Hydro-Québec’s greenwashing game

Hydro-Québec’s greenwashing game

No guarantees Massachusetts deal will lower emissions

IN A RECENT COMMENTARY PIECE, “Sierra Club fires back on Québec hydro,” the Sierra Club explained why electricity imported from Québec is not clean. The focus was on the adverse environmental impacts directly related to flooding large areas of land for hydroelectricity. But that’s only part of the story. As a result of Hydro-Québec’s ability to arbitrage between markets and greenwash its electrons, Massachusetts ratepayers could be signing up to pay a sizable “clean energy” premium in exchange for no net environmental benefit.

Under the terms of the power purchase agreements that are pending before the Massachusetts Department of Public Utilities, Hydro-Québec does not have to commit any capacity from its hydroelectric plants to supply Massachusetts ratepayers via Central Maine Power’s New England Clean Energy Connect power line. Instead, Hydro-Québec could supply energy through the power line by reducing its exports into other markets or by purchasing energy from other markets during low-priced hours in order to sell it to Massachusetts under the higher contract price.  Both strategies could increase carbon emissions in other markets, thereby negating any potential reduction in New England’s carbon emissions, and in some cases even increasing total greenhouse gas emissions when areas outside of New England are considered. If Hydro-Québec were to reduce imports into New England through other transmission lines in order to supply Massachusetts, which the contract does not prevent or penalize, the impact on New England carbon emissions could be a wash.

In the editorial to which the Sierra Club was responding, “Hydro-Québec, Central Maine Power respond to critics,” Hydro-Québec claims that the Massachusetts contracts “will see large quantities of 100 percent hydropower flow onto the New England grid around the clock every day of the year.”  This is untrue. The contracts contain numerous escape clauses that would allow Hydro-Québec to reduce its sales. Furthermore, there is no contractual requirement that the hydroelectric energy be incremental to what New England historically has received or otherwise would receive.

Last month, at the Maine Public Utilities Commission, even Central Maine Power admitted on the record that the proposed power purchase agreements for energy via its transmission line allow Hydro-Québec to use its existing generation resources and import/export interties to optimize profits. There is no guarantee that energy flows across the Central Maine Power line would occur around the clock every day or that it would be 100 percent hydro.

Under its current export license, Hydro-Québec only can sell energy that is surplus to the needs of Québec. To the extent excess energy is available from Hydro-Québec’s system, it already is likely to be sold into any one of the four interconnected markets or beyond to maximize profitability. Exports are not just a goal in Québec, they are considered a necessity. As Hydro-Québec’s CEO Eric Martel noted in the Financial Post: “Without exports our profits are in trouble.”

In 2017, Hydro-Québec earned $1.575 billion from electricity exports – a profit that goes straight to the Québec government. As described in my testimony before the Maine Public Utilities Commission, reinforced by expert witnesses from London Economics and Charles River Associates in the same docket, Hydro-Québec would maximize exports in the absence of the new transmission line. The Massachusetts contracts would simply divert some of those sales away from other markets in order to supply energy through New England Clean Energy Connect under the proposed contracts.

The Massachusetts power purchase agreement simply represents a higher value opportunity for Hydro-Québec than their existing exports because it is an above-market deal – starting at nearly 50 percent higher than the current competitive wholesale price of power in New England. The Maine Public Utility Commission’s technical consultant refers to the opportunity to arbitrage between low prices in one market and higher-priced opportunities as “the core of HQP’s [Hydro-Québec’s] exporting strategy and the key motivator for HQP in contracting with NECEC.”

The Massachusetts contracts currently under review are examples of the kind of arbitrage opportunities that Hydro-Québec references as a business strategy in its 2017 Annual Report in that they allow Hydro-Québec to sell its energy for a higher price than prices in other markets.

Hydro-Québec maximizes its export revenues by selling into the highest-priced markets during the highest-priced hours, subject to delivery limits.  Those hours tend to be when fossil-fuel units such as oil, coal, or natural gas generation are in operation. If Hydro-Québec were to supply energy via Central Maine Power’s transmission line by reducing export sales outside of New England, those markets would most likely have to fire-up fossil-fuel generators in order to make up the difference. More than one economic analysis, including my own report presented to the Maine Public Utilities Commission and the ESAI report presented to the New Hampshire Public Utilities Commission for Northern Pass, show that total annual carbon emissions across the impacted markets could be higher in some years if Massachusetts decides to contract for energy through a new transmission line from Québec.

Under the terms of the contracts with Massachusetts utilities, Hydro-Québec would not be precluded from purchasing energy from other markets to sell directly to Massachusetts or for purposes of conserving water in its reservoirs for future supply to Massachusetts at a later time.

The Massachusetts utilities would have no ability to monitor or prevent this possibility from occurring. Massachusetts ratepayers effectively could be paying above-market prices for power from existing resources outside of Québec that provide no incremental environmental benefit and could even increase carbon emissions. The premium for so-called “clean energy” under the contracts could become nothing more than an expensive brokerage fee to purchase energy that Massachusetts ratepayers otherwise could purchase directly from competitive markets.

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Energy sales, under the current version of the Massachusetts contracts with Hydro-Québec, would be a wealth transfer from the Commonwealth’s electricity ratepayers to the government of Québec for little, and possibly even adverse, environmental impact.  Hydro-Québec’s sales via Central Maine Power’s transmission line do not have to be incremental to Québec’s historical hydroelectric generation sales into New England. The energy does not have to be incremental to what Hydro-Québec otherwise would sell into other markets. There is no guarantee that Massachusetts ratepayers would receive 100 percent “clean energy” given the greenwashing game that Hydro-Québec is able to play.  There is no guarantee that the environment would receive a net reduction in carbon emissions; total carbon emissions in other markets could increase to a level that any reduction in New England carbon emissions would be negated or even exceeded.

If New England Clean Energy Connect were allowed to proceed, the only guarantee is that Québec would receive billions of dollars in future dividends – thanks to the ratepayers of Massachusetts.

James M. Speyer is a senior advisor to Energyzt, a company that provides business advisory services and expert support informed by financial and economic analysis. Energyzt has been retained by a coalition of Maine-based generators (Bucksport, Calpine, and Vistra) in connection with the Maine Public Utilities Commission’s review of the New England Clean Energy Connect project.