The
ability to store low-cost hydroelectricity, for which there is massive
future potential, creates big export opportunities
eregulation
of the US electricity market, combined with the rapid pace of technological
innovation, has radically altered the power industry in recent years.
In Canada, where electricity costs are generally lower than its neighbour,
this translates into a significant competitive advantage.
About 10,000 years ago, retreating glaciers ground their way across
Quebec, carving out thousands of lakes and rivers. As a result, there
are now massive reserves in freshwater lakes, which can feed the country’s
hydroelectric power plants. Of all the regions in North America with
hydropower potential, the Saint-Maurice River valley, known as Mauricie,
was one of the first to be developed.
Scraped
out by two successive waves of glaciers, 523km-long Mauricie has many
falls and rapids, and the valley has formed the basis of Hydro
Quebec’s success. The Canadian firm has an ongoing US$6.9 billion
investment programme in this region that will raise generating capacity
over the next decade. Future projects include Peribonka in Lac St Jean
(450MW), Eastmain-Rupert in the north (1,200MW), Toulnustouc north of
Baie-Comeau (526MW) and Romaine I on the North Shore (220MW).
Hydro Quebec is North America’s largest electricity producer and
a pillar of the provincial economy, having successfully built up a business
in energy trading alongside its more traditional generating activities.
The company made a record net profit last year of US$685 million, against
forecasts of US$640 million, thanks to strong electricity exports to
the US and despite warmer weather than usual.
Hydro Quebec owns or operates facilities capable of generating 37,000MW,
nearly all hydro-based. The firm distributes power to 3.5 million residential
and commercial users across Quebec, neighbouring provinces and northeastern
US. Although it has an aggressive investment programme to expand capacity,
new business areas have some of the most exciting prospects.
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Caille
‘We
are among the few firms able to stock vast quantities of
electricity’
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Company
president Andre Caille says
one major area of commercial growth is to buy energy from other producers
to sell to customers, which he calls “optimising existing assets”.
This involves buying excess electricity, enabling the firm to slow down
its turbines and keep water levels high in the giant reservoirs that
feed its hydropower plants.
“We are among the few hydroelectric companies capable of stocking
such vast quantities of energy. In our reservoirs, we can stock the
equivalent of New York’s annual consumption,” says Mr Caille.
The North American energy market is now as sophisticated as any stock
exchange in the world, he says, and the idea is to stock up on electricity
when prices are low and sell when they are high.
“This has enabled us to increase our turnover in three years from
$8 billion to $11 billion, or a bit over 30 per cent, and to quadruple
our bottom-line profits thanks to optimising our assets,” he says.
“If you compare the price of electricity in Quebec with that of
California or New York the differences are enormous – this is thanks
to hydroelectricity.”
Hydro
Quebec forecasts that annual demand for electricity will rise 1.2 per
cent until 2016. Growth over the past 15 years has been about 2.6 per
cent, although this should slow because of fewer big new industrial
projects coming online.
International markets present exciting growth prospects for the company,
which has operations in China, Latin America, Central America and Africa.
Mr Caille says the firm plans to use methods other than hydropower to
access the Chinese market and has teamed up with American thermal-generation
specialist PSEG. “We go where there is a need for convergence between
gas, electricity and hydraulics.”
In the developed markets of North America, the company is encouraging
greater participation of smaller, independent power producers to sell
energy into the market via Hydro Quebec. And, in May 2000, it even opened
its own energy trading floor.
Mr
Caille believes Hydro Quebec’s cost advantages and reputation will
enable it to achieve more success in future as electricity trading continues
to grow. The potential to increase sales is enormous, given the overall
demand for electricity in the US and Canada.
Larry Bell, chairman of Vancouver-based BC Hydro, also sees great potential
in trading in energy as his company can store electricity capacity in
its huge dam reservoirs, which feed its power stations on the Peace
and Columbia rivers.
“We store enormous amounts of energy behind the dam in the form
of water. If you owned six inches of water behind the dam you could
forget about working for the rest of your life,” he says.
This
ability to store energy represents an enormous opportunity to export
power – the hydroplants can work at a higher capacity during peak
demand times, and can then be ‘turned off’ at times of low
demand.
The power grid interconnects from Mexico to Alberta, and almost all
of BC Hydro’s output is sold in a region spreading from the Rocky
Mountains to the Pacific Ocean, and from northern Alberta to Mexico.