RELIABILITY OF RENEWABLE ENERGY: HYDRO Jordan Lofthouse, BS, Strata Policy

Randy T Simmons, PhD, Utah State University

Ryan M. Yonk, PhD, Utah State University

The Institute of Political Economy (IPE) at Utah State University seeks to promote a better understanding of the foundations of a free society by conducting research and disseminating findings through publications, classes, seminars, conferences, and lectures. By mentoring students and engaging them in research and writing projects, IPE creates diverse opportunities for students in graduate programs, internships, policy groups, and business.

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RELIABILITY OF RENEWABLE ENERGY: HYDRO

INTRODUCTION

Many Americans want to see an increase in renewable energy sources. Hydropower has provided clean, renewable energy for over a century in the United States, and in 2014 it provided approximately six percent of the United States’ electricity generation.1

The Institute of Political Economy (IPE) at Utah State University assessed the physical, economic, and environmental implications of hydropower, especially small and micro hydropower, to determine its reliability as an energy source. Reliability is an important measure of an energy source’s investment potential because a reliable energy source is a reliable investment. The IPE report found that hydropower is a reliable source of electricity, but unnecessary and overly burdensome government regulations limit access to this clean and reliable energy source.

Large dams like Hoover Dam and Grand Coulee Dam are the most conspicuous forms of hydropower, but most of the nation’s potential for large-scale hydroelectric generation has already been developed. The rapid growth in hydropower capacity started in the 1930s and began slowing in the 1970s when a series of environmental protection policies that discouraged new development were enacted. 2 New large-scale projects are unlikely in the future because large-scale projects make little economic or environmental sense. But, efficiency improvements at existing dams can increase the amount of electricity generated.

1U.S. Energy Information Administration. (2015, March 31). What is U.S. electricity generation by energy source? Retrieved from: http://www.eia.gov/tools/faqs/faq.cfm?id=427&t=3 2 Uría-Martínez, R., O’Connor, P., Johnson, M. (April 2015). 2014 Hydropower Market Report. Oak Ridge National Laboratory. Retrieved from: http://www.energy.gov/sites/prod/files/2015/04/f22/2014%20Hydropower%20Market%20Report_20150424.pdf 3Hadjerioua, B., Wei, Y., Kao, S. (April 2012). An Assessment of

Small- and micro-hydropower facilities can expand renewable electricity generation capacity substantially. The United States has tens of thousands of non-powered dams (NPDs) across the country that can be retrofitted with electricity-producing turbines. The United States also has thousands of water conduits, such as aqueducts, tunnels, and pipes, that can be retrofitted with turbines. As federal and state governments encourage renewable energy sources, installing small- and micro-hydropower facilities on NPDs and conduit waterways is advantageous because of low costs, small environmental impacts, and substantial energy potential.

PHYSICAL RELIABILITY

Hydropower is physically reliable because it can consistently and efficiently convert the kinetic energy of water into electricity. For decades, hydropower has been a source of renewable energy that millions of Americans have relied on to meet their daily electricity needs. In 2014, Oak Ridge National Laboratory found that over 54,000 non-powered dams (NPDs) exist across the United States that can be converted into hydroelectric facilities.3 These facilities can potentially add up to 12 gigawatts of new energy capacity with negligible carbon emissions from daily operation, which is enough to power approximately 4.1 million American homes.4

Unlike wind and solar, hydropower can easily meet electricity demand because it can serve as both a baseload and peak power source. Baseload power sources are able to supply the electric grid with an almost constant flow of energy that can meet the majority of electricity demand throughout the day. Peak power plants augment baseload power sources when electricity demand reaches its peak levels during the day. Most hydropower plants can easily adjust water

Energy Potential at Non-Powered Dams in the United States. Oak Ridge National Laboratory. Retrieved from: http://nhaap.ornl.gov/sites/default/files/NHAAP_NPD_FY11_Final_Report.pdf 4 Boulalem Hadjerioua, Yaxing Wei, Shih-Chieh Kao April 2012 “An assesment of potential at Non-Powered Dams in the United States” http://www1.eere.energy.gov/water/pdfs/npd_report.pdf, vii.

