September 7, 2022
New York
Contribution Value Research
Rating: HOLD
Debt to be raised: $6 BN
Promised Economic Development: $3.5 BN / 25 years
Promised Emissions Reduced: Decreasing carbon emissions by 3.9 million metric tons per year
Price for those opposed: priceless
Initiating Coverage: Champlain Hudson Power Express
The Contribution Value of an Underground and Underwater Hydropower-Connector
Disclaimer: This analysis of the Champlain Hudson Power Express is the opinion of the author and is meant to play with the financial reductive logic of the investment brief. What would it look like if an investment brief instead explored multiple perspectives evaluating an infrastructure investment that intersects with public, private, third sector, labor, front line community, and indigenous interests? I found it changed my view from bullish to bearish, the kind of bear that thinks we need to sit around the fire and discuss this more to understand each other before we bulldoze our way forward. This brief is not an endorsement or investment recommendation to invest in any securities.
Summary
The Champlain Hudson Power Express is at risk of failing to prove value to critical stakeholders who have shut down similar projects before. Despite 10 years of planning, thousands of pages of PDF document environmental and economic analysis, public sessions and negotiated responses, and subsequent delays; there are still strong resistors to the project. While the project has been approved by Federal and State authorities and the backing of a powerful private equity firm, until we see an increase in community participation and stakeholder engagement efforts, we rate this project as a: HOLD.
When you first take a look at the major stakeholders that have proposed, financially backed, permitted, or endorsed the project vs. those that oppose, you can see that it’s an even mix of government administrators, developers, labor unions, and aligned non-profits on one side, and a smaller group of nay-saying nonprofits, unions, and indigenous tribes on the other.
Background: The Champlain Hudson Power Express
The Champlain Hudson Power Express is a proposed development of an underwater and underground energy grid project linking hydro and wind power from Québec, Canada to Astoria, Queens in New York City. The NY State Energy Research and Development Authority Tier 4 contract, which grants this project renewable energy credits, has been approved by the NY State Public Service Commission to deliver hydropower to NYC beginning in later 2022 and is expected to be fully operational in 2025.
The technology: Two high-voltage direct current (HVDC) 320kv cables five inches in diameter and 333 miles in length will require construction underground in Québec in New York, and underwater development in Lake Champlain and the Hudson River.
The project was initiated in 2010 by Canadian Company Transmission Developers Inc. through Champlain Hudson Power Express, LLC, an organization financially backed by the clean energy private equity arm of Blackstone. Blackstone was founded in 1985 by founders Stephen A. Schwarzman and Peter G. Peterson who had worked together at Lehman Brothers, an investment bank that later went bankrupt during the great financial crisis of 2008. As the main financial backer of Champlain Hudson Power Express, they are financing the largest private infrastructure investment in the history of the state of New York.
Hydro Québec is another major player, a publicly owned utility that was created in 1944 to expropriate all gas and electricity production transmission and distribution assets belonging to the monopoly of the time. The utility delivered 3.6 billion Canadian dollars back to the province of Québec in 2020. Hydro-Québec will be able to charge higher prices to export energy down to NY State vs. what they can charge in Canada.
NYSERDA, or The New York State Energy Research and Development Authority, was founded as a public benefit corporation in 1975 to address energy insecurity following the oil crisis of the early 1970s. NYSERDA’s role and approach have evolved over the years and it is now principally managing clean energy policy in NY State with the fiscal year 2020-2021 budget of $1.3 Billion for energy efficacy and renewable energy programs (about half the FY20 appropriations for the Office of Energy Efficiency and Renewable Energy at the US Department of Energy). NYSERDA is currently focused on investment structures that achieve energy systems transformation at a state-wide scale.
NYSERDA approved another project as part of the grid upgrade, Clean Path, that will ship 1,300 megawatts of wind and solar from a northern New York county to NYC via a 175-mile underground transmission line starting in 2027. Clean Path has few if any opposers.
