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Large Hydro Power: The Underloved Energy Source

Charles Morand

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 hydo 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
 



was posted on AltEnergyStocks.com.


       

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Comments

I fully agree that some environmental concerns need to be put aside for the greater good of reducing carbon emissions. Every energy source will have an impact and we should weigh impacts to birds against the overwhelming need for clean wind energy. In most cases, wind energy, transmission lines, and concentrated solar projects should move forward because the greater good outweighs the impact.

However, I think your point that, "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," fails to consider the impacts of hydro vis a vis other renewable energy sources.

Let's not forget that we all need water for life. Just as global warming poses great threats, the misuse of water resources could be equally devastating to humans and our economy. Further, the environmental and economic impact of the destruction of the salmon industry in the pacific northwest has been well documented and is not minor. The destruction of fish populations is no small issue if you care about the world feeding itself. Much of the world's population gets their protein from fish.

I am wondering if you are also aware that hydro can also have a fairly large global warming footprint as well. Dams and the reservoirs they create produce methane from the decomposition of organic material. One estimate puts reservoirs as responsible for 1/4 of all methane emissions, though the methane emission problem is much greater in the tropics. The amount of fossil energy that goes into dam construction is not insignificant either.

I mention these points not to say that I am opposed to all hydro projects. However, this is not a black and white issue as portrayed. Blind devotion to reducing carbon emissions at any cost may create some severe consequences if we are not careful and hydro on the whole is not as clean as many of the other renewable sources.

Joe:

I am certainly not suggesting that we go back to building dams the way we did 50 years ago.

However, it's important to recognize that our knowledge has evolved in the past 50 years and that large (defined by the DOE as >50 MW) hydro facilities can be built in ways that are far more sensitive to local ecologies than they used to be.

I recognize that the wording I used seems like I'm oversimplifying this issue and I assure you that's not what I'm doing. But I am somewhat dismayed by the fact that nuclear is being cheerleaded in the US, including by some influential environmentalists, as a way out of the climate crisis, while large hydro continues to be ignored at best and vilified at worst.

The greenhouse gases released by larger hydro reservoirs are certainly of concern but again are largely the product of a by-gone era when we used to flood large forested areas to make dams. The biomass decomposing under water is not only an issue because of the methane released, but also because methyl mercury ends in high concentration in the local fish supply. I am not advocating returning to this way of building dams and although I am no expert I understand that modern reservoir management techniques can reduce those impacts materially.

In terms of Pacific Northwest fish stocks, the reasons behind their collapse are many and it certainly is not fair to blame it only or mostly on hydro dams. Fish stocks are declining or collapsing around the world because we consume too much fish. Global fish stocks are a classic example of the tragedy of the commons; unless people around the world agree to curb their consumption, global fish stocks are bound to continue to decline.

Lastly, on the water management issue, encouraging fruit farming in the California desert or even permitting the existence and expansion of cities like Phoenix or Las Vegas are far worse examples of dismal water management than building hydro facilities to harness the kinetic energy of water. As with fish, the primary problem with water is one of over-consumption and profligate use in large part due to the fact that current prices do not reflect current or future scarcity.

In short, while large hydro probably does contribute to making certain ecological problems worse, it's by no means the evil it's often made out to be, and human consumption patterns are far more significant contributors in cases such as fish and water. Big dams, because of their visual footprint, make easy targets for the hanging of flashy banners, while 10,000 perfectly green lawns in 100+ degree weather in Phoenix don't make for an especially sexy environmental campaign.

I am eager to see greater consideration of micro-hydro as opposed to major projects. It has a number of advantages - less environmental impact (rivers/creeks dont create the flooding of major valley projects), simpler (lower cost in parts) and, most importantly it is more distributed as opposed to centralized. The obvious disadvantage is scale. Has anyone done a decent analysis of these trade-offs?

Neal:

I am not aware of any analysis comparing and quantifying the trade-offs between small and large hydro.

I love small hydro, both as a concept (because of the attributes you discuss) and as an investment theme. I just don't think it's helpful at this point to write-off large hydro.

Canada has a very active small hydro IPP industry. I don't think it's nearly as active in the US, and in fact Canadian firms are doing a lot of the work here. Check out this article I wrote in January: http://www.altenergystocks.com/archives/2009/01/post_3.html

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