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flow through turbines receive, thus augmenting power output to meet peak demand.5

Hydropower is one of the most energy-efficient sources of electricity. One measure of hydropower’s efficiency is its capacity factor, which is the ratio of actual electricity output compared to the potential output under optimal conditions. The capacity factor for small- and micro-hydroelectric plants is estimated to be around 50 percent, well above some estimates for wind power’s 30-35 percent and solar power’s 20 percent capacity factor.6 Hydropower's capacity factor can be misleading, however, because dams often have secondary purposes like flood control that limit the amount of water that can be released for electricity generation. Other energy sources, like wind and solar power, have no other purpose than generating electricity. In addition, calculation methods for capacity factors can vary, meaning that capacity factor estimates also vary. A different measure of hydropower’s efficiency is its conversion efficiency, which is the amount of electricity that can be generated for the amount of fuel (water) input. Hydropower has one of the highest, if not the highest, conversion efficiencies of any major energy source, ranging from 60 to 90 percent.7 A source of energy that is more efficient will allow more electricity to be generated per unit of fuel, allowing more energy to be produced with a smaller impact.

Changes in climate could impair the regional viability of hydroelectric power generation because hydropower is dependent on runoff. The volume of precipitation, which affects the amount of runoff, may change regionally as climate change progresses. 8 Within the United States, climate models from the Norwegian University of Science and Technology show an overall runoff decrease in several Great Plains states, as well as Texas and California, by 2050. In contrast, the Pacific Northwest and some Northeastern

5 KCET. (n.d.) Explainer: Base Load and Peaking Power. Retrieved from: http://www.kcet.org/news/redefine/rewire/explainers/explainer-base-load-and-peaking-power.html 6 Open Energy Information. (n.d.) Transparent cost database - Capacity factor. Retrieved from http://en.openei.org/apps/TCDB/ 7 Uhunmwangho, R., Okedu, E. (November 2009). Small Hydropower for Sustainable Development. The Pacific Journal of Science and Technology (Volume 10, Number 2). Retrieved from:

states are predicted to have an increase in runoff ranging from 2.5 to 10 percent.9 As climate changes, the capacity of some hydropower facilities may be diminished while the capacity of others may be increased.

ECONOMIC RELIABILITY

For this report, “economic reliability” is the ability of an alternative electricity source to sustain itself in a market without government mandates and subsidies. Economic reliability also includes the ability of an energy source to sustain itself in the market without undue burdens from government policies or regulations. Existing literature generally refers to "economic reliability" as economic viability or compatibility.

Hydropower’s levelized cost of electricity (LCOE) is among the lowest of all energy sources. The LCOE compares the cost-effectiveness of different electricity sources, considering capital, maintenance, operations, and fuel costs. The LCOE does not take every factor into account, however, including subsidies and regulatory environment. Hydropower’s estimated LCOE of 2 cents per kilowatt-hour is substantially lower than natural gas and wind’s 6 cents and solar photovoltaic’s 16.5 cents per kilowatt-hour.10 Most of hydropower’s cost is derived from physical construction of the hydropower dam, so retrofitting non-powered dams and conduits reduces cost substantially. In general, efficiency improvements and additional development at hydroelectric dams have lower development barriers than development at NPDs because of the need to connect to an electric grid.

Financing a hydropower project, whether retrofitting an existing dam or building a new one, can be difficult because most hydropower developments are capital intensive with long payback periods. In some cases,

http://www.akamaiuniversity.us/PJST10_2_535.pdf, 537 8 Hamududu, B., Killingtveit, A. (2012, February 14). Assessing Climate Change Impacts on Global Hydropower. Retrieved from: http://www.mdpi.com/1996-1073/5/2/305, 306 9 Ibid. 322 10Frantzis, Lisa. (2010, June 29). Renewable Energy Global and Domestic Market Drivers. Navigant Consulting. Retrieved from: http://www.navigant.com/~/media/WWW/Site/Insights/Energy/Renewable%20Energy%20Global%20and%20Do_Energy.ashx

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high capital costs coupled with the process of selling to bulk power markets make development too risky to attract investment. 11 A 2015 report for the Maine Governor’s Energy Office found that project permitting and licensing, project financing, and grid interconnection are the three primary barriers to hydropower’s economic viability.12

Many developers would be willing to invest in small- and micro-hydropower because of expected returns, but government regulations add cost that deters investments. These regulations also increase the risk to expected returns because they convolute the licensing process with uncertainty. Several federal agencies have overlapping responsibilities, which adds bureaucratic lag that can slow the licensing process. Prospective developers then face an unpredictable timeline for permitting, licensing, and construction. This unpredictability makes it harder for investors to determine a payback period. Grid operators expect certainty in a development timeline, and without certainty, prospective developers find it harder to connect to an electric grid. Several specific federal policies hamper the hydropower industry today. With only a few exceptions, most of these policies make developing hydropower more difficult by requiring developers to comply with stringent and costly environmental and historic preservation regulations.