The Protagonists: Linking Renewable Energy to NYC
Blackstone, Hydro Québec, NYSERDA, and NY Power Authority have multiple promises to the peoples of New York and Québec, all speaking in well-coordinated talking points in favor of the project:
Hydropower is a Stable Renewable Energy Source Value
The various project developers insist that hydropower is among the lowest emitters and is a stable energy source that will complement investments in wind and solar throughout New York. What’s often missing from the dreamy future of renewable energy is that solar and wind are intermittent, meaning that the energy doesn’t flow when the sun doesn’t shine and the wind doesn’t blow. We need stable and consistent forms of energy to keep the heat, lights, and air conditioning on. With the closing of the Indian Point Nuclear facility in 2021, NYC is hungry for a stable source of energy.
Source: Comparing power generation options and electricity mixes, LCA Analysis, by Pablo Tirado-Seco, CIRAIG, 2016.
The Value of NYC’s Transition to Renewable Energy
It’s often called the tale of two grids. Downstate New York relies on non-renewable energy and needs to radically shift to meet our renewable energy goals. Government officials and the leaders of Champlain Hudson Power Express predict that the project will reduce NYC’s current 90% dependence on fossil fuels for electricity generation by 25%.
The Value of Lower Electric Costs for Low-Income Folks
Downstate New York has high electricity costs, which will eventually be reduced through contracts with Champlain Hudson Power Express and Hydro Québec, particularly benefiting low-income ratepayers.
Source: Champlain Hudson Power Express Analysis of Economic, Environmental, Resiliency and Reliability Benefits to the State of New York, by PA Consulting, May 2021.
Champlain Hudson Power Express Promises $3.5 BN in Economic Development
The Champlain Power Hudson Express organization promises a number of incentives and environmental benefits to communities up and down the Hudson and Champlain region, including:
Economic development benefits:
- A $117 million habitat restoration trust
- $40 million for a Green Energy jobs training and community support fund
- The largest private investment in NY State’s history with $3.5 BN in economic development value
- $1.4 BN in new property taxes to over 79 municipalities and 59 school districts in the first 25 years
Financial benefits to backers and suppliers to the project:
- Hydro Québec plans to earn $20 BN Canadian or $15 BN US over 25 years
- Transmission Developers Inc. originally of Canada has already been acquired by Blackstone
- Blackstone will benefit from the $6 BN debt and other equity capital raised to finance the project
- NKT, based in Denmark, will sell power cables to the project developers
- Hitachi Energy headquartered in Switzerland will sell the HDVC technology
- Kiawit Installation of Omaha, Nebraska will provide engineering and construction management
Employment benefits to NY State:
- 2,600 shovel-ready jobs
- More than 800 long-term jobs
Energy benefits:
- Compliments additions of intermittent solar and wind energy to the downstate grid
- Provides constant infrastructure base load generation to deliver 1250 megawatts of clean power 24/7 365
Environmental benefits:
- Decreasing carbon emissions by 3.9 million metric tons per year
- Delivers a 50% reduction in air pollutants equivalent to 15 of NYC’s 16 peaker plants
- Reduces NYC’s current 90% dependence on fossil fuels for electricity generation by 25%
First Nations Benefits:
- An agreement was signed with the Mohawk Council of Kahnawà:ke to be a joint equity owner of the 37-mile underground transmission line, generating 40 years of economic benefits for a First Nation tribe
The city and state are putting up money and relying on legislation to meet the state’s renewable energy targets:
- The 2019 Climate Leadership and Community Protection Act calls for the state to have a 100 percent zero-emission electric grid by 2040
- Mayor Eric Adams plans on spending $75 MM in 2026 and estimates $2-4 billion will need to be spent over 25 years
- The Public Service Commission determined that the project is eligible for Tier 4 REC or renewable energy certificates that represent the environmental attributes of 1 MWh of renewable energy, and can be traded and purchased
- NYC’s Local Law 97 will encourage building owners to purchase RECs in order to meet their new emissions targets
What’s not to like?
