Chinese Demand Thwarts Hydro-Quebec Plans to Add Foreign Assets

(Bloomberg) -- Increased Chinese competition for power assets means Hydro-Quebec's quest to add generation or transmission assets abroad is taking longer than expected.

Canada's biggest electric utility is looking to buy existing assets or invest in new projects in Europe, the U.S. and South American countries such as Chile, Colombia, Peru and Mexico, Chief Executive Officer Eric Martel said. Martel had previously aimed to wrap up a deal before the end of 2017.

“There are a number of interesting projects, but there's a lot of competition for acquisitions so you have to take this into account,” Martel said in a Feb. 27 interview in Montreal. “The Chinese have a lot of liquidity and they are active in a lot of places.”

International acquisitions are one of the key levers Hydro-Quebec plans to pull as part of a plan to double revenue by 2030. The utility is also looking to increase energy exports to the northeastern U.S. and neighboring Canadian provinces -- with Martel suggesting there's potential for the company to triple sales to Ontario.

Hydro-Quebec had net income of about C$2.2 billion ($1.7 billion) on sales of about C$9.9 billion in the first nine months of 2017. More than 99 percent of the power that the provincially-owned utility generates comes from renewable sources.

Host Country

“We have recognizable expertise in hydroelectricity assets and high-voltage transmission assets,” Martel said. “We want to do a deal that benefits the host country while improving our revenue and our profitability. As a state-owned company, we know we will be closely scrutinized so we are being prudent.”

Since Martel became CEO in 2015, Hydro-Quebec's mergers team has looked at more than 30 possible deals, he said. Five to 10 transactions are in the pipeline at any given time, he added, declining to identify potential targets or provide a timeframe.

Hydro-Quebec's preference is to team up with a local partner or a foreign investor already familiar with the global power industry.

“In Canada maybe we could do something by ourselves, but we always look to have a local partner or an established player that knows the market,” Martel said. “Going it alone is not part of our strategy.”

As for power exports, Ontario's plan to refurbish its nuclear plants creates an opportunity for additional sales, Martel said. Ontario buys about 4 terawatt-hours of power annually from Hydro-Quebec, a figure the CEO said could climb to 14 terawatt-hours.

“We can be a solution for Ontario,” Martel said. “Thankfully, the interconnections already exist. There's nothing to build.”

To contact the reporter on this story: Frederic Tomesco in Montreal at tomesco@bloomberg.net.

To contact the editors responsible for this story: Brendan Case at bcase4@bloomberg.net, David Scanlan, Jacqueline Thorpe

©2018 Bloomberg L.P.