Quebec is running out of power, and its economy hangs in the balance

Quebec is running out of power.

Once brimming with surplus energy, the province’s electric utility, Hydro-Québec, was long lauded as the engine propelling Quebec’s economy. Its proponents boasted that the affordable and plentiful power provided by the government monopoly would attract new industries.

Two years ago, however, Hydro-Québec realized that its demand projections had beesn based on faulty assumptions, and its actual surpluses were far slimmer than it had believed. It became apparent that at current levels of supply its surplus power would run out by 2027.

In the past year, industrial development projects that would have required 21,500 megawatts of power have been rejected by the province’s Energy Department. The reason? Hydro-Québec doesn’t have the energy needed to supply them.

Other initiatives have been asked to delay their plans so that the job creation associated with them can coincide with new production capacity coming online.

To its credit, the Legault government has recognized the need to act to increase power production capacity and has even understood the urgency of the situation. Unfortunately, its proposed solution falls far short of what would be needed.

On the one hand, there is Hydro-Québec’s plan to grow its own production capacity and improve grid resiliency, adding 9,000 megawatts of power. This promises to be very expensive – the first phase alone is expected to cost at least $155-billion by 2035. That comes to over $17,250 per Quebecker.

But, as the government seems to have understood, adding 9,000 megawatts of production capacity won’t be nearly enough to satisfy the demand for power. At 21,500 megawatts, the recently rejected projects alone require more than double that amount.

So the province has come up with another plan – however, it also falls short.

The Legault government tabled Bill 69 in early June right before legislators broke for the summer.

In an attempt to prevent Hydro-Québec’s inability to meet demand from stunting the province’s growth even further, this bill would allow independent renewable energy producers to sell directly to a single industrial client, as long as the client’s installations neighbour their production facilities.

For larger industrial consumers, the fact that these producers can sell only to one client is no issue. Consider, for example, a hydrogen company the size of TES Canada which is seeking 800 megawatts of clean electricity to meet its needs, perhaps from a wind farm. If TES Canada weren’t building its own power generation, it could easily find an independent energy entrepreneur willing to build and operate such a large wind farm for it in exchange for a long-term supply contract at the right price.

But for significantly smaller firms, it is doubtful that an independent producer would be interested in going through the entire development and regulatory approval process just to put up two or three wind turbines or solar panels.

Effectively, smaller firms are being denied access to the electricity they need to grow their businesses. The shortage of power is so acute that any industrial project that requires five or more megawatts has become subject to ministerial approval, lest the proponents embark on it only to realize later they cannot find the power.

These are projects involving companies such as the Forges de Sorel. At 320 employees, it’s on the smaller side by industrial standards. When the company was looking to switch to electrical furnaces, it asked the government for 16 megawatts of power. Its request was denied.

If an electricity provider were permitted to serve more than one client, to set up a wind farm to supply 10 to 20 small industrial consumers in a given business park, the project’s size and diversified consumer base might prove far more enticing.

This is where Bill 69 shows a glaring lack of ambition. By limiting the number of consumers that can purchase energy directly from independent producers, it creates a regime that works to free large consumers from their dependence on Hydro-Québec, while keeping small and medium-sized businesses at the mercy of the monopoly’s very limited supply. When the legislature gets back to work this fall, let us hope lawmakers work to fix this bill.

The province has made a lot of mistakes on energy policy. The result has been to transform Hydro-Québec’s monopoly from a vaunted engine driving economic growth into something more akin to a braking system.

The government must work to prevent Hydro-Québec’s poor demand planning from constraining the province’s potential any further.

Renaud Brossard est vice-président, Communications à l’IEDM et Gabriel Giguère est analyste senior en politiques publiques à l’IEDM. Ils signent ce texte à titre personnel.