The numbers tell a story of progress. But when you pause to listen to other players at the table, we hear conflicting stories of painful pasts and fraught futures. This is a case of contribution value shifting towards resistance, while economic value defined by the protagonists may only be telling part of the story.
Is the Champlain Hudson Power Express investment actually contributing more value than it destroys?
Contribution Value, Risks, and Reduced Value as Told by the Opposition
There is emerging opposition that wants to stop the project from happening at all. Riverkeeper, The Sierra Club, key labor unions, independent energy producers, forming coalitions of people who protect the Hudson River and communities along the river. Other First Nations tribes in Canada have joined the coalition, and they continue to contest the rights of Hydropower Québec and the degradation of land and waterways. Recently, the coalition has enrolled NYC-based Environmental Justice groups that had previously supported the project for its potential to reduce local pollutants.
When we see the players showing who is in favor and who is opposed, it seems to be a close call. But when we are weighted by a number like annual revenue or budget we see the positions of each player, an older overarching narrative for how things happen in New York comes to the surface: big money and big interests tend to win the day. How will this be any different?
Let’s take a look at how opposers value the project:
Hydro May Be Higher Emissions: the Project May Have Negligible Value
Mounting evidence shows that emissions can be considerably greater for hydropower, even on par with fossil fuels. The enormous reservoirs needed to store the water are often created by flooding areas covered in plants and trees which decompose, creating carbon emissions. Not all hydropower plants are created equally. Former supporter Riverkeeper changed their opinion about Champlain Hudson Power Express for failing to directly reduce greenhouse gas emissions. They propose that taxpayer subsidies awarded to the project should otherwise be directed to projects that would directly reduce greenhouse gas emissions.
Source: Climate Impacts of Hydropower: Enormous Differences among Facilities and over Time, by Ilissa B. Ocko and Steven P. Hamburg, Atmospheric Chemistry and Physics, July 2022
The Re-Dredging Risk
Digging up Lake Champlain and the Hudson River may result in harmful toxins being disturbed yet again, and the effect of hydropower on land, aquatic life, and ecosystems is more damaging than we have come to accept. Riverside residents question environmental assessment modeling assumptions that predict limited harm from construction harm. Given New York’s history with GE and other industrial companies that sent PCBs directly into the Hudson River, residents are wary and fearful based on previous attempts to restore the river’s ecosystem, particularly those that get their drinking water from the river.
Source: GE Completes Dredging, assessment by Anchor QEA, 2021
The Endangered Atlantic Sturgeon Risk
The developers of Champlain Hudson Power Express have already made to divert their transmission line through Haverstraw, NY, and surrounding towns to protect Atlantic Sturgeon along the Hudson River. In fact. the Army Corps of Engineers conducted an environmental assessment for the project in 2014 and determined that no endangered species would be adversely affected. But the Center for Biological Diversity demanded a re-assessment because the survey did not cover the lower Hudson River and the New York Bight, the body of water where debris might affect the critical habitat of the endangered fish.
Source: Regulators Warned of Champlain Hudson Power Express Project’s Environmental Impact, Margolis, Center for Biological Diversity, October 2020.
The First Nations Value of Ancestral Lands
First Nations indigenous tribal claims in Québec have not been resolved. While the project has allied with the Mohawk Council of Kahnawà:ke, five First Nations tribes have formed a coalition to oppose the export of electricity. The Inuu of Pessamit, the Atikamekw of Wemotaci, and the Anishnabeg of Pikogan, Lac Simon, and Kitcisakik have joined the Inuu Nation of Labrador to demand that the project be put on hold until compensation for the destruction of ancestral lands has been negotiated. While Hydro Québec has entered different settlement agreements with tribes over the years, leaders from these five First Nations tribes continue to speak out against projects like the Champlain Hudson Power Express.
