Five inconvenient truths about energy in Quebec
Posted on February 25, 2014
This week Québec’s Natural Resources Minister Martine Ouellet finally (and perhaps reluctantly) made public the January 24, 2014 final report from the Commission sur les enjeux énergétiques du Québec. The two-man commission was struck in July 2013 and tasked with (i) taking stock of Québec’s energy situation, (ii) identifying and analyzing the challenges ahead, and (iii) carrying on public consultations on energy in Québec. (See my previous blog post, “Could this be the beginning of the end of cheap electricity in Quebec?”).
The Commission’s report is 308 pages of well written, easy to use information. It is a combination of fact-based analysis mixed with vision and imagination. It is clearly the work of two knowledgeable and independent individuals, and will ably assist the government in the elaboration of its new energy policy.
The report is also full of inconvenient truths with the potential to embarrass the government, particularly on the eve of a soon-to-be-called election.
Here are five inconvenient findings:
- Québec is not as green as it thinks. Québec is a huge consumer of energy on a per capita basis and must pay far more attention to how it uses energy if it wishes to meet its greenhouse gas targets. In short, Quebec must consume less energy. Demand for electricity (99 percent renewable) has leveled but demand for carbon fuels (oil, gas) continues to rise. The commission proposes numerous recommendations to reduce energy consumption, including less emphasis on cars, more urban transit, less urban sprawl, better grids, more “user pay schemes,” etc. All things that an increasingly suburban population does not want to hear.
- Electricity surpluses are very expensive. Québec has a large electricity surplus (at least 30 TWH) and it continues to add capacity — more than 1,000 MW in 2014 alone. (See my January blog post, “2014 will be a very busy year for Quebec’s energy sector.”) It is estimated that these surpluses will cost $1.4 billion in 2020 and $2 billion in 2025. The Commission recommends that all projects under development or construction should be immediately stopped. Unsurprisingly, this recommendation was dismissed offhand by Premier Pauline Marois within hours of the public release of the report.
- Electricity prices in Québec are fair. While relatively low by North American standards, electricity prices are not low relative to production costs. This flies in the face of the government’s wish steadily to increase prices to generate more revenues for its coffers. Hydro-Québec currently has a pending request before the Régie de l’énergie, the energy regulator, to increase tariffs by 5.8 percent. Needless to say, these increases are not popular with the electorate.
- Québec no longer has a cost advantage when it comes to electricity. Other regions of the world can offer cheaper power. As a result Quebec should stop trying to attract investments by offering cheap power, according to the Commission. On the contrary, says the government. This year at Davos Premier Marois announced with great fanfare how its program to offer discounted power for the first 10 years of an investment enabled Québec to secure a $375 million investment by FerroAtlantica, a Spanish company.
- There is nothing special about oil and gas exploration and production. These are ordinary economic activities that should be dealt with in the same manner as any industrial or extractive activity, according to the report. Therefore, the debate as to whether to allow oil and gas activities should not be highjacked by the greenhouse gas reduction debate. There is a strong movement in Quebec against oil exploration and production because it will slow the move away from a carbon based economy. On the question of oil, the Commission is closer to the position of the government and public opinion. (The government is pro-oil exploration and, if commercially viable, pro-production provided that the state has at least 50 percent of any project). However, regarding shale gas the Commission is far ahead of public opinion and some in government. Interestingly, Quebec’s environmental minister quietly announced last week that he had commissioned a full-fledged environmental study of shale gas. This study is to begin no later than March 31, 2014.