Investors from everywhere are interested in Hydro-Québec

Investors from Canada, the United States and elsewhere in the world wish to finance Hydro-Québec’s expansion projects, its CEO, Michael Sabia, announced on Wednesday.

Investors, but also suppliers and energy producers want to enter into partnerships with the state company, which is committed to doubling its electricity production, he said at a press conference, after the publication of the 2023 annual report of the state corporation.

Shortly after his arrival at the head of Hydro-Québec, Michael Sabia presented a plan which provides for enormous investments, of the order of 155 to 185 billion, to increase electricity production and build 5,000 kilometers of new lines transport.

This plan is attracting a lot of interest from potential investors, according to Mr. Sabia, who has already indicated his intention to innovate in the financing of Hydro-Québec’s activities. He also recruited one of his former colleagues from the Caisse de dépôt et placement, Maxime Aucoin, to find financial partners and establish innovative alliances.¹.

Michael Sabia suggested that Hydro-Québec could welcome new investors, “but not necessarily in terms of equity.”

“We should not neglect the public debt market,” he said in response to a question. Hydro-Québec bonds are very green and very liquid, a combination that is not easy to find on the markets. »

“We are very optimistic that we can find the capital we need,” he said.

Profits down

Hydro-Québec is launching the most ambitious expansion program in its history while financing costs are rising sharply and its profits are falling sharply.

Hydro-Québec ended the year 2023 with a net profit of 3.3 billion, compared to 4.5 billion in 2022. In the fourth quarter, that is for the months of October, November and December, its net profit fell by 953 million in 2022 to 238 million in 2023.

The state-owned company paid $1 billion less in dividends to the Quebec government.

“The story of 2023 is a story of weather,” summarized Michael Sabia.

The company suffered from ice and forest fires which disrupted its service in 2023, “one of the worst years in 15 years for breakdowns”, he admitted.

Hydro-Québec had to restrict its exports by a third due to the low water level in its reservoirs, which reduced its revenues by 547 million compared to last year. The level of exports is at its lowest in the last ten years.

“There hasn’t been enough snow or rain in the places where we need it,” explained Michael Sabia. There was a lot of rain in the South, but not in James Bay. »

Fitzgibbon is not worried

In Quebec, the Minister of Energy, Pierre Fitzgibbon, said he was not worried about the impact of climate change on the water level of reservoirs and on future dividends from Hydro-Québec.

Despite the drop in profitability and the fall in the dividend, the minister said he was satisfied with Hydro-Québec’s performance in 2023.

The big boss of Hydro-Québec stressed for his part that the year 2023 should not be compared to 2022, an exceptional year “that we will not see again for a long time”.

At more than $3 billion, the state-owned company’s net profit is the fifth highest in its history and “a pretty solid year, given the challenges,” said Mr. Sabia.

Price increases?

In 2024, Hydro-Québec management wants to review its operations to become more efficient. “Committees on all kinds of subjects” have been canceled and discussions with unions are on the agenda to make “mutually beneficial changes,” said Michael Sabia.

According to him, it is important to improve the efficiency of the company, because its operating costs are reflected in electricity rates.

On this subject, the Minister of Energy indicated that electricity pricing will have to be reviewed to take into account significant future investments to increase production. “Obviously, there will be a price increase that will happen over time,” he said.

In 2023, electricity sales in Quebec brought in $284 million more than in 2022, thanks mainly to the increase in rates. Special contracts with aluminum smelters also generated additional revenue of 109 million.

Compared to 2022, sales in Quebec suffered from the relatively mild temperatures at the start of 2023. In January 2023, average temperatures were 9 degrees higher than those of the previous year, specifies the company.

Hydro-Québec reduced its 20% stake in Innergex Renewable Energy by $284 million to reflect the company’s decline in value. Innergex shares have lost half of their market value over the past year.

Operating expenses increased by $288 million, an increase that Hydro-Québec attributes to work to improve its network.

With the collaboration of Fanny Lévesque, The Press

1. Read the article “Hydro-Québec expansion: the Caisse is in”