Source: Five Indigenous communities in Canada announce opposition to hydropower transmission corridor through Maine to Massachusetts, a press release by the Inuu of First Nation of Pessamit, via the Megadam Resistance Alliance, October 2020.
Even naming the project the Champlain Hudson Power Express honors colonial legacies. The Hudson River was called Mahicantuck, the river that flows two ways, before Englishman Henry Hudson sailed for the Dutch East India Company to explore in 1609. French explorer Samuel de Champlain named the lake after himself after traveling up the Richelieu River to drive the Iroquois out. The Abenaki name“Pe-ton-bowk,” which means “waters that lie between,” referring to the space between their lands and those of the Mohawk. The fact that the Mohawk Council of Kahnawà:ke has been incentivized to support the project has caused further rifts among First Nations tribes.
The Methyl Mercury Level Risk
These nations cite scientific studies that show that when new hydropower plants flood local ecosystems, that microbial production of neurotoxin methyl mercury (MeHg) is stimulated. Peer-reviewed models predict and increased exposure from planned new hydropower project flooding, exceeding the US Environmental Protection Agency’s reference dose.
Hydro Québec claims that the fish and people are currently fine, and acknowledge that while higher levels of methyl mercury do appear when hydropower is first constructed, over time the ecosystem returns to baseline. Yet few of the reports listed on the utility’s website are current to the decade, or peer-reviewed. The science remains a point of contention between academics and practitioners conducting life cycle assessments of hydropower in Québec, and measuring methyl mercury in water, mink, osprey, fish, and human hair samples.
Sources: Future Impacts of Hydroelectric Power Development on Methyl mercury Exposures of Canadian Indigenous Communities, Calder et al, Environmental Science and Technology, 2016.
Hydro Québec and the Mercury Issue, HydroQuébec.com.
The Peaker Plants Polluting Risk
Because the Champlain Hudson Power Express contract does not guarantee energy delivery in the coldest winter months, NYC will still be reliant on peaker plants to supply surges of power when New Yorkers need it most. Several environmental justice groups call foul of the project’s claims that it will retire the use of peaker plants – noting that the promise was to reduce air pollutants equivalent to 15 of NYC’s 16 peaker plants, but not actually retiring any specific plant. The city currently houses 19 antiquated and polluting peaker power plants, which run on natural gas, and sometimes kerosene, and get switched on during periods of peak energy demand.
In the Bronx, the Hunts Point Economic Development Corporation’s Executive Director urged the Public Service Commission not to sign additional contracts for power grid upgrades unless the New York Power Authority committed to shutting down peaker plants in the Bronx.
Source: Bronxites Push for Commitment to Shutter Polluting Peaker Plants, Heard, The Hunts Point Express, March 2022.
The Value of So-Called Just Transition Jobs
Several unions argue that the transmission project will result in fewer jobs will be created in NY State, resulting in a less just transition for boilermakers, energy grid workers, and other union workers currently servicing the fossil fuel sector. What’s often missing from just transition discussions is that the jobs created in the renewable sector are less likely to be union organized, more likely to be itinerant, and more likely to be lower paid.
Source: Wages, Benefits, and Change, A Supplemental Report to the Annual U.S. Energy & Employment Report, USEER, 2020.
The Independent Power Producers of NY commissined on analysis about the effect of the project on New York’s energy market. The report from Energzt claims that the Champlain Hudson Power Express would crowd out 8.3 million MWh of contracted energy from the market and make it more expensive for the state to achieve its renewable goals.
Source: Understanding the True Impacts of Champlain Hudson Power Express, prepared by Energyzt Advisors, LLC for IPPNY, January 2020
Catalyst: the First Dig
The key question: will previously successful non-profit coalition leaders organize to protest the development of the Champlain Hudson Power Express?
