Hydro-Québec’s export deal could generate $10B
But Quebecers shouldn’t expect reduction in electricity bills, energy minister says
A 20-year contract to export electricity to Massachusetts could generate a total of $10 billion in revenue for Hydro-Québec, CEO Éric Martel said on Friday.
However, just how much profit that will generate for the utility is still an open question.
On Thursday, the Massachusetts Department of Energy Resources announced that it had selected a joint project between HydroQuébec and Eversource Energy, a New England utility, to supply clean energy to the state.
However, the amount Massachusetts will pay for electricity is still subject to negotiation and will not be disclosed, due to a confidentiality clause in the agreement.
But the deal will be profitable, Martel said.
“You can look at our past results. It’s going to be in the same ballpark,” he said.
Exports by Hydro-Québec accounted for 16 per cent of the electricity produced by the utility, about 30 terawatt hours, Martel said, but that represented 28 per cent of its profits in 2016.
“In 2016, it was $800 million of profit due to exports. So if you do the math, you know we’re going to increase the quantity. So definitely it’s going to improve our profitability,” he said.
He said Hydro-Québec is wellpositioned to forecast the cost of generating electricity in the future, because most of its costs are upfront, in the form of infrastructure, unlike other forms of electricity generation that require fuel.
“This is not like other sources where the price in unpredictable. Our price went up by inflation pretty much perfectly since 1963,” he said.
“We understand exactly how much our cost will be in five, 10, 20 years.”
That predictability helped the utility win the deal, Martel said.
There were 46 submissions to the request for proposals issued by Massachusetts. Six involved Hydro-Québec. “Our capacity to predict the pricing for a long period of time was important,” Martel said. Other factors were the stability of its grid and the fact that it can begin exporting electricity as soon as the transmission line is built.
All of the energy supplied to Massachusetts under the deal, up to 9.45 terawatt hours a year, will be generated by Hydro-Québec.
That’s the equivalent of more than 17 per cent of Massachusetts energy consumption in 2014.
This is the biggest export deal ever signed by Hydro-Québec.
Hydro-Québec will spend $600 million to build transmission lines to the U.S. border, where they will connect with the Northern Pass, a transmission line through New Hampshire being developed by Eversource.
The deal means all the electricity transmitted through the Northern Pass will go to Massachusetts and Martel said it’s a guarantee the line will be at capacity for 20 years.
However, the Northern Pass still must be approved by the New Hampshire government. To date, it has faced strong opposition in the state.
“The situation has evolved a lot over the last two years,” Martel said. “I think there was much more opposition two years ago.”
He said New Hampshire Gov. Chris Sununu is in favour of the project and Eversource has worked to sell it in the state. Eversource also plans to bury approximately 100 kilometres of the transmission line in an effort to address concerns.
The deal is good news for Quebecers, said Pierre Moreau, Quebec’s Minister of Energy and Natural Resources.
Last year, Hydro- Québec transferred $4 billion to the provincial government.
“Whenever the profit goes up, it’s good news for the shareholder, which is the government of Quebec and basically all Quebecers,” he said.
However, Quebecers shouldn’t expect to see a reduction in their electricity bills.
“It will help Hydro- Québec not reduce, but maintain, low rates for Quebecers, but there’s no direct link,” Moreau said.
The deal comes as the result of a Massachusetts state law that requires utilities in the state to increase the amount of renewable energy they buy.
Currently, 66 per cent of the electricity consumed in the state is generated by burning natural gas.
The deal will also have to be approved by Canada’s National Energy Board.