Hydro Power: The Underloved Energy Source

While browsing Cleantech News, I came across an interesting post on Energy Outlook on the lack of attention hydro power is receiving in the latest of round of policy efforts aimed at greening the U.S.' energy supply and combating climate change.

Besides having been been scuffed at in Waxman-Markey, hydro power has effectively been ignored in the ARRA, receiving a measly $32 million, peanuts in comparison to the $786.5 million awarded to biofuels, the $350 million for geothermal power and the $117.6 million going to solar. Not mention the millions of dollars that will flow into wind power as a result of changes to the PTC allowing project developers to claim a 30% investment tax credit [ITC] instead, and to obtain direct cash grants in lieu of the actual credit.

What can $32 million get you in today's large hydro power world? The latest North American project announcement that I am aware of is for a large-scale facility (1,550 MW) in the north of Canada forecasted to cost a total of $6.5 billion, or ~$4.2 million/MW installed. Since this is the north of Canada and far from population centers, suppliers of construction materials and the plants where much of the electrical hardware will be manufactured, let's assume that this project will cost about 25% more than an equivalent project closer to civilization, or ~$3.2 million/MW. At that cost, $32 million gets you a stunning 10 MW of new hydro.

The $32 million is not for new capacity additions but rather for upgrades and improvements to existing facilities. Still, the figures above provide a rough idea of the economics of large hydro power today, and it's safe to conclude that $32 million is peanuts, and that refusing to count large hydro toward the national RPS proposed in Waxman-Markey won't exactly help.

This is unfortunate given that hydro's share of total electricity production in the US and average capacity factor have been eroding over the past decade, no doubt in part due to the fact that most large hydro installations in the US are old and in need of upgrading.

Despite concerns over ecological impacts, hydro large and small can contribute positively to the energy mix in regions with good hydrological resources. As noted in the NYT article linked to above, the utility building the 1,550 MW installation in Canada plans to leverage this huge amount of storage capacity to help integrate into its grid 4,500 MW of new intermittent wind power coming online by 2015.

Of course, not all regions are blessed with the hydrological resource base necessary to achieve something on that scale, just like hydrothermal geothermal can only ever be developed in a few select areas. But where that resource does exist (e.g. Pacific Northwest), it should be exploited. Furthermore, expansions in transmission capacity could certainly facilitate the use of large hydro dam to store power from wind farms far away. Given the potential scale of environmental and economic impacts related to climate change, waging war on large hydro today based on concerns over fish habitat, as many high-profile environmental groups are doing, is like worrying about the air bag while driving straight for the edge of Grand Canyon.

Last April, while doing research on wood pellets, I came across a stock with material exposure to the large hydro equipment business, Andritz Group (ADRZF.PK). This company would likely be a major beneficiary of the kind of hydro revival needed in the U.S. However, $32 million is probably not going to get anyone at Andritz overly excited given that its hydro unit alone generated sales of ~$1.6 billion in 2008.

DISCLOSURE: None

Comments

[fishluvrain:]

Not to argue that Hydro is a clean energy, it is. The problem Hydro faces at least in most developed nations is the damming of the water flow... It would take some sweet talking to get past the environmental impact. I would site the movement to dismantle Hetch-Hetchy in Ca. A working Reservoir and Hydro producer. So even the rivers already blocked for water or power are in jeopardy. I think it would be very difficult to get funding for a new project, repair, yes.

Jul 09 04:50 AM

[DRIx:]

Most of the conventional wisdom regarding hydropower and its prospects is completely wrong, which is why it is likely the best investment opportunity in renewable energy.

Jul 09 06:02 AM

[Ferdinand E...:]

If you want to find out about the advantages of hydro, examine the situation in Sweden, where hydro has almost half of the capacity. Before the curse of deregulation, and Sweden joining the EU, we had the lowest cost power in the world (on the average), and among the lowest price.

Hydro makes all the sense in the world, as our friends in China know.

Jul 09 10:20 AM

[Alan Young:]

Large-scale hydro seemed like a great idea 100 years ago. Now we know about long-term downsides like damage to salmon runs, and capacity loss from siltation.

The huge up-front capital cost, long lead time needed before the project becomes productive, and environmental disruption make it a non-starter at a time when we have so much financial stress.

And on top of all that, with climate change, the long-term hydrological resources might be a lot less than expected in any given place.

Jul 09 11:17 AM

[Trane250:]

There is plenty of hydrologic power potential in the hills of northeastern USA, but today's political climate makes any development impossible. The common sense of older generations has been lost to political correctness.

Jul 09 11:39 AM

[TinyTim:]

No question hydro is unloved. The small, old plants are looked on as quaint, tech museums unless they are drying up a riparian habitat, in which case the dams are pulled down.

My impression is that there are very few sites left in the lower 48 that would accommodate a large scale hydropower plant, and that's without any environmental consideration. Unless it's near civilization, it has to be large scale to justify the transmission cost.

It's not surprising that Ontario Hydro is still plugging away. Except for a few hunters cabins, there's not much up there except beautiful forest and I'm pretty sure there's no spawn runs to worry about.

Jul 09 04:19 PM

[Steve Ward:]

I agree that new hydro projects probably will not be built. But several engineers have stated that upgrades to the current hydro network could produce a 10 to 12 percent increase in power generation from the current hydro base load.

As far as the Obama Admin goes, all they are funding are pseudo religous beliefs on energy renewal. No science here, just a junk science religous belief about how things should be.

Jul 09 11:40 PM

[Danny Newton:]

www.nytimes.com/gwire/...

Corps of Engineers Stops Project Because of Low Benefit to Cost Ratio.

Since when did the ecofraks pay any attention to economic efficiency? I don't see them applying the same standard to high speed trains, wind and solar projects.

Jul 10 02:29 AM

[Butch:]

A great example of the effect of punitive regulation re hydro: Here in the upper peninsula of Michigan a relatively low head dam will likely be removed and the associated generation retired - against the wishes of the local population. The reservoir provides camping, excellent fishing habitat, a refuge for several protected species of migrating birds in addition to the low cost electricity supplied to the local grid. It has been in operation for almost 80 years without an incident. Oh yes, no salmon or other species spawning affected.

Unfortunately, the it does not meet the new and improved state and federal requirements for flood control (for which is was never intended). The new rules would require the expenditure of millions of dollars to upgrade the structure to withstand what we were told is a 500 year flood. Local hydrological experts offered evidence that such a flood probably has not occurred since the end of the last ice age. All to no avail. The owner of the dam says it would take over 20 years to recoup the required investment and it is cheaper to remove the dam.

Jul 11 07:17 AM