CDPQ and Fonds de Solidarité Inject an Additional $575M in Énergir
CDPQ and Fonds de solidarité FTQ are investing additional $575 million in Énergir to support the growth of this North American energy leader and the execution of its decarbonization and climate resilience plan.
Énergir is a diversified energy company with over $10 billion in assets whose mission is to meet the energy needs of its 535,000 customers in an increasingly sustainable fashion, notably with renewable energy.
Énergir, the leading gas distribution company in Québec, is also present in the United States, where it produces electricity from hydro, wind and solar sources, in addition to being the primary distributor of electricity and the sole distributor of natural gas in Vermont.
CDPQ and Fonds de solidarité did not specify the direct recipient of the their investments.
CDPQ and Fonds de solidarité, through a limited partnership and a maze of corporations, are the ultimate shareholder of Énergir, s.e.c., the operating company, with CDPQ controlling more than 75% in ownership.
Hélène Baril of La Presse also reports on a boost of $575 million to Énergir (translated from French):
This money will be used to accelerate Énergir’s decarbonization and resilience strategy, explained Emmanuel Jaclot, first vice-president and head of infrastructure at the Caisse de dépôt, during an interview with La Presse.
More precisely, this new influx of funds will be used to build a 1,200 megawatt wind farm on the Seigneurie de Beaupré site with Hydro-Québec, “a huge project,” according to Mr. Jaclot.
The money will also be used to build plants to produce renewable natural gas from manure with Nature Energy, and to strengthen Green Mountain Power's electricity network in Vermont, which is hit by increasingly frequent outages.
The investment will help Énergir reduce the share of its revenues that depend on fossil energy, which currently account for 60% of its total revenues. This is a joint investment with the Fonds de solidarité FTQ, which injects a sum equivalent to its minority stake of 19%, or 110 million.
The Fund invests to support the decarbonization of Quebec and particularly Énergir's activities in bioenergy, said its spokesperson Patrick McQuilken.
A long-term bet
The Caisse de dépôt is already criticized by environmentalists for its support for fossil natural gas as a transitional energy source. She persisted and signed with this significant additional investment in Énergir.
“We are talking about energy transition, not a rupture,” explains Bertrand Millot, head of sustainable investments at the Caisse. If we abandoned fossil gas, we would have a problem. This is the economic reality,” he argues.
According to him, Énergir will play an important role in the energy transition with its agreement with Hydro-Québec to take over from electric heating during periods of extreme cold, “which will avoid the construction of five power plants like [that of] La Romaine” , he illustrated.
The Caisse is not worried about a possible drop in the profitability of Énergir, which expects in the medium term to lose 50% of the gas volumes it currently distributes. “Our vision, which is long-term at the Caisse, is to think no. Ultimately, being proactive in the transition will protect us," says Emmanuel Jaclot. "We support Énergir in new markets precisely to maintain its growth despite this energy transition."
The new investment of $575 million from the Caisse and the FTQ Solidarity Fund will not be used to maintain the gas network, but to finance Énergir's new activities, insisted the manager.
The maintenance of the gas network is assured, he believes. In volume, we will sell less, but the services provided to the electricity system will increase in value, he explained.
The Caisse de dépôt has been a shareholder in Énergir since 2004. Over the years, it has invested a lot of money in the company, notably by buying out the shares of other shareholders who have in turn left the ship, namely Enbridge, British Columbia Investment and the University of Quebec Pension Plan.
These investments have not increased in value, on the contrary. In 2021, the Fund paid 1.14 billion to buy back the 39% share held by the gas giant Enbridge. Currently, the fair market value of the Caisse's 80% share in Énergir is listed at 1.5 billion in its latest annual report.
Earlier today, CDPQ issued a press release stating it and the Fonds de solidarité FTQ will make an additional investment in Énergir to accelerate its decarbonization:
CDPQ, a global investment group, and the Fonds de solidarité FTQ announced today an additional investment totaling $575 million in Énergir to support the growth of this North American energy leader and the execution of its decarbonization and climate resilience plan.
With this new investment, Énergir will be able to execute its decarbonization and resilience strategy. Developing renewable energy projects and renewable natural gas production plants, pursuing the deployment of dual energy in Québec and the Zero Outages Initiative of its subsidiary, Green Mountain Power, in Vermont, are among the concrete measures included in the strategy.