Section 106 of the National Historic Preservation Act of 1966 requires the Federal Energy Regulatory Commission (FERC) to “take into account the effect of a proposed project on any historic property.” 13 This policy is intended to protect the nation’s historic heritage, but can be a major impediment to developing new hydroelectric projects.

The National Environmental Policy Act (NEPA) requires all federal agencies to assess their environmental

11 Navigant Consulting. (June 2006). Statewide Small Hydropower Resource Assessment. Prepared for California Energy Commission. Retrieved from: http://www.energy.ca.gov/2006publications/CEC-500-2006-065/CEC-500-2006-065.PDF 12Kleinschmidt. (February 2015). Maine Hydropower Study. Prepared for Maine Governor’s Energy Office. Retrieved from: http://www.maine.gov/energy/publications_information/001%20ME%20GEO%20Rpt%2002-04-15.pdf 13 National Historic Preservation Act of 1966, As amended through 2006. Retrieved from: http://www.ncshpo.org/nhpa2008-final.pdf

impacts. FERC is required to develop an Environmental Assessment (EA) or Environmental Impact Statement (EIS) for hydroelectric projects, as well as suggest alternatives that will be less environmentally harmful. While NEPA ensures that environmental considerations are made for hydroelectric projects, the lengthy process of developing EAs and EISs can discourage developers.14

The Clean Water Act of 1972 (CWA) sets water quality standards for hydroelectric projects to comply with. FERC generally sets these water quality standards as a condition of project certification, requiring developers to find ways to meet minimum water quality standards.

The Endangered Species Act (ESA) requires FERC to consult with both the U.S. Fish and Wildlife Service (FWS) and National Marine Fisheries Service (NMFS) before issuing a hydroelectric power license. The agencies must determine that a proposed project will not impact any listed species or their habitat before allowing a developer to build a hydroelectric project.15

Congress attempted to tackle this excessive red tape by passing the Hydropower Regulatory Efficiency Act of 2013 (HREA). This law was intended to make it easier to develop small- and micro-hydro projects by simplifying the regulatory framework. First, the HREA was meant to help state and municipal governments construct conduit-based, small-scale hydroelectric power generators by reducing the length of the bureaucratic process that local governments and private entities must go through to begin construction. Under the new regulations, hydropower plants that produce 5 megawatts or less are exempt from licensing all together, provided that the conduit-based system is not located on federally-owned lands.16 Individuals or companies wishing to develop conduit-based

14 Hydropower Reform Coalition. (n.d.). Laws Governing Hydropower Licensing. Retrieved from: http://www.hydroreform.org/resources/laws 15 Hydropower Reform Coalition. (n.d.). Laws Governing Hydropower Licensing. Retrieved from: http://www.hydroreform.org/resources/laws 16 Spiegel & McDiarmid LLP. (3013, September 11). New Hydropower Legislation. Retrieved from: http://www.spiegelmcd.com/files/Client%20Alert%20on%20New%20Hydropower%20Legislation_2013_09_11_03_40_20.pdf

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hydroelectric power with an output less than 5 megawatts only have to file intent to do so with FERC.

The HREA was also intended to streamline the process by which free-flowing hydropower developers receive FERC approval. Free-flowing hydropower is reliant on natural sources of water, such as creeks and streams, to spin the turbine. HREA grants FERC the authority to issue exemptions to non-conduit small-scale hydropower with outputs of 10 megawatts or less. Developers are exempt from some licensing requirements, making the licensing process nominally shorter and less rigorous, and exemptions do not expire.

Finally, the HREA gives FERC the authority to issue permit extensions for potential license applicants. A permit allows a developer to survey a site and determine the cost of a prospective project before undertaking it. Before the HREA, permits only lasted three years, but now, FERC can extend the length of the permit by two additional years, giving the developer more time to analyze the site conditions before seeking a license.

