The Toronto Star
October 16, 2013
Andrew Reeves


Ontario urged to tap into suddenly surplus Quebec hydro

A tanking U.S. export market for Quebec’s surplus hydropower means the time is right for Ontario and la belle province to strike a substantial electricity deal, energy experts urge.

Jean-Thomas Bernard, visiting energy economics professor at the University of Ottawa, told QP Briefing Wednesday that the declining price of natural gas because of the booming shale gas revolution happening south of the border is changing the game for Hydro-Québec, and Ontario is well positioned to take advantage of the situation.

In July, 2008, before the full impact of the recession hit the North American economy, the price of natural gas in the United States was $12 per thousand cubic feet. Within six months that price had dropped to $6 per thousand cubic feet and and would bottom out to $2 last summer. Currently, the price is around $3.70, and it is expected to hold steady at that general level for the next two decades, Bernard said.

“This was a huge drop in the price of natural gas,” Bernard said. “The main reason is shale gas – it was hardly on the horizon in 2008, but now as we speak it provides more than 30 per cent of the gas produced in the U.S.”

As the cost of natural gas plummeted, Hydro-Québec began to feel the strain of competition. Like hydropower, gas is predominantly used in the northeastern United States for spikes in demand, and the price Americans were willing to pay for Quebec hydro shows the demonstrable decline in demand.

From a high of 14.04 cents a kilowatt hour in mid 2008, Hydro-Québec’s export price dropped to a low of 2.71 cents a kilowatt hour in late 2012 in an effort to remain competitive with U.S. shale gas.

“This his has hit pretty badly the development plans of Hydro-Québec,” according to Bernard, because it wanted to continue developing into more remote regions of the province. Former Liberal premier Jean Charest made further hydro development a focus of his May, 2011, natural resource blueprint, Plan Nord.

Hydro development in Quebec continues unabated, Bernard said, which may present an opportunity for Ontario to secure large volumes of hydropower from its neighbour. However, since power from easily accessible dams in northern Quebec has been tapped out and future hydropower Ontario could access would likely come from costlier and more remote Quebec dams, Queen’s Park would be looking at power in the 10-12 cents a kilowatt hour range.

“But this would be considered relatively cheap in most places compared with wind and solar prices” which are often inflated because of fixed-price, 20-year agreements signed with private power developers in Ontario, Bernard said.

The debate over what role hydropower from neighbouring Quebec should play in Ontario’s energy future arose last week when Energy Minister Bob Chiarelli confirmed plans to spend upward of $15 billion on new nuclear units at Darlington would be shelved in the latest long-term energy plan, to be released later this year.

While rumours of nuclear’s death in Ontario are incredibly premature, in response, many suggested Ontario begin phasing out its existing nuclear units over the next half-century and take a serious look at expanding hydro imports from Quebec to replace the lost electrons.

“There is a very real option at looking at power from Quebec as they are in a surplus position and will be for the next few decades,” said New Democratic energy critic Peter Tabuns.

He said Ontario should “look very seriously at what we can do with Quebec as … its power could be a bridging phenomenon.”

After Chiarelli’s nuclear announcement last week, Ontario Clean Air Alliance head Jack Gibbons said: “It makes absolutely no sense to proceed with new nuclear, with demand in Ontario falling and with our having much much more low cost options, such as conservation and water power from Quebec.”

His group has even put out a fact sheet claiming hydro imports from Quebec could save the province $1 billion annually if prioritized ahead of nuclear power.

“I am absolutely convinced that they’re serious about this. Electricity rates in Ontario are going up, and building an expensive nuclear generator would only make them go higher. It makes no sense for Ontario,” Gibbons said.

York University professor Mark Winfield, who specializes in renewable energy, said he wouldn’t rule out a deal between Ontario and Quebec over hydropower in future as it makes too much sense for either side to ignore, especially as Quebec begins looking for new buyers for its suddenly surplus power because of declining U.S. interest.

“Given their spot market has weakened in the US since 2008, Quebec might have reason to do this and the economics could be attractive from Ontario’s perspective,” Winfield told QP Briefing.

So far there has been noise but no clear indication from the ministry of energy if they plan to pursue talks with Quebec as part of the long-term energy plan, but Winfield admits “they must be thinking about it.”

Chiarelli spokeswoman Beckie Codd-Downey told QP Briefing Tuesday this and many options are being considered as part of the LTEP review process, but that Ontario’s “existing interconnections [with Quebec] are sufficient for our power needs today” without a power purchase agreement needed.

The 2,500 megawatt Ontario-Quebec intertie is the largest the province shares with any of its neighbours, Codd-Downey said.

“It enables power to flow freely between the provinces when it is cost effective to do so. In particular, Ontario is able to purchase power from Quebec during peak periods in the summer and Quebec is able to purchase power from Ontario during Quebec’s peak winter season,” she said.

But with the LTEP review still under way, and given Chiarelli’s rebuff of new nukes last week, the time is right for the province to seriously consider reaching out to Quebec to ratchet up hydro imports, Winfield believes.

“A lot of people are talking about this as a possibility and it would make a lot of sense to think about it,” he said. “If there was a moment to have this conversation with Quebec this would seem to be it.”