy. That’s the sum total of our thinking these days.

I think we should limit the focus on tourism (low wage, seasonal jobs and little value add) and think about energy not in terms of how fast we can ship it out of the province but on how we can use that energy to stimulate real economic development here.