Despite the intentions of the HREA, the environmental and historical preservation regulations continue to actively discourage developers from undertaking new hydropower projects. Two years have passed since President Obama signed the HREA into law. As of June 2015, 58 small hydropower conduit-based projects have applied for the FERC licensing exemption under the HREA. Of these 58 applications, 43 were approved, eight were rejected, and seven are still pending. FERC reports having received 30 applications for the two-year extension of preliminary permits since the HREA became a law. FERC has granted 15 permit extensions, and denied 14, with one still pending. The complex licensing process and multiple-agency overlap keeps the price of retrofitting and uprating existing dams prohibitively high. For example, a congressional study found that the cost to get a FERC exemption for a

17 113th Congress. (2013, February 4). Hydropower Regulatory Efficiency Act of 2013. Retrieved from: http://www.gpo.gov/fdsys/pkg/CRPT-113hrpt6/html/CRPT-113hrpt6.htm 18 Hadjerioua, B., Wei, Y., Kao, S. (April 2012). An Assessment of Energy Potential at Non-Powered Dams in the United States. Oak Ridge National Laboratory. Retrieved from:

residential-sized hydropower project would cost between $10,000 and $30,000, often more than the cost of the equipment.17 In short, the HREA has not adequately reduced the burden on hydropower developers.

The HREA represents a legislative maneuver in favor of small hydropower development, but this law is not enough to sufficiently streamline the regulatory process. Small hydropower development will remain stunted as long as redundant and overly burdensome regulations remain in place.

ENVIRONMENTAL RELIABILITY

For this report, “environmental reliability” is the ability of an alternative electricity source to have fewer environmental impacts than traditional fossil fuels. In existing literature, environmental reliability is most commonly referred to simply as an environmental impact.

Although generating electricity with hydroelectric facilities does not emit pollution or greenhouse gases, constructing dams can have serious environmental implications. Reservoirs destroy riparian habitats and other ecosystems. In the United States, however, tens of thousands of dams were constructed decades ago, and the environmental impacts have already been realized. Because 54,000 NPDs can be converted to produce electricity in the United States, small-scale hydropower installations could take advantage of an untapped resource without causing additional damage to the surrounding environment. 18 The retrofitting process itself has a minimal effect on the environment, and does not disrupt wildlife habitats or displace sediment that can exacerbate flooding.

One major concern with hydropower is its effect on fish populations. Fish passing through turbines can be killed by direct contact with spinning blades or by turbulence that can tear fish apart.19 Turbine-caused

http://nhaap.ornl.gov/sites/default/files/NHAAP_NPD_FY11_Final_Report.pdf 19 Therrien, J., Bourgeois, G. (March 2000). Fish Passage at Small Hydro Sites. The International Energy Agency. p. 13. Retrieved from: http://www.ieahydro.org/uploads/files/annexii_fish_passage_smallhydrosites.pdf

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pressure changes can also kill fish by rupturing their swim bladder, a gas-filled organ that fish use to change their buoyancy.20 A leading cause of fish death around a hydropower dam is cavitation. Cavitation is the formation of gas bubbles under low pressure behind a turbine that move to higher pressure water and implode. This implosion generates pressure waves that can damage turbines and kill fish.21

Fish mortality can be reduced by selecting the proper turbine for a hydropower plant’s local fish population. Francis and Kaplan turbines are the two most common types of turbine designs for hydropower production. Some fish species have higher survival rates when traveling through Kaplan turbines, while others fare better swimming through Francis turbines. 22 Hydropower developers can mitigate fish mortality by installing the appropriate type of turbine for local fish species.

THE FUTURE OF SMALL-HYDROPOWER

The potential for small hydropower development gives the United States a reliable, cost effective, and environmentally friendly way to increase its energy production. Despite small hydropower’s potential to augment U.S. energy production, federal regulations stifle its growth. Congress’s passage of the HREA in 2013 helped streamline the licensing process for developers of small hydropower, but it has not sufficiently incentivized states and cities to exploit small hydropower resources at their disposal. Navigating the complex and costly regulatory process that involves compliance with redundant and unnecessary laws has dissuaded municipalities from attempting to develop small hydropower. Further, congressional reform of the environmental and historical protection laws that apply to the hydropower licensing process would lower the costs of small hydropower development for local and state governments. Hydropower will not reach its full potential while excessive and unwarranted federal

20 Ibid. 14 21 Princeton University. (n.d.) Fish Passage and Entrainment Protection. p. 32. Retrieved from: https://www.princeton.edu/~ota/disk1/1995/9519/951904.PDF 22 Therrien, J., Bourgeois, G. (March 2000). Fish Passage at Small

regulatory barriers stand in the way of small hydropower development in the United States.

Hydro Sites. The International Energy Agency. p. 22. Retrieved from: http://www.ieahydro.org/uploads/files/annexii_fish_passage_smallhydrosites.pdf