The economics of hydro-electricity and industrial development haven't changed in the past 30 years even if the price per kilowatt hour fluctuates. The consistent policy of successive governments in Newfoundland and Labrador - including the current administration's plans to develop power for export makes sense.
The province has a commodity others need. As long as the prices are good, the provincial energy utility can develop and sell power to other places far more profitably than if it tried the Quebec approach or the Icelandic approach of providing massive subsidies to establish industry solely for the purpose of creating jobs.
As economist Jean-Thomas Bernard calculated, the Quebec government would lose about $300 million per year over 20 years as a result of its aluminum smelter policy. Bernard and Gerard Belanger, his colleague at l'Universite de Laval, repeated the same analysis of agreements for aluminum smelters signed in 2007 by the Quebec government. They concluded that in exchange for a $2.0 billion investment and 740 jobs, the Quebec government will forego $2.7 billion over the course of 35 years.
The experience of other provinces should give us pause.
Drawing our water and giving it away
Hydro-Quebec losing big by selling cheap electricity to aluminum patch: critics
Bertrand Marotte
The Gazette
Montreal, Que.
Apr 27, 1991.
Page B.4
They didn't come for the view. The Japanese, European and U.S. interests that decided to set up or expand aluminum operations along the St. Lawrence River valley in Quebec were lured with cheaply priced electricity, courtesy of utility giant Hydro-Quebec.
Today, giant smelters sprout from Trois Rivieres to the Lower North Shore in a concentration known as Aluminum Valley.
It may not have the same high-tech, high-dollar mystique as its silicon counterpart in California, but the aluminum patch is a keystone of Premier Robert Bourassa's economic strategy.
This veritable boom in Quebec's aluminum production is closely linked to plans for a series of giant new hydro-electric developments in the northwestern part of the province - including the controversial $12.6-billion Great Whale project.
Contracts are secret
Aluminum smelters devour electricity like no other industry - up to 30 per cent of their production costs - and Hydro-Quebec offers them a guaranteed supply, often over a 20- to 25-year span.
The smelters buy the electricity at a price that is tied to the roller-coaster price of aluminum on the spot market.
Hydro-Quebec, in other words, offers a "risk-sharing" program to the aluminum companies, as well as to other high-energy users that make primary products, like hydrogen and magnesium, said spokesman Richard Aubry.
But no one is allowed to know how much Hydro-Quebec receives for the cut-rate electricity it supplies to 13 outfits, including the four new aluminum smelting operations along the St. Lawrence.
Recent revelations in the national assembly and at a televised news conference broadcast from the United States have shed light on some of the prices, but the contracts remain secret. Hydro-Quebec, the provincial government and the companies involved have all been blocking attempts to make that information public.
Critics, including the Cree Indians whose land will be flooded once again if Great Whale and other projects go ahead, say one of the reasons Hydro-Quebec needs the new projects is to make up for the revenues lost through contracts that are far too generous for big energy users.
Net loss to Quebec
Jean-Thomas Bernard, economics professor at Laval University and an expert on the economics of hydro-electricity, says such a criticism would be hard to prove.
But Bernard agrees Hydro-Quebec is losing in a big way by selling its electricity so cheaply to big companies rather than exporting it for a much higher price.
It is believed the aluminum companies and others with special commercial contracts pay less than 2.6 cents per kilowatt-hour, compared to more than 6 cents per kilowatt-hour that is charged on export contracts to the United States.
Hydro-Quebec insists the income from the special commercial contracts averages about the same as amounts earned from the higher rates it charges its regular industrial customers - about 3.5 cents per kilowatt-hour.
Quebecers in no way subsidize those contracts, Aubry said.
Bernard, however, estimates that the new aluminum plants will result in a net loss to Quebec of about $300 million per year, over 20 years.
And because aluminum smelters employ so few people, Bernard said that Bourassa's job-creation argument is also shaky.
Each new job created in aluminum smelting will represent a hidden government subsidy of $150,000, Bernard figures.
There are also the environmental costs.
Ingots shipped elsewhere for manufacturing
Aluminum smelting is one of the most polluting industrial activities, and although the new generation of plants are cleaner, they are far from being totally non-polluting, said environmentalist Daniel Green of the Montreal group Societe pour Vaincre la Pollution.
Quebec gets little in the area of advanced manufacturing from the cut-rate sales.
Once the primary processing is done, the aluminum ingots are shipped from the province, where they are transformed into a host of different products.
There was hope for at least one important new aluminum manufacturing plant in Quebec, but that has been killed.
Reynolds Metals Co. of Richmond, Va., which owns Canadian Reynolds Metals Co. of Baie Comeau, reneged on a promise to build a $50- million plant near Montreal that would have produced 750,000 aluminum wheels a year, opting instead for the already rich industrial heartland of southern Ontario.
Says one aluminum analyst: "Quebec is really competing with places like Venezuela and Brazil, which also offer cheap hydro, and cheap oil.
"We are still hewers of wood and drawers of water, but why not?"
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