Canada's Hydro-Heavy Decarbonization Strategy in Jeopardy

By Haley Zaremba - Apr 15, 2024

• Canada's hydropower production has decreased due to drought, prompting a shift towards fossil fuels and discouraging investment in new projects.
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• Climate change has intensified drought cycles in Canada, affecting energy security and return on investment in hydropower.
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• Quebec, once aspiring to become the "battery of the U.S. northeast," now faces challenges in meeting its own clean energy needs and fulfilling export contracts.
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Canada has spent a lot of time and money building itself up to be one of the biggest global producers of hydropower electricity. The country is second only to China in hydroelectricity production, and has planned to vastly expand its infrastructure to become a hydro superpower capable of supplying a good portion of its own energy needs through hydroelectricity as well as export clean energy and offer considerable energy storage capacity to the Northeastern United States. But those plans have turned out to have some considerable insecurities as recent drought conditions have decreased hydropower output across the country, leaving Canadian provinces scrambling to diversify their energy portfolios. 

Canada is not alone. Worldwide hydropower generation experienced a record decline in production levels in 2023. This marks a worrying turnaround for a sector that was quite recently one of the most – if not the most – reliable forms of renewable energy production. In 2021, the global hydropower sector was solely responsible for 16% of the world’s electricity generation. That’s more than every other form of renewable energy combined. But a record-bad summer in 2022, characterized by heat waves and punishing drought, caused an unprecedented and unforeseen drop in that output. 

One of the results of that decline is that countries around the world ramped up consumption of fossil fuels to fill the gap. Due to unusually high natural gas prices over the same period, much of that consumption was represented by coal, the dirtiest fossil fuel. Another critical result of hydropower's historic slump is that investors are shying away from new projects. As a result, hydrogen production and especially the addition of new hydro projects have been in decline since 2020. 

All of this indicates that Canada will likely have to perform a massive pivot in its hydro-heavy decarbonization strategy. According to data from the Government of Canada collected at the end of January, about 70% of the country was abnormally dry or in moderate to exceptional drought. Drought is not unprecedented in Canada, and is generally part of climate cycles in the region. But while drought cycles used to be pretty predictable, that’s no longer the case as climate change intensifies. And unpredictable drought does not bode well for energy security or return on investment in a hydro-heavy energy sector.

“Canada has historically been seen as a hydroelectricity superpower, but this narrative has shifted,” John Pomeroy, a director at the University of Saskatchewan’s Centre for Hydrology, which studies water flows and climate change, was recently quoted by the Wall Street Journal. “In parts of the country, conditions are truly disastrous.”

This represents a huge loss of current and future export revenues for Canada, which already has long-term contracts with the states of Massachusetts and New York to provide roughly 20 terawatt hours of power. Those contracts were only supposed to be the beginning of a long and lucrative trade relationship with the United States. The northeastern U.S. presents a huge market with considerable and increasing demand for clean energy as well as energy storage options. Quebec had hoped to leverage its hydropower capacity to become the “battery of the U.S. northeast”. Now that’s looking increasingly unlikely.

However, some experts say that with or without the drought conditions, Canada has never had enough hydropower production capacity to support its own clean energy ambitions as well as those of the northeastern United States. “Many people in New England have lived with a myth that Quebec has so much power that it doesn’t know what to do with it all,” a group of legislators from Maine said in a joint statement last year. But the reality is that Quebec no longer has enough hydropower to meet its own current and future clean energy needs, much less those of its neighbors to the south. Over the next decade, the province plans to invest over $80 billion in a diverse array of sustainable power sources and infrastructure to expand its grid while staying on track to fulfill its promise of becoming net-zero by 2050. 

By Haley Zaremba for Oilprice.com