Énergir is a diversified energy company with over $10 billion in assets whose mission is to meet the energy needs of its 535,000 customers in an increasingly sustainable fashion, notably with renewable energy. The leading gas distribution company in Québec, Énergir is also present in the United States, where it produces electricity from hydro, wind and solar sources, in addition to being the primary distributor of electricity and the sole distributor of natural gas in Vermont.
“Supporting the growth and energy transition of our portfolio companies, particularly those in Québec, are central elements of CDPQ’s strategy, and our backing of Énergir since 2004 is a good example of that,” said Emmanuel Jaclot, Executive Vice-President and Head of Infrastructure at CDPQ. “Alongside the Fonds de solidarité FTQ, we are determined to keep supporting this innovative company as it grows, diversifies and decarbonizes its activities to have a greener North American economy.”
“Énergir has a plan to accelerate Québec’s decarbonization and energy transition. With this new investment, the Fonds is supporting the development of the renewable natural gas sector, which will help reduce greenhouse gas emissions from fossil sources,” added Gilles Poulin, Vice-President, Private Equity and Impact Investing, Aerospace, Infrastructure and Transportation, at the Fonds de solidarité FTQ.
ABOUT CDPQ
At CDPQ, we invest constructively to generate sustainable returns over the long term. As a global investment group managing funds for public pension and insurance plans, CDPQ works alongside its partners to build enterprises that drive performance and progress. We are active in the major financial markets, private equity, infrastructure, real estate and private debt. As at June 30, 2024, CDPQ’s net assets totalled CAD 452 billion. For more information, visit cdpq.com, consult our LinkedIn or Instagram pages, or follow us on X.
CDPQ is a registered trademark owned by Caisse de dépôt et placement du Québec and licensed for use by its subsidiaries.
ABOUT THE FONDS DE SOLIDARITÉ FTQ
The Fonds de solidarité FTQ is a source of pride in Québec, fulfilling its mission through a unique business model created more than 40 years ago. Since then, the Fonds has rallied Québec into action thanks to the retirement savings of over 785,000 shareholders.
With net assets of $20 billion as at May 31, 2024, the Fonds supports thousands of companies through venture and development capital investments based on the belief that impact is created as much by financial as societal returns. For more information, visit fondsftq.com or LinkedIn.
Alright, CDPQ and the Fonds de solidarité FTQ will invest an additional $575 million in Énergir to support its growth and the execution of its decarbonization and climate resilience plan.
Since CDPQ controls 80% of the company, it naturally forked over the bulk of the investment ($465 million) to help Énergir grow and decarbonize.
That is a sizable investment and it makes sense on several fronts.
First, Énergir is a well managed company that is a crown jewel in Quebec where CDPQ has an explicit dual mandate to help bolster the economy as it seeks profitable investments.
CDPQ's CEO Charles Emond has stated they want to reach $100 billion in Quebec investments within the next two years and this brings them closer to that mark.
More importantly, we are headed for a global economic recession that will last a long time and Canada will feel the brunt of this global slowdown.
That tells me these large funds are looking to make large investments in safe, secure industries where cash flows are regulated (like utilities).
Well, CDPQ doesn't own Hydro-Québec but it was wise enough to buy a controlling stake in Énergir and is now helping the company transition to renewable energy (although we can argue that natural gas is clean energy).
There's that key phrase -- "transition economy"-- and this investment to help Énergir transition off fossil fuels is another example of how critical these transition investments are to large Canadian pension funds.
Remember, CDPQ and the Fonds de solidarité FTQ are not investing over half a billion dollars in Énergir to be charitable or out of "Quebec pride", they want to add significant value to this company over the long run to be able to sell it for a larger payout down the road.
But as Christopher Bonasia reported in The Energy Mix back in May, the path to net-zero isn't going to be easy for Énergir :
How does a gas company achieve net-zero? By increasing energy efficiency and electrification, substantially replacing fossil gas with renewable natural gas (RNG), and deploying emerging low-carbon technologies, says Quebec-based gas utility Énergir, in a series of moves that have sparked curiosity and scrutiny from outside experts.
Énergir recently released its 2023 Climate Resiliency report [pdf], which outlines a plan to reach net-zero emissions by 2050 for each of its three subsidiaries: Énergir in Quebec, and Green Mountain Power (GMP) and Vermont Gas Systems (VGS) in Vermont.
All three companies “strive to be proactive leaders in the fight against climate change thanks to the energy they distribute (and, where applicable, produce) while supporting their customers and society with innovative solutions that decarbonize their activities,” the report states.
