Hydro-Quebec acquisition of New Brunswick Power could harm wind energy development

CANADA: A pending deal that would see Hydro-Quebec buy government-owned New Brunswick Power threatens to choke off wind energy development in the Atlantic province for the foreseeable future, an eminent expert has warned. But New Brunswick energy minister Jack Keir says his ambitious plan to harness the province's wind resource is a strong as ever.

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If the proposed purchase goes ahead as planned at the end of March, New Brunswick will sell its utility to Hydro-Quebec for C$4.75 billion, which equals the amount of New Brunswick Power debt the government is carrying on its books.

Residential energy rates in New Brunswick will be frozen for five years and industrial rates will be lowered to match those in Quebec.

Hydro-Quebec, one of the world’s largest producers of hydropower, has a substantial surplus for export and ambitious plans to build more large-scale capacity on rivers in the northern part of the province.

It’s a business model that leaves little room for New Brunswick wind producers, argues Yves Gagnon, who holds the KC Irving Chair in Sustainable Development at the University of Moncton.

He points to a memorandum of understanding between the two provinces that sets aside a "heritage pool" of 14 TWh to meet demand in New Brunswick. Any electricity required beyond that amount will be acquired through a competitive procurement process, with Hydro-Quebec eligible to bid.

Wind power producers in New Brunswick will have a tough time competing with the Quebec utility’s cheap hydro resources, says Gagnon. "Most probably any additional power beyond the heritage pool will be supplied by hydroelectricity from Quebec," he explains. "The probability that we will see large wind farms developed in New Brunswick, in my opinion, is quite low."

The province could order new wind power be added to the grid, much as it did when it set a target of 400 MW of wind by 2016 for New Brunswick Power to meet. But the memorandum makes it clear that any additional costs, whether in transmission or higher power prices, will be billed back to ratepayers when the freeze is lifted.

Gagnon doubts those are costs policymakers, already facing heavy criticism for the decision to sell the utility, will want to incur.

The story is the same on the export side of the equation, says Gagnon. Since a 2008 study showed it would be economically feasible for New Brunswick to install 2.5-4.5 GW of wind, Keir has been looking to markets in the energy-hungry US Northeast as a way to drive development. But Gagnon says the province has given away the keys to the vehicle it needs to reach that goal.
"We will not own transmission lines anymore and most probably Hydro-Quebec will fill those transmission lines," says Gagnon. "Therefore access will be quite limited."

Quebec has made no secret of the fact that the purchase is part of its utility’s plan to increase access to the US.

"We see in front of us a unique opportunity with what is happening in the United States," Quebec premier Jean Charest said at the news conference announcing the deal. "The Americans need clean, renewable energy and they need a lot of it. And guess what? We in Canada are the ones who can supply it."

Keir rejects the idea that selling New Brunswick’s transmission system will diminish the potential for wind exports. The province’s interconnections with the US are already filled to capacity, he says, and have been for some time. "We are going to need new transmission if we continue to want to develop the energy hub in New Brunswick," Keir explains.

Now we’ve got a new investor in the market that obviously will want new transmission capacity to get to the United States, and so it would get built perhaps quicker than it would if we had to go out and look for investors. And that doesn’t mean all other investors are boxed out of the market. Anybody can build a transmission line if they so desire."

Under open access rules, any unused capacity on new interconnections has to be offered to the market. While Gagnon expects any ties built by Hydro-Quebec would be filled with hydroelectricity, at least one wind energy developer in the province believes it could depend on what the end customers want.

"If people want wind power over hydro, the customer will make that choice then that’s what will be sold and delivered," says Jason Edworthy of TransAlta Corporation, which owns a 96 MW wind farm in New Brunswick and has another 163 MW in development.

Hydro-Quebec’s presence could also help remove a major barrier to wind development in Atlantic Canada, says Keir, where the wind resource is strong but the individual markets are small and disjointed.

Quebec has already launched talks with fellow province Prince Edward Island on a similar electricity deal and has stated it wants to do the same with another province, Nova Scotia. The end result could be a broader control area backed by a huge hydro base to help integrate more wind than would have otherwise been possible.

Keir argues: "For the most part up until now the idea of a regional approach has just been talk. Nova Scotia’s been saying the right things, New Brunswick’s been saying the right things, PEI’s been saying the right things, but nothing has been getting done. Now we see a real opportunity here to regionalise this grid and make it work for everybody."

But Gagnon believes the provinces would have been better off with an Atlantic alliance using hydro from Newfoundland as a balancing resource and "creating a counterweight for Hydro-Quebec" in eastern North America. "I think the opportunities over the long term are much more interesting," he says.

For its part, Hydro-Quebec is saying little about how wind might fit into the new structure. "We have to see the regulatory framework to be put in place by New Brunswick," says spokesman Marc-Brain Chamberland.

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