Challenges and Future of Hydroelectricity in Quebec: Increasing Rates, Energy Transition, and Government Policies

2023-10-29 06:41:15

It’s hard to know where we’re going with our hydroelectricity. One day, we heard the brand new president of Hydro-Québec, Michael Sabia, say that rates needed to be increased: “Next question!” “, he took care to add. The next day, Prime Minister François Legault said that we would not have any increase of more than 3% per year.

Published at 2:41 a.m. Updated at 6:00 a.m.

After years of having surplus electricity, we are now on the verge of a shortage. However, we continue to prospect and encourage very energy-intensive industries to establish themselves in Quebec with tax incentives.

In fact, says Pierre-Olivier Pineau, of HEC Montreal, one of the best experts in the field in Quebec, the situation has not really changed. Except that we recently realized that if we really wanted to decarbonize Quebec, it would take a lot of electricity. “Five years ago, we weren’t really talking regarding energy transition,” he maintains.

The problem is that the current government recognizes the need to decarbonize, but still sticks to the development model that has been that of recent decades: we attract companies on the basis of subsidies and low energy prices with, in return, well-paid jobs.

But, all this time, the CAQ government systematically refuses to consider that the cheapest kilowatt is the “negawatt”, the one that we do not consume instead of wasting it. Hence the promise – undoubtedly politically profitable – to limit price increases to 3% maximum.

In any case, for Prime Minister Legault, the cause has been heard. During the last election campaign, he stated it bluntly: wind turbines and energy savings, “that won’t work”.

His solution is to build more dams which will necessarily be further and further away in the territory and will cost more and more.

“New dams are not the solution. The government will realize that inflation has meant that building them will cost much more than expected. The price of turbines, for example, has increased very significantly in recent years,” says Professor Pierre-Olivier Pineau.

And Hydro-Québec will need a lot of turbines, not only for new projects, but also to replace those reaching the end of their useful life in existing installations. The Hydro system “needs some love,” as they say in real estate, and it’s going to cost a lot of money.

This would undoubtedly be the time to take a strategic break and take care of the existing network a little – and take the opportunity to improve it – before relaunching on major projects.

But everything indicates that the government is preparing to sign electricity sales contracts that we do not yet have, and at prices that will almost necessarily be below production costs, since these will increase.

The government gives itself the right to grant discounts – which are currently 20% for aluminum smelters. That said, we can legitimately wonder if a government which puts so much effort into the “battery sector” will not offer it the same advantages.

In any case, at the beginning of the month, the Nouveau Monde graphite mine, in Saint-Michel-des-Saints, admitted having obtained a block of energy at a price lower than the industrial rate, the L rate, from Hydro- Quebec.

We are waiting to see what benefits the government has granted to the Northvolt battery factory, although it is far from certain that this will be possible. These agreements are commercial contracts and there is no obligation on the government to make them public.

There are two governance issues in all of this. The first is that the government will find itself choosing winners and losers. This is exactly what a state should not do when it decides to intervene in the economy.

If you are on the winning side – with advantageous energy costs, for example – you will have less need to be the most efficient and the most innovative since you will have already won the lottery.

The other problem is confidentiality. Since these advantages will be granted in commercial contracts, it is not certain that the public will know why these prices were set for this or that company or why the government chose to grant them privileges.

We open the door to distrust among voters who will be entitled to ask what happened in private to obtain such advantages, even if, objectively, there is nothing to indicate that this is the case.

However, although Hydro-Québec is not the government, it is still – directly or indirectly – the money of taxpayers, who might have to pay, whatever anyone says today, through tariffs higher electricity costs.

Hypothesis that we cannot exclude, especially if we sell at a discount electricity that we do not yet have…

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