Quebec’s electricity exports to the United States plummeted in 2023 – the latest evidence that persistent droughts are shifting flows of electrons and money.
Hydroelectricity is Canada’s main method of producing power, accounting for more than half the country’s total output. It’s particularly dominant in Quebec, British Columbia, Manitoba and Newfoundland and Labrador, provinces where utilities are highly dependent on water flow for power generation and financial performance.
Nowhere is that dependence more evident than in revenues from exports. Canada has traditionally been a net exporter of electricity to the lucrative U.S. market. According to the Canada Energy Regulator, the two countries are connected by transmission lines stretching more than 1,500 kilometres. And it’s no coincidence that water-rich provinces account for most of this trade: Quebec, B.C. and Manitoba (along with Ontario, which has dozens of hydroelectric dams but generates even more power using nuclear plants) account for nearly all of it.
Utilities in these provinces rely on exports to supplement their revenues, pay down debts and lower power bills for domestic customers. But to export they need enough water to generate surplus power. When it’s abundant, they can sell it either through long-term contracts stretching out several months or opportunistically on a day-to-day basis.
But their first obligation is to those domestic customers, so when there’s no surplus water, exports (particularly those with no contractual strings attached) are the first to be curtailed. That’s basically what happened last year: According to data released by Statistics Canada last week, Canada’s electricity exports to the U.S. fell sharply – to their lowest levels since 2010.
Over the past decade or so, Hydro-Québec emphasized revenue growth by selling more to its main export market, the northeastern United States. It built new transmission lines and signed long-term contracts with customers in Massachusetts and New York.
“Export revenue definitely is a significant part of what makes Hydro-Québec such a big powerhouse in the market,” observed Tom Li, an energy analyst at the bond-rating agency Morningstar DBRS.
But low snow cover during the winter of 2022-23, and consequently less runoff in the spring, resulted in lower inflows into the company’s northern reservoirs, particularly at its La Grande and Manic-Outardes facilities. Hydro-Québec responded by slashing exports to the lowest levels in a decade. (The utility said the cuts had no impact on its contractual commitments, because its resource planning process ensures it has enough power to meet those obligations.) Its income fell to $3.3-billion last year, mainly due to lower export sales.
Lower revenues continued in the first half of this year, although Hydro-Québec said runoff was “close to historical averages.”
Manitoba’s reservoir capacity is mainly found along the Nelson River and in Lake Winnipeg, which Manitoba Hydro regulates partly for power-generation purposes. It depends on winter snowpack and year-round rainfall throughout the Churchill and Nelson river watersheds. Last fall, inflows “were among the lowest we’ve seen in 40 years,” spokesperson Peter Chura wrote in an e-mailed response to questions.
Manitoba Hydro reported a loss of $157-million for the year ended March 31, which was attributed primarily to lower exports due to drought. This, after it experienced record-high water conditions the previous year – a reminder of the extreme swings hydroelectric utilities must contend with.
Manitoba’s reservoirs were replenished somewhat by significant rainfall this spring, but the dry summer and fall mean inflows have remained below average.
“Manitoba Hydro has plans to ensure its core domestic demand and firm export commitments will be supplied even if drought conditions persist into 2025,” Mr. Chura wrote.
Low water levels can force hydroelectric utilities to lean on neighbours to make up the difference – and that’s what happened in B.C. last year.
For the year ended March 31, BC Hydro saw its revenues plunge $1.35-billion year-over-year, to $7.13-billion. Once again, the main reason was drought: Inflows to its hydro dams were significantly below historical averages, leaving the province no surplus to export. In fact, BC Hydro imported 13,603 gigawatt hours of electricity during the year, after exporting 1,629 gigawatt hours the previous year.
In light of the significant financial and operational implications, one pressing question is whether these utilities are simply experiencing the same natural variability they’ve contended with for decades or a “new normal” in which droughts will arrive more frequently.
In a written response to questions, Hydro-Québec spokesperson Lynn St-Laurent noted that all hydroelectric producers must cope with variability in water supply. “Periods of low and high water levels have followed one another over the years since the 1960s,” she wrote. “In 2004 and 2014, for example, the energy stock was lower than it is today.”
Mr. Li said that if Morningstar DBRS had confidence that a utility faced increasing drought conditions as a result of climate change, that could result in a ratings downgrade. That hasn’t happened yet for any Canadian utility, he said, adding that Hydro-Québec, Manitoba Hydro and BC Hydro all have their debts guaranteed by their respective provincial governments.
“Our view is that it [drought] might happen more frequently, and it could be a little more severe,” he said. “But these utilities are experts at managing these conditions. And they have the expertise in making sure that they have the ability to handle another drought when it happens, that they can meet their obligation still.”
For its part, Ontario stood out last year for having escaped serious drought impacts, with output from Ontario Power Generation’s 66 hydroelectric dams increasing slightly over the previous year. The province shares interconnections with Quebec, Manitoba, Minnesota, Michigan and New York and exported 11 per cent of the electricity it generated last year.
Still, according to Statscan data, Ontario’s exports have gradually declined since 2015. Energy Minister Stephen Lecce unveiled a new energy policy statement last week that said the province’s Independent Electricity System Operator had been instructed to develop a strategy to increase exports.