Eric Martel, speaking at APPrO 2016
Speaking at the APPrO 2016 conference on November 15, Eric Martel, the CEO of Hydro-Quebec (HQ), outlined key priorities for the company including finding new avenues for growth outside its home province. He also explained the company’s view on structural changes underway in the energy sector, electricity prices, the Ontario-Quebec electricity agreement, HQ’s business development plans and HQ’s progress with innovation and new technologies.
In June 2016, HQ released its “Strategic Plan 2016-2020: Setting new sights with our clean energy.” The Plan includes improving customer service and communication, enhancing productivity, and developing new growth opportunities through activities such as increased exports, acquisition of assets, and commercializing innovative technologies.
It is clear, Mr. Martel said, that the world is in a period of energy transition, driven by the global momentum to address climate change. The consequences of climate change are real, impacting many nations around the globe. Some regions are expected to see a six-meter rise in water level as a result of climate change. We have a responsibility today to work towards achieving the common goal, he said, of avoiding global warming in excess of 2 degrees Celsius. HQ’s supply mix is 99% renewable, and the utility is planning to leverage their expertise inside Quebec and abroad to tackle global climate change targets.
In addition to having a 99% renewable supply mix, Quebec’s electricity prices are the lowest in North America. The historic trend of Quebec’s electricity price matches almost exactly with inflation. (See the green and dotted lines respectively, in the graph.) In clear contrast, other energy sources have much more volatility. The choice to build hydro power in Quebec was made in the 1960s due to the natural capacity available in the province’s water bodies, and resulted in the stable electricity supply and price situation Quebec is in today. Stable pricing in Québec is the reason why the utility can sign long-term contracts. Costs become primarily a matter of amortization of assets over a 20-30 year contract period.
Quebec has a lot of clean energy capacity. Over the past 12 years, HQ has built 4000 MW of capacity, and there is the potential to build another 40,000 MW. The U.S. northeastern states have ambitious targets to reduce emissions, and in HQ’s view, this trend is likely to continue. This makes the basis of a good business relationship between HQ and the northeast, Mr. Martel noted.
Several weeks ago, Ontario and HQ signed a joint electricity agreement; Ontario will purchase 2 TWh/year from Quebec between 2017 and 2023 for a total of 14TWh. This is expected to reduce electricity costs for Ontarians, and Ontario will reserve capacity of 500 MW for HQ to help meet Quebec’s winter peak demand. This is a great example of partnership, he said, with benefits for all parties. Hydro-Quebec has the ability to store Ontario’s energy in its dams, which has value for Ontario, and Quebec will have access to a reserve of generation that may be needed a couple of times a year, as Quebec winters can get pretty cold. The central objective is to optimize reliability and the use of assets on both sides, as well as creating a more predictable environment for everyone along with reducing GHG emissions.
No new transmission infrastructure is required to carry out the agreement, as there currently exists about 1800 MW of unconstrained interconnection available between the two provinces. There is a lot of existing transmission infrastructure between Quebec and Ontario and it has been underutilized.
HQ has several options for increasing revenue. Growth within the province has been very low for the past ten years, and it will be difficult to maintain today’s level of profitability without growth. In addition, HQ needs to contribute to Quebec’s economic development. The company has been investing $3.8 to $4 billion dollars a year, making them the biggest investor in the province, public or private. To help achieve their revenue goal, HQ is planning to make greater use of their management capability, to increase exports, to acquire assets outside of the province and to commercialize their innovations, as outlined in the Strategic Plan.
HQ’s internal engineering company is managing around one thousand engineering projects ranging from $2 million to $6.5 billion dollars (La Romaine project). Engineering management and execution of large scale generation and transmission projects are areas where HQ knows they have strength. Innovation has been part of their DNA, states Mr. Martel. For example, HQ invented the 735 kV transmission lines in the 1960s and developed the first multi-terminal HVDC line from James Bay to Boston. The utility is planning to acquire assets outside of Quebec, and help economies in those regions to develop. Currently HQ is looking at potential assets in the Americas and Europe, and focusing on 4 to 5 countries that have the potential for growth and an interest in transitioning to renewable energy. Renewable energy integration brings new challenges to the network, and these are areas where HQ feels it has expertise.
Acquiring assets will be important because Quebec currently has little internal growth and it would be difficult for HQ to maintain their bottom line without out-of-province activity. HQ is looking for investments that have an attractive return, and will focus on a few countries where it can build special relationships and local partners, consistent with HQ’s principle of sustainable development.
Increasing the generation capacity of HQ’s existing fleet is of strategic interest. Today HQ’s total exports are 30 TWh, of which over 50% goes to New England. It is interesting to ask, notes Mr. Martel, what are the opportunities for additional export of electricity using existing capacity. Massachusetts has a new law that allows the state to purchase 9.45 TWh of clean energy resources per year, and Quebec is in a unique position to respond to that need. In New York there is discussion to purchase 8 TWh of energy that would require additional transmission infrastructure. In terms of exports, the major obstacle is lack of transmission capacity.
Commercializing the company’s innovative technologies is another area of strategic interest to HQ. This is pursued primarily through their innovation research institute, IREQ. HQ is focused on three primary areas in order to capitalize on the IREQ’s expertise and international reputation. The first is an electric motor, through subsidiary TM4, where sales have been in the thousands in China. The second is Esstalion, an energy storage solution currently being developed in partnership with Sony. The battery is extremely secure, and is capable of achieving more than 5 times the number of charge cycles than other comparable products. It is currently under lab testing. The third, MIR, is a robot that can inspect and repair high-voltage transmission lines. It is already in use in some locations.
Mr. Martel also touched upon two other areas of their strategic plan: improving customer service and proactive communication with customers, employees and partners.
Hydro-Québec has been maintaining its expertise and ensuring the company is capable of managing the next big project, despite periods of reduced activity. There are rivers in Québec with huge amounts of additional hydro-electric capacity. No decisions have been made on which of these sites is most attractive, however HQ wants to be ready to build another project after La Romaine is complete in 2020.The managers of Hydro-Québec want to be a part of the solution for the northeast corridor as well as contributing to economic development in Quebec, as and other regions and countries.
— With reporting from Maral Kassabian.