ABSTRACT By creating the 459,000 kW Bay d'Espoir h.e.p. scheme, the Newfoundland government hoped that the consequent doubling of the island's electricity supply would not only eliminate a deficite situation but provide power for industrial development. These hopes have not been fulfilled, and only one company, producing elemental phosphorus, was attracted to the island by the government's ‘cheap power’ policy. In addition to the continuing power subidy, this company received considerable federal and provincial incentives by locating its plant in Newfoundland. To these direct financial costs have to be added the environmental destruction and deterioration stemming from the h.e.p. development and the haste with which its construction was undertaken, and the catastrophic pollution problem created by effluent from the phosphorus plant. The costs of the ‘cheap power’ policy have been, and continue to be, massive for Newfoundland, Canada's poorest province. Further, the policy has made little or no impact on the small job market and the very large unemployment problem.