You may think that small non-profits are powerless against such political support and Wall Street firms like Blackstone. In fact if you look at the protagonists and opposition by size of annual revenue or budget, we see a familiar story of entrenched and powerful interests getting their way.
But keep in mind that Riverkeeper was instrumental in building support to close the Indian Point Nuclear facility, and the Sierra Club was a key instigator in forming the coalitions that led to the shutdown of prior attempts to link Hydro Québec to the northeastern energy markets. The Northern Pass project through New Hampshire was fully blocked by a similar multi-headed multi-perspective coalition. The New England Clean Energy Connect grid upgrade project through Maine was voted down in a referendum and now is crawling through the courts. These same groups may be planning a similar action against the Champlain Power Hudson Express.
How we see the value of this investment will signal whether or not we will be able to manage the billions promised by the recent Inflation Reduction Act Bill. To navigate these transitions, we need to expand our horizon outside of the bullet point numbers describing transactional benefits and a financial risk management approach to understanding the value of contribution. We need to look at the stories being told to understand how we make decisions in the face of such complexity and uncertainty when our long-term survival is at stake.
We know we need to transition to renewable energy, so how do we move beyond these adversarial stances to co-design a survivable future?
How we might move forward:
What do we owe each other as we plan the great energy transition?
This multi-contribution-value investment brief is meant to illuminate that the story is not about NIMBYs and sclerotic governments opposing progress. Instead, well-funded governments moving swiftly are met by compelling narratives referencing science and models in their arguments in an attempt to highlight risk, injustices, or to show the way to a different vision for the future.
Community benefits cannot be reduced to taxpayer payouts and small ecosystem preservation and community development funds. While some communities are happy to accept the funds to replenish starved county budgets and school districts, for the most part resisting communities felt slighted by the process. What you hear in each of these stories is that key communities felt unheard.
The Department of Energy conducted multiple cultural and environmental assessments, but kept its scope limited to the construction project and not the emissions claims of Hydro Québec. Environmental consultants for Transmission Developers Inc. spent the summer of 2010 watching patches of blue lupine for endangered Karner blue butterflies and frosted elfins, a threatened species, but didn’t venture north to explore the source of hydropower and the effect on local land, peoples, and species. The Army Corps of Engineers sought counsel from US tribes, but not the First Nations tribes in Canada. The New York Public Service Commission opened up the matter for public debate but key voices said it was the first time they had heard about a matter that would affect their health and livelihoods.
You can find reams and reams of 300+ page PDF documents from several Federal and State agencies and Champlain Hudson Power Express, LLC but no invitations to public imagining for how we might make this transition, together.
What emerges is that the god’s eye view is doing a poor job of sharing visions for the future, and is failing to draw the picture for key communities who must continue to sacrifice as we transition to new energy infrastructure, but keep the current power dynamics in place. How might we engage in contribution value design: a multi-stakeholder way of listening to critical perspectives and ensuring that we all see ourselves benefiting from these great transitions?
You find that the opposition voices propose different alternatives and ways forward. A review of how different stakeholders value the project, identify risks, and point to the very real possibility that all of these billions might count to a deluded belief that we are moving the needle on climate change, when we may simply be rearranging the deck chairs on the Titanic. If we remain perpetually reliant on peaker plants as the result of this deal, is this truly a step in the right direction to our low emissions future?
The Champlain Hudson Power Express may be an inevitability in a city and state that is comfortable with big moneyed interests and private sector investments in public infrastructure. But we’ll need to get to the bottom of the truth about hydropower emissions, and the continued challenges faced by frontline communities as we make these investments of public sector time, attention, and taxpayer dollars. Finally, we need a better way to resolve our history with this land and reckon with our responsibility to indigenous tribes who stewarded the land and water long before a country border was ever defined.
If you have additional perspectives to add, corrections to make or sources to cite, please reach out and let us know how we can best represent this multi-stakeholder investment in climate transition.
