CIBC EQUITY RESEARCH
May 31, 2024 Flash Research
Hydro Quebec Taking Central Role
Developing Large-scale Wind In Quebec
Likely Still Room For IPPs On Standalone & Joint Projects
Event: Hydro Quebec (HQ) announced yesterday it plans to take a more
central role in wind development in Quebec with a focus on large-scale
(~1GW) projects (link). This differs from the current approach whereby HQ
outsources development/operation of smaller-scale (up to 350MW) wind
projects to independent power producers (IPPs) like Boralex (BLX), Innergex
(INE) and other firms. In its updated plan, HQ noted the need to develop
larger projects to reach a target of adding 10GW of wind in the province by
2035, and HQ believes it is best suited to develop and manage these
projects given its familiarity with larger power projects and ability to manage
indigenous/community relations, as well as drive economies of scale.
Our Take—Likely Neural For IPPs In Medium Term; Possible Modest
Negative Longer Term: At this point there is little detail on how HQ’s plan
will unfold and impact IPPs, but it could (over time) reduce the investment
potential. That said, while the headlines might immediately read negative, we
believe the news could be neutral for firms like BLX and INE that were
expecting to do more wind development in Quebec, for the reasons below:
Expanded Scope: HQ’s announcement implies more wind growth than
previously communicated, with a new target of adding 10 new GW by
2035, vs. previously reaching 10GW from a base of ~4GW (implied 6GW
of new growth). So even if HQ takes half of the new capacity, that leaves
5GW for IPPs and indigenous/community partners.
HQ Needs IPPs: HQ has little expertise in wind development and
operations, and likely needs IPPs for their expertise in development and
operating assets. Further, both INE and BLX have sites with good wind
resources, community support and potential interconnections that could
host large-scale projects of around 1GW, which could bring HQ to the
table to form partnerships similar to the Des Neiges project BLX currently
has with HQ (1.2GW across three partners). Twenty-five percent of a
1GW project is still meaningful for INE And BLX.
Might Reduce New Entrants: The more central role of HQ and
coordinated partnerships on projects may keep some firms that were
looking at Quebec from actively pursuing development. This could be a
barrier to entry and a blessing in disguise for incumbents.
HQ Efforts May Not Ramp For A While: We do not know how soon HQ
can start to mobilize on large projects. With load growth happening now,
that might create a window over the next few years for IPPs to advance
projects through continued RFPs. What happens with the next expected
RFP in 6-9 months’ time will be a key item to track.
Overall impact On Growth For BLX & INE: While INE and BLX have
touted the opportunity in Quebec for growth, both have growth available in
other regions. We argue BLX has a more credible and broader growth
opportunity set (organic and M&A), but INE has other markets, including
ongoing RFPs in Sask. and BC, as well as in the U.S., Chile and France