Last week, the private sector made its place in the public debate, in particular, since Michael Sabia – a leading player in the privatization of Canadian National (CN) – officially took over as head of Hydro-Québec.1.
Prime Minister François Legault and Minister of Economy and Energy Pierre Fitzgibbon quickly closed the door to hints of privatization of Hydro-Québec in view of the sentimental aspect that the nation brings to it, very well conveyed in the documentary I love Hydro2. Moreover, it would not be politically strategic; several political commentators point out that the partial privatization of Hydro One played a leading role in the debacle of the Ontario Liberals in 2018.
However, few know it, but a significant portion of production – and this portion is growing – is produced by the private sector, particularly the wind power sector.
And, contrary to Mr. Fitzgibbon, I do not believe that the private sector is necessarily better than a Crown corporation.3. The American healthcare system – the most expensive there is – is the perfect counter-example.4.
Privacy comes with its own set of problems. First, since it demands a return for its shareholders, there is essentially a premium of about 15%. But the problem of privacy is not there; it lies in the ability of large companies to control supply and prices in order to reap maximum profits.
The electrical field is one of the areas where the powers of the market are most felt. These market distortions are costly and slow down the much needed energy transition. Our house is burning if you needed a reminder.
In reality, it is in these market distortions that the nationalization of Hydro-Québec found its foundation. Electricity was produced by a handful of companies. As a result, it was not only expensive and of poor quality, but also not easily accessible, especially in rural areas.5. Nationalization made it possible to nationalize these profits and to accelerate the regional development of Quebec.
No, private isn’t always better, but… it doesn’t have to be bad.
“Creative Destruction”
“Creative destruction”, a concept popularized by Joseph Schumpeter, presents itself as a macabre dance: companies are born and disappear by participating in a ballet between creation and destruction, where innovation plays the role of the executioner. A single mistake can lead to the downfall of a company (take the example of BlackBerry), but this constant pressure is also a powerful driver of innovation. It is precisely this constant threat of extinction that gives the private sector its dynamism.
The state cannot die, so it has no incentive to innovate. And when he innovates, if the returns are not there, he cannot shut down.
Therefore, when it comes to innovation, the private sector is to be preferred. In addition, companies in emerging sectors do not have the same market power as large companies, and are therefore less likely to cause market distortions.
However, how do you get out of the game in order to accelerate the energy transition?
Here is the approach I recommend: let Hydro-Québec Production enter into direct competition with the private sector in well-established industries, such as wind power, and let the best win.
With regard to emerging sectors, such as the management of heavy truck fleets or the implementation of a smart grid, I think it makes sense to authorize Hydro-Québec to collaborate with outside companies.
Besides production, it is crucial to point out that it is cheaper and more environmentally friendly to reduce a megawatt-hour than to produce one. The priority should be to tackle the peaks smartly with energy efficiency (insulation, heat pumps), but also to take advantage of programs such as dynamic pricing and Hilo.