Four reasons why Quebec should resurrect Hydro-Quebec International
Posted on June 5, 2013
Will Hydro-Québec reignite its international subsidiary? Photo by afagen via Flickr
Quebec’s efforts in the energy sector are guided by its energy policy. The current policy covers 2006 to 2015 [PDF]. Quebec is putting its final touches on the next reiteration to be released fall 2013. A consultative process will follow.
Early indications are that the government is thinking of resurrecting Hydro-Québec International (HQI), the former wholly-owned subsidiary of Hydro-Québec.
This is an excellent idea.
Quebec’s electricity sector represents more than 5% of its GDP and is anchored by Hydro-Québec, a large vertically integrated state-owned utility. During the 1980s and 1990s HQI was active on the world stage, first as a complement to the international activities of Quebec’s engineering sector, and then as a full-fledged developer, owner and operator of production and transmission facilities, primarily in emerging markets.
In the late 1990s and early 2000s Quebec, bowing to ratepayer pressure concerned about HQI’s impact on domestic electricity prices, ordered Hydro-Québec to concentrate its activities in Quebec. As a result HQI (profitably) sold its overseas investments and curtailed its foreign activities, with the exception of course of those activities directly linked to U.S. power exports.
There are four reasons why Hydro-Québec should resurrect HQI, both as a technical adviser and an investor and operator:
- Brand: Hydro-Québec has a very good brand at home and abroad. By world standards it is well run and large. It is profitable and a recognized leader in a number of areas, including transmission and hydro-electricity (98% of HQ’s production is from hydro). Also, the fact that it is state-owned is an important plus in many markets. Local authorities often prefer to deal with a public-sector entity rather than one from the private sector.
- Talent: Quebec, in large part thanks to Hydro-Québec, has the requisite technical, managerial, financial and legal skills and experience to design, finance, build, operate and maintain electricity assets abroad.
- Opportunity: The population of Canada and other first world economies is rapidly aging and growing more slowly. The demographic and economic growth over the next 25 years will be substantially higher in middle income and emerging markets. HQI is a way for Quebec to participate and benefit from such growth. For example, there are 1.2 billion people on earth who do not have access to electricity, and middle income and emerging markets are expected to add 2 billion people by 2050.
- Exports: Quebec is expected to continue to have substantial electricity surpluses well into the next decade. As a result the need for new builds in Quebec will dramatically shrink in the medium term. Projects abroad may be part of the solution to maintain HQ’s supply chain.