Big Power Shortfall Looms After Quebec Wooed US With Cheap Hydro

(Bloomberg) -- The region that produces North America’s cheapest power faces a threat that seemed impossible just a few years ago — running short of electricity.

Quebec spent years working to convince US states to buy its abundant clean energy, only to realize now that it won’t be able to produce enough electricity by harnessing the flow of moving water. That creates a conundrum for the Canadian province: build more dams that could reshape pristine rivers and slash swaths of forests — an environmentally damaging process that would boost hydropower supply — or temper economic policies that pin its prosperity on the resource.

It’s a dilemma mostly of Quebec’s doing, after landing export deals such as the Champlain Hudson Power Express, Blackstone Inc.’s $6-billion transmission line to feed New York City, and luring manufacturers to the province with low-priced power. Hydro-Quebec, a government-owned utility, estimates it needs more than 100 terawatt-hours of additional electricity — more than half its annual generating capacity — to reach the province’s goal of being carbon neutral by 2050. A terawatt-hour can power about 60,000 homes a year.

“We are the victims of our success,” said Philippe Dunsky, president of Dunsky Energy + Climate Advisors. “I don’t think that anyone knew just how quickly demand for clean power was going to pivot.”

Quebec Premier Francois Legault has pitched the French-speaking province as the “green battery” of the northeastern region of North America, building on its reputation of supplying electricity to New England and New York for decades while wooing industry with cut-rate power.

“We sell cheap, reliable and renewable energy,” said Hydro-Quebec’s Dave Rheaume, who oversees risk management. “However it’s precious and now everybody wants to come and have access to it — but we don’t have the ability to infinitely replicate these kinds of generation assets.”

Rheaume said Hydro-Quebec needs to refurbish power plants and add wind farms in the next decade to meet demand, while also considering building new dams and transmission lines. The utility this month identified its first potential dam site for Petit Mecatina River in a remote region of eastern Quebec.

Hydropower is the top global source of renewable energy and supplies one-sixth of the world’s electricity, according to International Energy Agency estimates. Dams on rivers are often used to create hydroelectricity, with flowing water turning turbines to generate energy in power plants. Capacity of the resource is expected to grow this decade, though tough environmental requirements and challenging economics are slowing project developments in China, Latin America and Europe.

The clean-energy source is an important pillar for Canada’s largest province. Hydro-Quebec accounted for about 5% of government-generated revenues last year, adding C$6 billion ($4.4 billion) to provincial coffers.

The push to link it to economic growth became a wedge between Legault’s government and Hydro-Quebec’s last CEO, Sophie Brochu, who balked at moves to turn the power provider into what she called the “dollar store” of electricity. Brochu departed this month, leaving an acting CEO in place until a successor is appointed. The next head will be tasked with solving a looming shortfall while navigating the turbulent waters of Quebec politics that dogged Brochu.

Hydro-Quebec’s future power commitments include long-term contracts to deliver an additional 20 terawatt-hours each year to the densely populated US northeast when the Champlain Hudson Power Express and another project, the New England Clean Energy Connect, get built.

The export deals were a “strategic mistake,” said Jocelyn Allard, head of a Quebec lobbying group that represents industrial electricity consumers including Glencore Plc and Rio Tinto Group. Those contracts and a lack of added capacity could cause Hydro-Quebec to struggle to meet future demand, deterring new customers. “It doesn’t help companies to build business cases for projects.”

Quebec also attracted large-scale power users including General Motors Co. and Amazon.com Inc. Energy requests from such industrial and commercial consumers now represent as much as half of Hydro-Quebec’s generating capacity, boosting tensions with residential users who are already being encouraged to conserve energy.

Building more dams would help address Hydro-Quebec’s anticipated shortfall, but such a move would draw criticism from environmentalists and Indigenous groups. Dam projects typically require flooding vast areas, which create significant methane emissions from decomposing trees and other organic material.

“We can put concrete everywhere if we want,” said Pierre-Olivier Pineau, research chair in energy sector management at HEC Montreal business school. “But it will not be economically profitable or socially acceptable.”

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