Against the current?

Jean-Thomas Bernard

“Quebec not only has to stop hydroelectric development, it has to increase domestic rates to reflect new economic realities.”

– Jean-Thomas Bernard

As the Quebec government promotes northern development, especially on the strength of a massive hydroelectric project, a professor in the Faculty of Social Sciences at the University of Ottawa says that not only is the era of hydro dams over, but the cost of producing electricity in Quebec is now two or three times higher than its selling price.

“According to data from 2010, Canada ranks third in the world behind China and Brazil in hydroelectric power generation, but in terms of per-capita production, it ranks first,” explains economics professor Jean-Thomas Bernard, who specializes in energy economics.

In the 1990s and 2000s, energy costs in North America rose ever higher. Nuclear power was considered dangerous, coal was a polluter and natural-gas reserves were dwindling. The problem needed to be solved … and fast. Then a breakthrough in Texas in 2008 altered the energy landscape.

“No one saw this coming,” says Bernard. “I was at an energy conference five years ago, and no one was talking about shale gas. The impact has been devastating.” Indeed, in 2008, the price of natural gas peaked. But six months later, it was trading at a fraction of its former value. Why? “Because producing shale gas is inexpensive and because the reserves are huge,” he explains, adding that shale gas can be found pretty well everywhere between Texas and the St. Lawrence River.

Environmental problems linked to the development of shale gas extraction technology—especially in Pennsylvania, where much of the production is centred—tarnished the fuel’s reputation in Quebec. Still, the United States now produces electricity from shale gas for a few cents a kilowatt hour (kWh). As a result, Hydro-Québec’s market is crumbling and the utility now faces the prospect of having to sell its electricity for 4¢/kWh, though it costs 10¢/kWh to produce.

This assessment may seem surprising, but because hydroelectricity costs more and more to produce, “Quebec not only has to stop its development, it has to increase domestic rates to reflect new economic realities,” maintains Bernard. “In fact, even Quebec’s aluminum plants, which consume huge amounts of electric power, will have to do their share; right now, they’re paying for hydro based on the price of aluminum, not according to what it actually costs to produce and deliver power to the factory.”

In Ontario, the prospects are no brighter, he points out. “Nuclear energy can’t compete against shale gas. Sure, the economic downturn has caused factories to close down and has increased supplies somewhat, but not nearly enough.” As for wind power, people don’t seem to want turbines in their backyards.

But why does Quebec depend so heavily on hydroelectricity? To find out, you have to go back in time. “When first introduced, hydroelectricity drove regional development,” says Bernard. “At the time, dozens of companies big and small were supplying electricity across the province in what amounted essentially to a total free-for-all.”

“Upon taking office in 1960, the Liberal government decided to straighten things out and nationalized the industry in Quebec,” he adds. “Rates were standardized, to the delight of some and the dismay of others.” In Ontario, fears of seeing Niagara Falls become a victim of reckless development caused local hydro production to be nationalized way back in 1905.

In Quebec, however, most of the rivers close to large urban centres were soon harnessed. Finding new waterways for hydroelectric development meant going farther and farther away. “Today, transporting electricity all the way from James Bay can represent up to a third of the cost,” says the professor.

“During the 1970s, oil prices spiked, and that made hydro power very appealing. For many years, the rates paid by Quebec consumers were probably the lowest in the world.”

“After years of selling our hydro to the Americans, we Canadians will soon have to buy gas produced in the northeastern United States,” notes Bernard. “The reserves aren’t endless, of course, but they’re plentiful… and tapping shale gas will cost a lot less than any other type of electricity, hydro included.”

For Quebec’s hydroelectric dams, it may soon be time to say, “Lights out.”

 

by Jean-Marc Dufresne

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