Their reach is significant: In Quebec, Énergir manages an 11,000-kilometre network to distribute roughly 97% of the province’s natural gas consumption for about 212,000 households and businesses in more than 340 municipalities. GMP distributes more than 76% of the electricity used in Vermont by more than 273,000 customers, while VGS reaches some 55,000 as the state’s sole gas distributor.
The report was informed by projected scenarios and expert advice by Dunsky Energy + Climate Advisors, a research and analysis firm that focuses on accelerating the clean energy transition at scale.
“Reasonable people can disagree on individual components of the pathway (which will no doubt evolve),” company president Philippe Dunsky posted on LinkedIn. “But the fact that a gas utility is publishing a clear and honest vision of decarbonization, one that involves hard choices AND a clear endgame in terms of emissions—is laudable.”
Énergir claims that its system in Quebec, which it says is in good condition, the vast territory it covers, and its relative resilience to climate change put the company in a position to make a positive contribution to the energy transition. The Quebec strategy boils down to increasing energy efficiency and electrification to cut back natural gas use by 50%, replacing two-thirds of its remaining natural gas supply with RNG (essentially biogas), and decarbonizing the remaining natural gas use—particularly for industrial clients—with a mix of hydrogen fuel and carbon capture and storage (CCS) technologies. According to the report, the continued use of natural gas is important in Énergir’s system to help “meet peak and seasonal energy needs at the best cost, especially in a cold climate like Quebec’s.”
The company says it has already achieved its regulatory target of reaching 1% RNG delivery in Quebec for fiscal year 2023, and claims it is well positioned to meet the targets of 2% for 2024 and 5% for 2026.
But that might be too much reliance on RNG—a fuel that several industries and stakeholders are competing for, Normand Mousseau, scientific director at the Trottier Energy Institute, told The Energy Mix. On top of concerns about whether there will be enough RNG capacity to meet Énergir’s expected needs, he said tensions among stakeholders across the RNG supply chain—about who can claim the environmental attributes for producing, using, or distributing the fuel—could get in the way.
Moreover, gas in buildings, even RNG, is incompatible with a net-zero target, Mousseau added. There are practical challenges to using CCS to decarbonize gas used for heating buildings—and there will be cheaper options than RNG for heating buildings. Though some studies suggest it is technically possible to pair CCS with natural gas in buildings, he said it’s not realistic to do so at scale.
Énergir, for its part, states that “the technologies that help reduce greenhouse gas emissions from this sector are technically and commercially viable.”
Mousseau said the Trottier Institute has been critical of Énergir’s 2022 partnership with Nature Energy to develop biomethane facilities in Quebec. The report touts the plant for increasing the availability of RNG, but Mousseau maintains it “is not compatible with our climate objectives.”
Énergir’s plans to increase energy efficiency do hold up, Mousseau added, though increasing consumer efficiency is low-hanging fruit for regulated energy companies like Énergir, whose bottom line is determined by returns on infrastructure to bring energy to customers—not by the amount of energy those customers use.
“Energy efficiency is the keyword, and all these distributors use it because energy efficiency doesn’t change,” he explained. If customers use a bit less electricity, the distributor doesn’t care because “what matters is how much infrastructure you have…if you sell less gas, you will just charge more, especially if you know that the electricity company cannot replace you or will not want to heat with electricity.”
Outside Quebec, Énergir’s Vermont subsidiaries are benefitting from the state’s regulatory environment, including initiatives that expand access to battery storage and heat pumps. Compared to Quebec—where electricity distribution is dominated by government-owned Hydro-Québec—the regulatory environment in Vermont is more dynamic and allows for a more integrated approach to the energy system.
Énergir does acknowledge it will benefit from Vermont’s recent Affordable Heat Act, which encourages people to adopt low-carbon and economical heating method. Customers could even benefit from the state’s adoption of aggressive GHG reduction targets, the utility says, because Green Mountain Power, a longtime leader in the clean energy space, “is already well positioned to offer decarbonized solutions to Vermonters that will grow load, which will reduce pressure on rates.”
Anyways, I do hope this sizable investment from CDPQ and the Fonds de solidarité FTQ will help Énergir grow and decarbonize more rapidly.
This is an important employer in Quebec and it is a very well-managed company so I'd like to see it successfully transition into more renewable energy and achieve net-zero status a lot sooner so its enterprise value grows markedly over the long run.
Below, in partnership with Nature Energy, Énergir announced last year it will invest $1 billion by 2030 to build 10 biomethanization facilities to transform agricultural residues into renewable natural gas.
This interview with Éric Lachance, President and CEO of Énergir, took place last year when the announcement was made (in French).
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