Hydro-Québec’s Second Quarter Profits Hit by Sharp Decline

Hydro-Québec’s Profits Decline in Second Quarter due to Sharp Drop in Exports

Introduction

Hydro-Québec, the state-owned electricity company of Quebec, has experienced a significant decline in profits in the second quarter of 2023. The company’s net profit amounted to $456 million, a decrease of $224 million compared to the same period last year. One of the main factors contributing to this decline is the sharp drop in Hydro-Québec’s exports, which decreased by nearly 33% in the past three months.

Impact of Decreased Exports

The decrease in exports has had a major impact on Hydro-Québec’s financial performance. Jean-Hugues Lafleur, the company’s executive vice-president and chief financial officer, explained that unfavorable weather conditions in their export markets were a significant contributing factor to the decline in profits. Additionally, the decrease in the volume sold outside of Quebec played a significant role in the decline. Specifically, exports decreased by 2.9 terawatt-hours (TWh), or $203 million, compared to the second quarter of 2022.

The State of Quebec’s Reservoirs

François Bouffard, an associate professor in electrical engineering at McGill University, suspects that Hydro-Québec’s decision to intentionally reduce its sales outside of Quebec could also be influenced by low water levels in the reservoirs of its northern dams. While there have been heavy precipitation in southern Quebec in recent months, the territories in northern Quebec, where the La Grande and Eastmain hydropower complexes are located, have experienced particularly dry conditions. Bouffard suggests that Hydro-Québec may be taking preventive measures by building minimal water reserves to address potential low water levels to meet Quebec’s electricity demand in the coming winter.

Overall Financial Performance and Future Outlook

Despite the decline in profits in the second quarter, Hydro-Québec’s net profit for the first half of the year was $2.69 billion, only a 2% decrease compared to the same period in 2022. The company’s risk management strategy has helped mitigate the impact of falling energy prices on its sales outside of Quebec. In fact, Hydro-Québec managed to obtain an average price of 10.9 cents per kilowatt-hour (kWh) on its exports, compared to the market average of 5.2 cents per kWh. However, in the second quarter alone, the company could only obtain an average price of 7 cents per kWh.

Looking ahead, the chief financial officer of Hydro-Québec warned that the decline in prices observed since the beginning of 2023 will continue to have a significant impact on the company’s results in the coming months. Furthermore, the decrease in electricity sales in Quebec due to a mild winter, coupled with increased operating and depreciation expenses associated with the commissioning of the Romaine-4 hydropower facility in the fall of 2022, have further affected the company’s financial performance.

Conclusion

Hydro-Québec’s decline in profits in the second quarter of 2023, primarily due to the significant drop in exports, raises concerns about the company’s financial stability. As the effects of climate change become more pronounced, extreme weather patterns could continue to affect the company’s operations and financial performance. It is crucial for Hydro-Québec to adapt to these challenges and explore alternative strategies to ensure a stable and sustainable energy future for both Quebec and its export markets.