pwr_july-2024 - 29

HYDROPOWER
John Stranne, research associate,
Nordic and Baltic Power Markets at Aurora
Energy Research, told POWER:
" Increased variation in weather due to
climate change, with more frequent
droughts and floods, will increase the
level of uncertainties for hydropower
operations. Mainly, the weekly, monthly,
and seasonably valuation of water-
which leads to tougher optimization
and reduced system efficiency. Storage
plants plan their behavior several months
or even years in advance, estimating
when they should contribute how much
to the electricity market and at which
hours of the day and periods of the year,
where the system benefits the most. If
weather patterns, and correspondingly
hydro inflows, become harder to predict,
it could lead to changed bidding behavior
on the market, potentially increasing
weekly spreads, or price volatility. "
Investments Flowing to Hydropower
Projects
The U.S. Department of Energy (DOE) in
a 2023 market report said that incentives
authorized in the Bipartisan Infrastructure
Law and the Inflation Reduction Act
(IRA), including tax credits, " are expected
to stimulate investment in upgrades to
the existing [U.S.] fleet and construction
of new hydropower and PSH [pumped
storage hydro] projects in the coming
years. However, they may have contributed
to the decline in activity in 2021-
2022 because of plant owners waiting
for full guidance on the implementation
of these incentives (e.g., which types of
projects would qualify, details on wage,
apprenticeship, and domestic content
requirements) to make any new capital
investment decisions. "
Don Erpenbeck, vice president and
global sector leader of Hydropower &
Dams at Stantec, an engineering services
firm, told POWER: " The U.S. hydropower
market continues to be very robust
for engineering and for capital projects'
work. However, it is slightly different than
people think it is ... 90% of the capital
spend in the U.S. is around hydropower
refurbishment, dam refurbishment, and
environmental projects that are the result
of ongoing Federal Energy Regulatory
Commission license compliance or other
environmental improvements. "
Erpenbeck said Stantec is currently
working on more than 20 GW of repowering
in the U.S. alone. " That is mostly in the
powerhouses and the powertrain equipment,
but also includes the upgrades to
dams, spillways, and other major civil inJuly
2024 | POWER
frastructure elements. It's a large, multibillion-dollar
construction market overall. The
U.S. fleet, in general, is being modernized
to increase their flexibility of operations
with all the different renewables coming
onto the power grid. The hydropower
fleet has generally gone from operating at
a constant power-maybe starting/stopping
twice a week-to starting and stopping
sometimes eight to 10 times per day
on each unit. And within those starts and
stops, plants are running from maximum
to minimum power swings to regulate
the grid. A hydropower plant's capability
to regulate the grid through flexible operations
is totally taken for granted. But talk
to any operator in a balancing authority
control center and they will tell you how
valuable the hydro units are. But it is accelerating
the aging process of the existing
older fleet. "
Lizzie Bonahoom, research associate at
Aurora Energy Research, said hydropower
still should be considered important to the
buildout of renewable energy resources.
" Hydro technologies account for just 28%
of installed renewables capacity today in
the U.S., down from 54% a decade ago, "
said Bonahoom, who referenced U.S. totals
of 99 GW of hydropower and 184 GW
of total renewable energy generation capacity
in 2014, levels that are now at 101
GW and 360 GW, respectively.
" These [hydro] projects tend to be
older, with only 3% of capacity coming
online since 2000. The three different
types of large-scale hydropower across
the U.S. are conventional hydropower
[impoundment] at 79 GW, pumped
storage at 22 GW, and run of river [hydrokinetic
or diversion] at just under 1
GW. Over half [50 GW out of 79 GW]
of existing conventional hydro is located
in the West, particularly Washington,
California, and Oregon, whereas, most
pumped storage is located in the South
[10 GW], " she said.
Bonahoom further noted, " Different
revenue streams and subsidy structures
are available to new build hydropower
projects across the U.S. All are supported
by federal investment tax credits, which
under IRA provisions could reach up to
a 50% discount on total project CAPEX
[capital expenditure]. Conventional hydropower
and run of river are also eligible for
the production tax credit, a variable subsidy
based on electricity generation. Additional
support is available for hydro in the
Bipartisan Infrastructure Law, which aims
to improve environmental standards and
operation of existing facilities, without extending
support to new facilities. "
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Markets and Competing Technologies
Vary by Location
Bonahoom said there are regional differences
when it comes to U.S. hydropower.
" On a more granular level, all markets in
the U.S. have different designs and are influenced
by local and state policies in addition
to federal policy. For example, hydro
would tend to benefit from capacity market
payments in markets with capacity
payments, such as CAISO's [California Independent
System Operator's] Resource
Adequacy or PJM's Reliability Pricing
Model. In Texas' market, ERCOT [Electric
Reliability Council of Texas], where there
is no capacity market, hydro is eligible to
participate in smaller ancillary services,
such as spinning reserve. "
Bonahoom noted the impact of
drought on the hydropower market, and
how that can limit investment. " Despite
availability of federal tax credits and
various other revenue streams, there
has only been 3.3 GW of hydro made
operational since the year 2010 [all of it
conventional], which is small compared
to onshore wind [116 GW], solar PV [97
GW], and battery [17 GW] additions in
the same time frame, " said Bonahoom.
" Aside from high costs, drought risk
presents a significant barrier to development
of more hydropower on the system:
California's power market for example is
particularly susceptible to drought and a
poor water year can reduce hydro output
by approximately 10 TWh, approximately
5% of the ISO's demand in 2023, " she
said. " High upfront costs of developing
hydro have helped to hamper development.
This is reflected in investor interest
across competitive ISOs; only 3.1
GW of new pumped storage and 1.7 GW
of conventional hydro is currently under
development, as opposed to 586 GW of
battery storage, 584 GW of solar PV, and
213 GW of onshore wind. "
Bonahoom said that despite lacking investor
interest, there is a growing need
for dispatchable clean generation in the
U.S. to complement rising intermittent
renewables generation. " Pumped hydro
especially is in a good position to provide
value, 'charging' when power prices are
low and there is sufficient generation on
the system, and discharging when the
grid is tighter, which will more often coincide
with the sun setting, " she noted.
David Pretyman, senior partner of
Energy and Utilities at West Monroe, a
consultancy group, said, " It's true that
hydropower outputs in the American
West have been below average this year
and last. However, the variability of a
29
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