Productivity |  Quebec continues to catch up

Foundry | The deficit is 1,400 million for Hydro

We agree, the stakes are high. Aluminum smelters are not only virtually tax-free here, but can also emit greenhouse gases without paying any compensation. Hence the importance of returning to another of the advantages they enjoy: discounts on electricity rates.

The question is all the more relevant since aluminum smelters are requesting approximately 1,000 megawatts (MW) of additional power from the Quebec government, I’ve learned. These 1000 MW would constitute a jump of 30% of its consumption, in a context of energy scarcity.

To clear things up, Hydro-Québec agreed to send me the electricity rate actually paid by aluminum smelters since 2015, as the then-liberal Quebec government renegotiated all contracts downward. Hydro’s figures basically validate mine, which I calculated from contracts attached to government decrees published in the Official bulletin.

So since 2015, aluminum smelters have paid an average rate of 3.87 cents per kilowatt hour, Hydro-Québec tells me. This rate is below what the state corporation considers profitable for large industrialists, that is, Rate L.

This fee L, usually 5¢/kWh, is lower for customers whose hydropower utilization factor is very high, such as aluminum smelters. In this case, the relevant Tariff L for the comparison is 4.6¢/kWh.

For Hydro, the difference between this L fee of 4.6 cents and the average fee of 3.87 cents for aluminum smelters represents a deficit of 1.4 billion over the last eight years, according to my calculations, that is, an average of 178 million per year.

Aluminum smelters pay less than Tariff L because their electricity supply is determined by the price of aluminum and not by Hydro-Québec’s costs. These joint venture contracts are authorized by the government and not by Hydro.

In the long run, with such contracts, ideally, Hydro should get sometimes more than Tariff L, sometimes less. However, according to official Hydro-Québec data, aluminum smelters have paid less than Tariff L every year since 2015, except this year, when the average tariff is 5.45 cents for the first nine months of 2022.

The 2022 tariff adjustment is explained by the explosion in aluminum prices last spring in the context of the war in Ukraine. Since then, prices have fallen, so the average rate is closer to 4.7¢/kWh as of December 13, 2022, very close to the comparable Rate L (4.6¢).

Between 2015 and 2021, the rate fluctuated between 3.3 cents and 4.4 cents/kWh.

  • Spread your fingers over the graph to view it in full screen mode.


    Spread your fingers over the graph to view it in full screen mode.

  • Spread your fingers over the graph to view it in full screen mode.


    Spread your fingers over the graph to view it in full screen mode.


This Tuesday morning, the Minister of Economy, Innovation and Energy, Pierre Fitzgibbon, told the Saguenay radio program it’s never the samefrom Radio-Canada, that the tariff for aluminum smelters had exceeded Tariff L since 2021.

Reached by email, his press secretary maintains that “in 2021 and 2022, for the price of aluminum, aluminum smelters paid more than the L rate.” Data hydrocontradict the minister for the year 2021.

By the way, why compare with the L tariff of Hydro-Québec? Because it is the rate approved by the Régie de l’énergie du Québec taking into account all the expenses of Hydro-Québec. This rate incorporates a return on assets of 8.2% for the Crown corporation.

In short, below the L Rate, Hydro-Quebec loses money with the big industrialists. And for aluminum smelters, it’s 1.4 billion over eight years.

Hydro-Quebec, it should be remembered, has the potential to fetch a much higher price. His recent contract with New York was signed for a price of 9.75 US cents as of spring 2026, or 13.2 CAN cents if we convert at the current exchange rate. The rate with New York is indexed at 2.5% per annum over the 25-year contract term.

Of course, other factors could be taken into account, for example, the proximity of the aluminum smelters to the Hydro-Québec lines, which reduce transmission costs. However, the refunds raise questions about their value for money for taxpayers, especially when compared to the contract with New York.

On Radio-Canada, Pierre Fitzgibbon said there was no question of renegotiating old contracts with aluminum smelters. However, he explained that he wanted to adjust the rate formula for future power allocations to aluminum smelters to ensure the rate is as close as possible to Rate L at the bottom of the aluminum cycle.

The minister believes that projects to decarbonise aluminum smelters, particularly with Elysis technology, will make global buyers willing to pay more for aluminum from Quebec. He says that he is working with the aluminum smelters so that the green bond is reflected in the electricity rate.

This decarbonisation of aluminum smelters will probably require a little more energy than currently, the Minister now confirms. In addition, aluminum smelters are asking the government for additional megawatts to ensure their growth.

Rio Tinto recently confirmed to me that its demand for new power is around 600 MW. And Pierre Fitzgibbon estimates that the demand for all aluminum smelters would be around 1,000 MW.

“We are talking about 1,000 MW for 4-5-6 billion in investments, that is important. The real debate is how we are going to put a price on the surplus, ”he told my colleague Julien Arsenault, on the sidelines of an interview on Tuesday on another topic.

Ultimately, the new power would be awarded to aluminum smelters at a risk-sharing fee, again, but with a green premium in mind.

Big questions arise in this context. First, will the Legault government make investment by aluminum smelters an essential condition for obtaining advantageous rates, contrary to what has happened in recent years?

So who’s to tell us that global buyers will be willing to pay more for green aluminum from Quebec? That aluminum bike manufacturers won’t prefer to buy Chinese black aluminum, often produced with carbon, in order to have a cheaper finished product?

In short, why should taxpayers share this risk, once again, especially when we look at the past results of this energy shortage and price formula?

#Foundry #deficit #million #Hydro

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