30 July 2009

Paying not to produce electricity

A drop in electricity demand in North America will see Hydro Quebec paying some of its suppliers not to produce electricity in the next year, according to le devoir.

Selon les documents déposés devant la Régie par la société d'État, ses surplus d'approvisionnements s'établissent à 11,3 TWh pour l'année prochaine. Le chiffre inclut les volumes d'énergie différés par le passé. De ce volume important, Hydro-Québec souhaite désormais soustraire les 4,3 TWh de la centrale de Bécancour. «Notre contrat avec TCE nous permet de payer pour la non-livraison d'électricité», a commenté Guy l'Italien, porte-parole d'Hydro-Québec. «Cette option nous coûte, dans le contexte actuel, moins cher que si nous décidions de prendre possession de l'électricité pour la revendre sur le marché.» La Société n'a pas été en mesure hier d'indiquer si des clauses similaires étaient présentes dans ses contrats d'approvisionnement avec d'autres de ses fournisseurs.

HQ is looking to shutter a natural gas generator operated by TransCanada Energy and pay the company $250 million under the terms of the contract between the two companies.

In the near term, HQ may also wind up with a significant surplus of generating capacity as it looks to bring the La Romaine and other projects on stream.  HQ will go ahead with the megaprojects since it has the capital and will look to recover its costs over a very long time span.

A drop in energy demand and competition from other electricity generators will likely also lessen the chances the provincial government’s cherished Lower Churchill project will find favourable capital arrangements.  The $6.0 to $9.0 billion project remains chronically about two to three years behind schedule in its most recent iteration. 

The project also doesn’t have a single customer to date outside consumers on the island portion of province.  They would be – in effect – forced to subsidise the massive project by virtue of having an infeed line strung to the Avalon peninsula even though demand on the island could be met through other less costly means.   Other than that, there are no signed power purchase agreements.

Interestingly, as demand has lessened, interest in the project has increased, particularly within the Maritime provinces.  Federal cabinet minister Peter Mackay and Prime Minister Stephen Harper recently toured the proposed dam sites by helicopter.

Of course, weakening demand and a proponent jammed up for cash and pushed along by its own hyper-torqued rhetoric might create a much better circumstance for energy buyers looking to strike a favourable long term deal.  That’s very similar to the situation that led Brinco to sign a disastrous deal with Hydro Quebec in 1969, with the backing of the provincial government.


h/t to Claude Boucher.