ST. JOHN'S, N.L. - A report by Manitoba Hydro International concludes that the proposed Muskrat Falls hydroelectric project in Labrador is the cheapest option to meet the province's future energy needs -- but it warns of changing conditions that could throw off key calculations.

The review was commissioned by Newfoundland and Labrador's Public Utilities Board to assess documentation from Crown corporation Nalcor Energy.

Nalcor and Nova Scotia private utility Emera (TSX:EMA) are hammering out a deal to jointly fund the $6.2-billion project that would bring power from Labrador to Newfoundland and then Nova Scotia.

Manitoba specialists in risk analysis, project management and thermal generation have concluded, based on Nalcor's data, that the Labrador link is a cheaper energy option than alternatives, such as wind power.

The report stresses that for a megaproject that includes pricing and load forecasts through to 2067, variables can change.

"With projects of this magnitude, and considering the length of the analysis period, there are risks and uncertainties associated with key inputs and assumptions," it says.

Those potential fluctuations "can impact the results of the analysis and shift the preference for what is the least cost option. Fuel costs and construction material costs are variable with world economic conditions.

"Load forecasts are a major input based on local conditions and must be carefully monitored to ensure that generation development occurs in compliance with future load requirements."

Still, the report finds a high level of due diligence related to calculations from Nalcor that were current as of the fall of 2010.

The Public Utilities Board needed the report before it starts public consultations for a review that the province says must be completed by March 31.

The Progressive Conservative government has vigorously defended Muskrat Falls as the cheapest option to meet provincial power needs, and to ultimately generate profits, into the future.

Premier Kathy Dunderdale wants to debate the issue this spring before her government decides whether to green-light the project.

Critics point out that Nalcor and Emera have twice missed self-imposed deadlines for reaching legal contracts on the deal, while the Public Utilities Board has been denied a requested extension for its own review.

Opposition politicians have raised concerns about potential cost overruns and whether the project is truly sound. They quote the findings of a joint federal-provincial environmental review panel that found proof lacking for both the need and viability of Muskrat Falls.

Environmental activists say the proposed hydro dam will flood animal habitats.

But Dunderdale says harnessing power from Labrador's lower Churchill River has been studied for decades. She also cites a report last September by global energy analyst Navigant Consulting, which used Nalcor's data to conclude that the project is the cheapest energy option.

Under a term sheet reached in November 2010, Emera would fund a 180-kilometre subsea link between Cape Ray, N.L., and Lingan, N.S., at a cost of $1.2 billion.

A further $2.1 billion would be spent to build a transmission link from Labrador to Newfoundland, $600 million of which would be provided by Emera.

Nalcor would spend $2.9 billion to build a power generating facility at Muskrat Falls capable of producing 824 megawatts of electricity.

Nova Scotia would get 170 megawatts of energy a year, about 10 per cent of the province's total energy needs, for 35 years.