Hydroelectricity has long been an integral part of Québec’s economic and cultural fabric, but new challenges are putting the grid to the test.
For Quebecers, the 1998 ice storm was more than a dangerous weather event. It was a disaster that struck at the heart of what the province is, exposing the vulnerability of our beloved power grid and ultimately leading to significant energy infrastructure investments, including the construction of new dams. Ever since, Hydro-Québec’s public image has strengthened, as the government-run energy monopoly has been able to provide a reliable power supply while bringing in much-needed revenue for the province to invest into social programs.
Recent events, however, have completely changed the province’s energy landscape. Hydro-Québec has overextended itself by signing export contracts with the United States, failed to modernize aging infrastructure, and underestimated the need to respond to increased domestic demand as the economy ramped up in the wake of COVID-19 lockdowns. Add to that the disruption of other energy sources ever since Russia invaded Ukraine, and the incentives for U.S. hydrocarbon producers to redirect exports to Europe and Asia rather than Canada, and you now have a new storm endangering Québec's energy system.
This time, the threat is not a brief onslaught of freezing rain, but a long-term structural inability to provide enough energy at affordable prices to continue to support industrial projects in Québec. With the provincial government looking to invest heavily in electrifying transportation and "decarbonizing" the economy, potential hydro shortages come at a very bad time.
Energy problems that translate into economic ones
For years, many parts of Québec have been able to attract jobs because the government could offer energy discounts to industries and residents. It was arguably one of the few levers Québec had to compete and convince major industries to set up shop in the province. It compensated for a less favourable tax system and greater difficulty in attracting and retaining foreign workers. The export of hydroelectricity also helped bring in money from outside the province, as the supply was plentiful. What generations of Québécois have long taken for granted is now in serious jeopardy.
Recently, the head of Hydro-Québec and many other top executives announced their intention to leave the organization. Although the official reasons vary, it is clear that the government's desire to reorganize the company and become more involved in the distribution of electricity has clashed with an institution not accustomed to rapid change. The Minister of Energy also wants to add more capacity to the power grid and put an end to the fantasy that reducing residential consumption will solve all problems. Québec needs more power, and there is no way around it but to face the problem head-on. Hydro-Québec has dragged its feet for years, and now there is a price to pay.
Potential solutions
There is no quick fix to Québec's current and future energy problems. The first option is to accept slower growth and less foreign investment. For obvious reasons, this is not the way to go, at least not for anyone who isn’t a disinvestment zealot.
The second option is to rely more and more on foreign energy markets. As the world's energy supply chains become more expensive and unpredictable by the day, this is not an option you can build and plan on. As we saw in the 1970s and more recently in the wake of the Great Recession of 2008-2009, energy price shocks can be damaging and, in turn, freeze growth and limit policy choices.
The third option is a combination of better energy efficiency and increased production. Improving efficiency would ease the burden of demand growth by using better processes and allocating energy where it is most needed. An increase in production would help meet rising demand resulting from a healthy, growing economy.
To increase energy production, Québec can, of course, build new hydroelectric dams. No doubt, this will have to be part of the solution. The problem is that it takes eight to 15 years before new dams are ready for action. In the meantime, to avoid overly depending on energy sources from outside the province, Québec could also develop its natural gas reserves, which would help provide a stable power supply during the transition period. The province can increase its windmill installations and boost solar and biogas
production as well. These sources can supplement hydroelectricity production, but they are often less reliable, and the electricity they produce is short-lived and much more expensive to store. However, these technologies can still play a valuable role in a more diversified energy mix.
As other models around the world show, energy transitions can be extremely difficult to plan and execute, mostly because demand growth is always underestimated. Factor in geopolitical realities, and it becomes clear that energy independence can hardly rely on a single supply source. If Québec wants to electrify its economy, it will need more energy in its system. This new reality is here to stay, and the province will finally have the energy debate it thought it could avoid all along.