On July 6, 2015, Eric Martel took over as CEO of Hydro-Québec.

One of Mr. Martel’s first tasks is the preparation of Hydro-Québec’s 2016-2020 strategic plan and its approval by Government. He has until November to deliver the plan.

The strategic plan must be prepared (i) in accordance with Section 11.12 of the Hydro-Québec Act, and (ii) such form, content and timetable as determined by Government. The plan will also have to dovetail with Quebec’s 2016-2025 Energy Policy scheduled to come out before the end of 2015.

Decree 579-2015 published July 22, 2015 in the Official Gazette of Quebec sets out the form, content and timetable of Hydro-Québec’s 2016-2020 strategic plan.

According to Decree 579-2015 the plan must deal with the following:

  1. The Plan Nord, including the identification of future hydro-electrical projects within its territory;
  2. The electrification of transportation;
  3. Wind power, including network integration improvements;
  4. Energy efficiency, including reductions in energy consumption;
  5. Energy research and development;
  6. Greater Hydro-Québec transparency;
  7. Increased revenues from external markets (e.g., power exports in the US and Canada and investments in power assets outside of Quebec);
  8. The rules for the calculation of bonuses to officers and employees, and
  9. Operating efficiencies so as to keep electricity price increases equal to or below inflation.

The above represents a radical departure. With the exception of Hydro-Québec’s return to operating outside Quebec after a hiatus of nearly 20 years (see our June 3, 2013 post on Hydro-Québec International), the plan ushers in a period of consolidation rather than expansion. The next five years will not see any major hydro-electrical development. Hydro-Québec will eschew its traditional role as one of Quebec’s principal purveyor of engineering and construction work and instead focus on becoming more efficient, greener and transparent.

There are a number of reasons for this new direction:

Firstly, Quebec has overbuilt and has substantial electricity surpluses. These surpluses are expected to continue well into the next decade and perhaps beyond. As a result, Quebec does not need to add generation except to cover a few peak winter hours when its system is at capacity, something that it is doing pursuant to its recent call for 500MW tenders.

Secondly, it is not clear that future big hydro projects will be cost effective. Some renewables, including wind and solar, are fast becoming competitive. The latest long term purchases of wind power by Hydro-Québec were made at an average price per kW roughly equivalent to power from the Romaine Project. Thus, while Hydro-Québec has a clear preference for large projects, the arithmetic may no longer be advantageous. In addition, there are few big hydro lower cost sites left in Quebec.

Thirdly, Quebec’s per capita electricity consumption is high and, because of relatively low prices, probably not optimal. Energy conservation, particularly within the residential market, should achieve important savings and help Quebec burnish its environmental credentials. The environmental movement has for some time been asking Hydro-Québec to make greater efforts in this area. Success will require a change of mentality among both consumers and within Hydro-Québec. The utility has traditionally placed greater emphasis on production and energy efficiency has been a lesser priority. Also, Hydro-Québec will have to be very creative in its approach with consumers since price increases above inflation will not be acceptable. Low electricity prices are part of the social contract with government and Quebecers are quick to remind Government of this fact.

Finally, there is some fatigue among the electorate with big hydro. The 1,550MW Romaine project, and the ensuing damming of one of the last major free flowing rivers below the 52nd parallel, struck a nerve among many in Quebec, including within Quebec’s influential artistic community. A documentary with leading Quebec artists soundly condemned the Romaine project. It is unclear whether a similar project would be socially acceptable at this time.