North America | Powering on
Hydropower continues to prove its worth across the US, as IWP&DC shows here in its latest news round up
COMPRISING ALMOST ONE-THIRD of US renewable energy generation, with pumped storage currently representing 96% of storage capacity whilst supporting grid stability and reliability nationwide, hydropower has a key role to play in the country’s energy mix. However despite the potential of these technologies, as a new report by the National Renewable Energy Laboratory (NREL) states, new public and private investment in hydropower projects of all sizes lags behind other renewable energy generation sources such as wind and solar. Previous reports by the US Department of Energy
Above: Investment in US hydropower still lags behind other renewables such as wind and solar, according to the National Renewable Energy Laboratory
have alluded to the fact that by 2050, combined US hydropower and pumped storage generation and storage capacity could increase the existing 100GW by almost 50%. In an effort to move closer towards achieving this vision, NREL’s new report gives an insight into the current hydropower investment landscape, reviewing the challenges associated with raising investment for medium-sized hydropower and pumped storage projects (defined as projects with 5-30MW of installed capacity). Called ‘Hydropower Investment Landscape’, the
new report is based on 33 stakeholder interviews, a survey of 36 industry representatives (including investors), and an analysis of recent public transactions. With more than 1GW of capacity in the current pipeline of medium-sized hydropower and PSH projects (as of 2022), investment required to develop this could range from US$3.16 billion to $9.5 billion, and encompasses five project types: capacity additions, conduits, PSH (both open- and closed- loop), non-powered dams, and new stream-reach development. Long development timelines, the ability to identify adequate compensation opportunities, and cost competition with other renewables, can make it difficult for hydropower developers to attract debt and equity financing. Although there are signs of new market activity, many developers are forced to self-fund projects to get over early-stage development hurdles. As the NREL report states, development risks can be summarised into six main areas: Long project development timelines: Protracted federal, state, and local regulation processes create challenges for project developers and investors alike that add significantly to a project’s financial uncertainty.
Lack of access to early-stage funding: Early-stage project risks and long lead times to operational cash flows discourage investors from project involvement until permitting and licensing processes are either well underway or complete.
Challenges in securing early-stage PPAs: For reasons similar to those described above, off-takers are hesitant to sign PPAs until a project is close to going on-line.
14 | June 2024 |
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Market compensation uncertainties and lack of market parity: Grid compensation for services such as capacity or ancillary services vary by market and price levels are volatile, reducing revenue certainty. High up-front development costs: Hydropower development requires significant upfront funding, and it can be years before revenue is realised. Together with market uncertainty, this can discourage investors who are seeking favourable near-term return on investment. Limited industry awareness: Lack of investor awareness about hydropower’s potential role in complementing high amounts of variable renewable energy restricts hydropower’s market growth.
Stakeholders who participated in the research for this new report suggested that the DOE and other federal agencies have a significant role to play in incentivising the market for hydropower and PSH going forward. As a next step, it is recommended that DOE investigate seven key areas to spur market growth: Provide financing, bridge funding, and other forms of support for early-stage hydropower development. Perform research on how market parity may be achieved with other types of renewables for both hydropower and PSH. Support the development of updated and improved market models and valuation methodologies. Create more awareness around federal permitting and licensing processes, and how these processes can be demystified. Continue to support research on reducing deployment time and costs. Conduct outreach with developers and other industry stakeholders prior to the implementation of new legislation and regulations to help reduce unintended consequences. Increase awareness of new opportunities in hydropower.
While no single stakeholder holds the key to unlocking investment, the report states that the DOE can have an important role in reducing the risks and costs in these areas, which should help accelerate future investment.
Ear to the River In a bid to shed light on the future trajectory of the
hydroelectric industry, the National Hydropower Association (NHA), the Ontario Waterpower Association (OWA), the Hydropower Foundation, and Kleinschmidt Associates have revealed the findings of the third annual “Ear to the River” survey. Launched in 2021, this initiative aims to provide crucial insights into the challenges and opportunities anticipated by owners of hydroelectric facilities and professionals in the hydro and broader renewable energy sectors over the next few years. “The Ear to the River survey serves as a vital tool
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