Big Hydro: What's Next For Hydro-Quebec
08/20/10 7:50AM By John Dillon
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(Host) And now, the conclusion of our series, "Big Hydro, Going to the Source."
Hydro-Quebec continues to build new dams in the north so it can feed the U.S. market for renewable energy.
But it may be a risky strategy. A leading Quebec energy economist says Hydro-Quebec may not be able to charge the higher prices it needs to cover the escalating costs of its new construction.
VPR's John Dillon looks at what's next for Hydro-Quebec and its export plans.
(Dillon) Vermont first bought power from Quebec a century ago. The trade relationship deepened in the 1980s when then-Governor Richard Snelling negotiated with Quebec Premier Rene Levesque to secure the first of several long-term power deals. This summer marked another milestone.
(Charest) "And today we're going to celebrate this friendship for the next 26 years."
(Dillon) Jean Charest is the premier in Quebec now.
(Charest) "We've done a great thing together, and there are many great things to be done in the future."
(Dillon) Charest traveled south to a hotel conference room in Essex for a signing ceremony between Hydro-Quebec and two Vermont utilities. He and the utility hope that the Vermont deal is a template for much more aggressive expansion into the lucrative U.S. market.
(Charest) "We are building more capacity in Quebec. On our side that means that there will be more availability. Secondly, we are now negotiating a new interconnect line between Quebec and the United States that will go through the state of New Hampshire. And that will allow us, give us the technical ability, if need be, to send more energy to Vermont."
(Dillon) That 1,200 megawatt power line is planned to pipe electricity to population centers around Boston.
Hydro-Quebec also hopes to sell electricity to New York and even as far away as the Midwest. Hydro-Quebec also stands ready to export even more to Vermont if the Vermont Yankee nuclear power plant fails to win an operating license extension beyond 2012.
Thierry Vandal is president and CEO of the provincially owned Hydro-Quebec. He says the Vermont Legislature helped frame his company's campaign in the U.S. Thierry says the Legislature's recent decision to declare large-scale hydro power as renewable energy should set an example for other states.
(Vandal) "Vermont is recognized obviously as an environmental leader. And when it acts, as it has, in a field that is so important, basically how we produce electricity in our societies - we think that is going to inspire others. And the direction, if you look at the long-term direction, the direction is toward more renewable power."
(Dillon) The renewable definition could create new markets for Hydro-Quebec. Some states require that a certain minimum amount of their power come from renewable sources. So if those states follow Vermont's lead, H-Q power could help fill that niche.
But other New England states have not yet defined hydro projects as massive as those in northern Quebec as renewable. In New Hampshire, for example, Canadian hydro power cannot be used by utilities to meet their renewable energy requirements. And Martin Murray from Public Service of New Hampshire, the state's largest utility, said the Granite State may be reluctant to make the change.
(Murray) "That's a policy decision by the New Hampshire state legislature and part of the reason is to encourage the development right here at home of renewable energy sources."
(Dillon) Historically, the export market has been a money-maker for Hydro-Quebec. The utility reports that in 2008 exports accounted for just 8% of energy sales but brought in 32% of its net income. H-Q wants to increase export income to 38% in three years.
But it may be a risky strategy. Jean-Thomas Bernard is a utility economics professor at Laval University in Quebec City.
Bernard says Hydro-Quebec's reliance on exports could backfire if electricity prices stay low. He predicts that wholesale electricity prices will not go up much, because of the abundance of low-cost natural gas, which helps establish the base price for electricity in New England.
(Bernard) "The expectation is that the price of gas will be low over the next 10 to 15 years, as a consequence the median price in New England will stay low also. So that should be good news for Vermont, but not such great news for Quebec."
(Dillon) Bernard's scenario is good for Vermont because the deal the Vermont utilities signed with Hydro-Quebec pegs the price to the wholesale market. The contract will start at about 6 cents a kilowatt hour and will be adjusted annually. But Bernard says it's costing Hydro-Quebec about 10 cents a kilowatt hour to develop new power projects, such as the $6.5 billion dollar development on the Romaine River near the Gulf of St. Lawrence. He says the era of large, cheap mega hydro projects is over.
(Bernard) "There is no more James Bay. There is nothing like this. So I don't think Quebec can develop profitably new hydro resources."
(Dillon) At the signing ceremony with Vermont utilities, Quebec Premier Jean Charest sought to reassure Canadian journalists that the province had done well in the negotiations.
(Charest) "And it's good for Vermont. It's long term. And for Quebeckers this is wealth creation. So it's a very good deal, win-win for everyone."
(Dillon) Hydro-Quebec President Thierry Vandal said the utility has 40,000 megawatts of capacity and does not have to build new projects to satisfy the new contract.
(Vandal) "So what we're building right now is there is a lot of large hydro construction taking place in Quebec right now. We're investing over $5 billion a year in that type of development. That is basically going to be available for growing other markets."
(Dillon) And that's the gamble. Hydro-Quebec has to pay for those pricey new power dams. But it hasn't signed any new contracts in the U.S. besides Vermont. And the energy market that would finance the expansion may remain flat and not need the electricity flowing from northern Quebec.
For VPR News, I'm John Dillon.