Hydro-Quebec’s US$137bil power plan is drawing attention

Sabia is pitching what he calls an “Action Plan” that may amount as much as C$185bil (US$137bil) to build new power generation capacity and improve transmission reliability by 2035. — Bloomberg

MONTREAL: The head of Hydro-Quebec says he’s confident the state-owned utility will find investors to back a massive expansion of a provincial electrical grid that’s expected to cost well over US$100bil.

Chief executive officer Michael Sabia is pitching what he calls an “Action Plan” that may amount as much as C$185bil (US$137bil) to build new power generation capacity and improve transmission reliability by 2035.

The plan, unveiled in November, would see Hydro-Quebec’s capacity increase by nearly 25%, allowing the utility to meet demand for hydroelectricity and fulfill its power export commitments to the United States.

“The ambition of the Action Plan has managed to attract a considerable amount of attention in the financial markets,” Sabia said at a Wednesday press conference after the company released its annual results.

“We’ve also had a lot of very positive incoming from suppliers, from producers, people who are interested in building partnerships with us going forward,” he added.

Hydro-Quebec is in its “very early days” of finding the right solutions to raise the money from different sources, said Sabia, who didn’t disclose who was interested.

“We’re at the very beginning of having conversations with them about different ways in which we can partner.”

Partnerships don’t necessarily mean equity participation and public debt markets shouldn’t be “neglected,” he said.

“Bonds of Hydro-Quebec are both very green and very liquid,” Sabia said. “That is a significant financing competitive advantage.”

Hydro-Quebec has around C$50bil of long-term debt outstanding, according to its annual report.

The company, which has the fourth-highest investment grade rating with S&P Global Ratings, is able to raise funding at similar levels to the Province of Quebec, its sole shareholder.

For example, Hydro-Quebec’s five-year bond yield in Canada is around 3.94%, about six basis points wider than Quebec’s provincial yield curve, according to data compiled by Bloomberg.

Hydro-Quebec reported annual profit of C$3.3bil for last year, down 28% from a record 2022, partly due to below-average water levels at dam reservoirs that forced the utility to reduce electricity exports to the United States.

Quebec’s provincial government will receive a dividend of C$2.5bil, slashed by about US$900mil compared with last year. — Bloomberg