Consultations on Quebec’s Energy Future: province should focus on energy conservation and liberalize the electricity market, says the MEI

• Quebec estimates that by 2050 it will require an additional 100 TWh of electricity supply.

Montreal, July 31, 2023 – Quebec should reexamine its electricity rates with a view of encouraging energy conservation, recommends the Montreal Economic Institute as part of a brief prepared for the public consultations on Quebec’s energy future.

“The era of Hydro-Québec’s seemingly infinite surpluses is behind us, and Quebec now requires new supplies,” says Gabriel Giguère, public policy analyst at the MEI and author of the brief. “We need to realize that every kilowatt of power comes with a cost, and that in some cases it can be cheaper to consume less than to produce more.”

The MEI notes that, at 11 cents per kilowatt-hour, the average cost of new electricity supplies is higher than the 7.59 cent/KWh rate paid by residential customers.

As Hydro-Québec’s Strategic Plan makes plain, the relatively higher cost of new energy supplies will put upward pressure on rates.

The Institute’s brief points out that sending price signals can trigger adjustments in consumer behaviour, and that higher prices will translate into lower consumption.

The MEI recognizes that the impact of such rate increases would be felt by all households, particularly the least well-off, and recommends that part of the revenues thus generated should be used to finance measures to help the poorest households and to fund tax cuts to mitigate the effect on family budgets.

At the same time that rates are overhauled, the MEI recommends untying the hands of independent power producers to allow them to increase supply so as to reduce the pressure on Hydro-Québec.

More specifically, the Institute suggests repealing the 50 megawatt capacity limit imposed by Quebec on dams owned by independent power producers wishing to sell their energy back to Hydro-Québec.

“At a time when electricity surpluses are melting away, it makes no sense to deprive ourselves of additional generating capacity due to purely arbitrary constraints such as limitations on the generating capacity of independently operated dams,” explains Mr Giguère. “Nevertheless, some companies, RCMs and First Nations continue to suffer from limits on the size of their projects, despite their sites having much greater potential.”

In addition to the question of independent dams supplying Hydro-Québec, the MEI recommends allowing independent producers to deal with private companies directly, specifically in order to establish closed electricity circuits.

“The combination of Hydro-Québec’s legal monopoly with its shortfalls in capacity now represents a significant brake on the province’s economic development,” explains Mr Giguère. “By letting independent producers supply our businesses, we can ensure that a refusal to supply Hydro power does not become a de facto veto on regional development.”

Among its other recommendations, the MEI suggests:

• The introduction of dynamic pricing to ensure that rates reflect the true cost of electricity;
• Modifying the legal and regulatory framework surrounding the heritage pool of energy to bring its prices into line with the market over a 10-year period;
• Continuing the use of natural gas as a transitional energy source to ensure that new electricity supplies can keep up with demand;
• Authorization of exploration and development of natural gas in Quebec to help the province better meet its energy needs.

The MEI’s brief is available here.

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The MEI is an independent public policy think tank with offices in Montreal and Calgary. Through its publications, media appearances, and advisory services to policy-makers, the MEI stimulates public policy debate and reforms based on sound economics and entrepreneurship. 

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