MONTREAL – Hydro-Québec, the giant electric utility owned by the provincial government, is often touted for its ability to deliver cheap energy.
But there is mounting evidence that consumers are paying more than necessary for their electricity because of political decisions made by the government.
Consider that Hydro-Québec has requested a rate increase from the Régie de l’énergie of 2.8 per cent – well above the rate of inflation. The utility attributed the proposed increase to “new electricity purchases.”
Essentially, the government has decided that new and more expensive sources of energy, especially wind power, should be given priority in its energy mix even though Quebec is currently enjoying an energy surplus.
Wind is not nearly as cost effective as hydro power, biomass or thermal electric production from natural gas.
“Quebecers pay literally hundreds of millions of dollars a year to produce electricity from wind turbines that they don’t need,” economist Youri Chassin says in a note published by the Montreal Economic Institute. “This energy is 2.5 times more expensive than hydroelectricity.”
He figures the net cost of wind power, including transportation, distribution and integration into the grid, is a little more than 14 cents a kilowatt hour, compared with small hydro power at 11.5 cents and legacy installations like the La Grande and Manic dams at 5.5 cents.
The implicit subsidy to wind production works out to $695 million a year.
Now, you might have political reasons to favour wind if you think it’s a better source of energy at a time of climate change.
However, both wind and hydro are clean and renewable and hydro dams have a longer lifespan than wind turbines, which must be decommissioned after 20 or 25 years.
As well, consider the fact that wind doesn’t blow sufficiently all the time – the industry average is about 35 per cent. That means there has to be some backup for wind in the distribution network.
Remember that the crown corporation is split into three separate divisions: production, distribution and transmission. Hydro-Québec Distribution is contractually obligated to buy different kinds of power from Hydro-Québec Production.
That power can come from several sources: legacy hydroelectric installations, newer hydro dams or alternative energy projects. But the purchase costs are vastly different.
The previous Liberal government commissioned wind projects totalling 3,119 megawatts – a decision essentially forced on Hydro-Québec. The current Parti Québécois government announced a few weeks ago that it is awarding contracts for another 800 megawatts of wind production, yet the context for that decision is puzzling.
As Chassin points out, the government said it would cancel production from six community hydro projects, citing “economic reasons” which presumably include the fact that Quebec is running an energy surplus.
The financial consequences of such a surplus are becoming more expensive by the day.
TransCanada Energy has a supply contract with Hydro-Québec Distribution to provide power from a gas-fired power plant at Bécancour. But Hydro-Québec has opted not to take the energy and is paying compensation estimated at between $200 million and $250 million a year, even as it moves full speed ahead with more expensive wind power.
In its supply plan, the utility does not expect to make use of Bécancour power before 2017-18.
This all gets back to how you define an “energy surplus.” As Chassin says, a surplus is not unused power, it’s power that is sold below the cost of production.
“If electricity could be resold profitably on the domestic market or by exporting it, there would be no talk of a surplus.”
In the end, we have a system where politics rules. It’s not just the climate change issue that’s driving wind farms, it’s the government’s obvious effort to push development in the Gaspé region, where many are located.
What we need is a more transparent system where subsidies are clearly visible to the public and where decisions are made on a rational, not political, basis.
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