Hydro-Québec returns to market for international energy assets

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Hydro-Québec is jumping back into the market for international energy assets as it seeks to double revenue over the next 15 years to boost profit.

Canada's largest electric utility will once again consider the purchase of assets or stakes in power generation and transmission companies outside Quebec, returning to a strategy it used in the 1980s and 90s before the provincial government pulled the plug over concerns the international business was negatively affecting domestic electricity prices. It joins a growing chase for such assets globally by pension funds and other buyers, as nations such as Japan start to privatize power transmission and other electricity infrastructure.

The move is part of an aggressive plan by new chief executive Eric Martel to double revenue to $27-billion by 2030 and contribute more to the Quebec treasury.

The state-owned utility is aiming to boost profits by 65 per cent to $5.2-billion over that same period.

"We certainly need to grow our business," Mr. Martel told reporters Wednesday.

"There will be some growth in Quebec but it's not going to be enough to keep the same kind of return we're providing today."

The effort will start modestly, targeting profit of $3.2-billion by the end of 2020 – of which $100-million will come from returns on assets purchased overseas and commercializing the utility's innovations. By 2030, the utility plans to generate roughly one fifth of its annual profit through those investments and innovations. Hydro generated a profit of $3.1-billion last year.

Hydro is looking for assets in politically stable countries with growing economies and is already in advanced talks on some deals, Mr. Martel said. Transaction sizes could range from about $250-million to $2.5-billion, he said, depending on whether it takes on partners.

Hydro's last international foray was a gamble. It made money on the effort overall but the portfolio was not without trouble, with two of the eight projects proving problematic, Mr. Martel said. The utility spent $1-billion on electricity producers and transporters between 1996 to 2005, selling them for a net profit, according to a document it provided to reporters. The investments included the acquisition of Transelec S.A., Chile's national power transmission company, and a stake in a company operating a 300-megawatt hydroelectric project in Panama.

Hydro will have to make sure it insulates its global acquisition arm, called Hydro-Québec International, from domestic pressure, said Erik Richer La Flèche, an energy and mergers and acquisitions specialist at law firm Stikeman Elliott LLP.

"It's going to be very, very important politically that any rate increases are not going to be caused by those investments," said Mr. La Flèche. "Which is what happened last time."

Mr. Martel, a former senior executive at Bombardier Inc., is putting his stamp on Hydro-Québec with a new five-year plan that also seeks to attract data centres to the province. Executives with the utility believe there's a significant opportunity to capture a larger slice of the $15-billion in investments they say are made every year in the industry.

Canada is the world's second largest generator of hydro power after China, with Quebec accounting for about half of the country's production capacity. The province generates more power than it needs, a situation that experts believe will continue well into the next decade. It sells the surpluses on North American markets, generating $902-million in profits from sales outside Quebec last year, while also using them to lure business investment within its borders.

The province already offers a 20-per-cent discount on the applicable power rate to companies seeking to establish energy-intensive data centres in the province. Hydro has indicated it wants to sweeten the pot by selling or leasing land it owns to facilitate the setup of such centres as well as offer its support to get the projects up and running quickly.

Hydro-Québec is near the tail end of a decade-long period of power generation asset building and plans to bring into service the last station of its 1,550-megawatt La Romaine hydroelectric complex by 2020. It said Wednesday it will take the next five years to examine what its next major hydroelectric project will be after that asset comes online.