The low water level in Hydro-Québec’s reservoirs forced the state-owned company to reduce its exports, which caused its net profit to fall by $500 million, or 58%, in the third quarter.
Hydro-Québec’s net profit was 363 million for the months of July, August and September 2023, down 499 million compared to the same period last year, when profits reached 862 million.
The level of exports is currently at its lowest in 10 years, explained Jean-Hugues Lafleur, executive vice-president and chief financial officer of Hydro-Québec, due to the reduction in water levels in reservoirs. .
“This low hydraulicity has had no impact on Quebec’s energy supply and the long-term commitments made with neighboring markets,” he said. However, we have restricted sales of electricity to external markets in order to manage our resources optimally, which has resulted in a reduction in revenues from sales outside Quebec. »
The volume of exports is down 32% compared to last year.
The little snow that fell last winter, the low spring flood and the low summer precipitation reduced the water level in the reservoirs.
This low hydraulicity is not a cause for concern for Hydro-Québec. “The long-term studies we have predict an increase in water supply,” explained Mr. Lafleur. It’s unfortunate, but climate change means that we will have more energy. »
Precisely because of climate change, the state company will have to adapt its construction methods and in particular plan to raise the dikes which retain the water upstream of the reservoirs, specified Jean-Hugues Lafleur.
Contracts to fill
In a normal year, Hydro-Québec exports nearly 30 terawatt hours per year. This export volume in wholesale markets which has been very profitable in recent years will be significantly reduced when the two long-term contracts concluded with Massachusetts and New York come into force.
These two contracts total 20 terawatt hours, more than everything exported last year (19 terawatt hours).
Even if the current period of low water levels were to continue, Hydro-Québec has no fear of running out of electricity. “We will meet our future commitments and we will not lack electricity in Quebec,” assured its vice-president.
Falling prices
Compared to last year, when the prices of all forms of energy exploded following Russia’s invasion of Ukraine, the price of electricity is down 50% on the markets of Hydro-Québec’s exports.
Despite this drop, Hydro-Québec obtained an average price of 10.3 cents per kilowatt hour exported. This is twice as much as the average market price of 5.2 cents per kilowatt hour, a result which can be explained by the risk hedging strategy.
For the first nine months of 2023, Hydro-Québec posts a net profit of 3 billion, down 554 million compared to the same period last year.
In addition to falling exports, rising network upkeep and maintenance expenses weighed on profitability.
Electricity sales in Quebec are down compared to 2022, due to the last winter which was milder than normal. In January 2023, the average temperature was 9 degrees Celsius higher than that of January 2002, according to Hydro-Québec.
Sales revenue in Quebec is still slightly up, at 9.8 billion, due to the increase in prices and the profitability of special contracts linked to the price of aluminum.
In total, Hydro-Qubec has received revenues of 12.2 billion from its electricity sales since the start of 2023, an amount roughly unchanged compared to the same period last year. Its investments reach 3.2 billion, two-thirds of which were devoted to the upkeep and maintenance of the electricity production, transport and distribution network.
On the financial markets, the state-owned company sought 900 million in financing in the third quarter, at an interest rate of 4.5%. The state corporation’s total debt reaches $50 billion, at an average interest rate of 5%, which translates into interest payments of some $2.24 billion per year.