Policies & Regulations: Change Brings New Opportunities for Hydro

Leaders of industry associations in the U.S. and Canada offer their views about hydropower’s pivotal role in shaping new energy and environmental policies and in contributing to economic recovery.

By Linda Church Ciocci and Pierre Fortin

In the past year, the United States and Canada experienced dramatic changes. From the election of a new U.S. President who rode a wave of “change” into office to the political instability of another Canadian minority government to the greatest economic downturn since the Great Depression, some of the most fundamental parts of the North American society look quite different than they did a year ago.

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The energy sector also saw massive change. Oil and gas prices skyrocketed to unprecedented highs before falling to levels not seen for years. Some U.S. electric utilities teetered on the brink of bankruptcy as their share values plummeted. Investors orchestrated mergers. Some U.S. states considered “re-regulation.” In Canada, while the financial situation affected many industries, the electric sector remained stable and continued in project development mode.

During these challenging times, hydropower provided a bright spot. In the U.S., hydropower continues to provide 7 percent of all electricity, and it accounts for about 75 percent of existing renewable generation. In Canada, hydro provides 60 percent of all electricity, and virtually all (about 97 percent) of existing renewable resources.

As the United States and Canada examine energy, environmental, and economic policies, hydropower offers options and solutions in every arena.

U.S. Hydropower: finding new opportunities amid turmoil

Working with the National Hydropower Association (NHA), U.S. policy-makers are including hydropower provisions in everything from the American Recovery and Reinvestment Act of 2009 to energy and climate proposals that will influence policy for decades. Industry observers — including the Electric Power Research Institute (EPRI) and the Federal Energy Regulatory Commission (FERC) — believe the industry’s installed capacity can double in this generation, with the right policy support in place. FERC already is reviewing preliminary permit and license applications for new projects that would expand the industry’s capacity by a third.

Offering solutions

As national energy policy debates focus on uncertainty in fuel supplies and growing demand for renewables, the U.S. hydropower industry offers solutions for how to improve the efficiency of existing domestic resources, develop new generation options, and support the integration of additional intermittent renewable resources.

Improving efficiency of existing resources

NHA can point to numerous examples of how hydro project owners are improving the efficiency of existing facilities. One example is at Grant County Public Utility District’s 1,038-MW Wanapum Dam on the Columbia River in Washington State. New advanced-design turbines being installed at the project are increasing generation capacity by 14 percent and water use efficiency by an average of 3 percent for each of ten units. When all ten turbines are replaced, generation capacity will increase by 14 to 20 percent while continuing to provide safe downstream passage of juvenile salmon. (For details, see Hydro Review Special Report: Wanapum and Priest Rapids, April 2006.)

The design for the turbines was developed through a public-private partnership under the U.S. Department of Energy’s (DOE) Advanced Hydropower Technology Program. NHA has helped secure more than $40 million in funding for fiscal year 2009 (October 2008 through September 2009) for this and other DOE water power programs. DOE is using the funds for research and development in tidal and ocean/marine renewable technologies, including demonstration programs, and for conventional hydropower research, development, and deployment.

Developing new generation technologies

Beyond the use of conventional hydropower technology, there is great interest in developing new generation technologies for use in tapping the U.S.’s ocean and instream kinetic energy potential.

The technology to convert wave, tidal, ocean current, or stream current resources is available, although still in the early stages of commercialization. Several companies — backed by government organizations, private industry, utilities, and venture capital firms — are developing and deploying new hydrokinetic technologies. (For details, see “An Overview: Development Status of Ocean Wave and Tidal Technology,” Hydro Review, September 2008.)

An example of one such company is Hydro Green Energy LLC of Houston, Texas, who is partnering with the city of Hastings, Minn., to add two hydrokinetic units capable of generating up to 250 kW at the 4.4-MW Mississippi Lock and Dam No. 2 project. The dam, on the Mississippi River, is owned by the U.S. Army Corps of Engineers. The hydrokinetic units are based on the patented technology of Hydro Green Energy.

In December 2008, FERC amended the operating license for the 4.4-MW Mississippi Lock and Dam No. 2 project, allowing the licensee, the city of Hastings, Minn., to install two hydrokinetic units, suspended from a barge in the tailrace of the dam. This marks the first installation of a hydrokinetic power device at an existing U.S. hydroelectric project. Project construction and installation has created nearly 100 jobs.

NHA is working with the industry and DOE to develop additional programs that foster new technologies, explore hydrokinetic science, and position the industry for the future. NHA created an Ocean, Tidal, and New Technologies Council to encourage support for this sector within the industry.

Integrating renewable resources

Growing interest in non-hydro renewables also is bolstering the hydro industry’s profile. DOE notes that, to integrate the wind resources needed to generate 20 percent of U.S. electricity, the U.S. will need an additional 50,000 MW of peaking or storage capacity. Since pumped-storage hydropower is the only large-scale storage option now available, NHA argues that increasing wind and other variable renewable generation technologies requires building additional pumped storage. There is 20,000 MW of operating pumped-storage capacity in the U.S.; developers have identified and are proposing building another 23,000 MW.

Pumped storage and other hydropower technologies that can provide transmission-related balancing and regulation needed to firm variable renewables will play a role in the “Smart Grid,” a national infrastructure improvement program intended to help integrate renewables into the existing system and offer more efficient electricity transmission.

Influencing climate change and environmental policy

Hydropower’s role in integrating other renewable resources and contributing to the Smart Grid puts the industry at the forefront of climate change and environmental policy debates. Here, too, the industry offers proven benefits and solutions.

Current U.S. hydropower generation avoids approximately 225 million metric tons of carbon emissions each year. This makes hydropower critical to the U.S.’s clean-energy portfolio. NHA is working to ensure that U.S. climate policy reflects the hydro industry’s contributions. The association is advocating for national policies that put hydropower on the same footing as all other renewable resources. NHA is also helping to craft language that encourages the development of new hydropower resources as part of the national climate policy.

Environmentalists are seeing the potential of hydropower technologies that produce clean energy without increasing the industry’s environmental footprint. One of NHA’s most recent significant gains came when American Rivers, the Natural Heritage Institute, Trout Unlimited, and the Union of Concerned Scientists agreed in 2008 to support the inclusion of projects that would install hydropower facilities at non-powered dams in tax incentive and renewable portfolio standard legislation.

With the passage of the Emergency Economic Stabilization Act of 2008, this agreement was codified for the production tax credit (PTC) and clean renewable energy bonds (CREB) programs. This language also was included in renewable portfolio standards (RPS) legislation proposed by Senator Jeff Bingaman (D-NM) and Rep. Ed Markey (D-MA).

In addition, NHA and the Hydropower Reform Coalition recently issued a joint statement congratulating the Federal Energy Regulatory Commission and the U.S. Department of Interior on reaching agreement resolving regulatory uncertainties in the development of offshore renewable energy resources. The statement says environmentally responsible development of ocean energy technologies has the potential to increase the U.S.’s renewable energy portfolio.

Contributing to national economic growth

Thanks to the inclusion of hydropower resources under the PTC and CREB programs in the Energy Policy Act of 2005, NHA members reported a 25 to 50 percent increase in development and manufacturing work over the past three years. Even as other renewable-energy industries were reporting slowdowns, the hydropower industry continued to grow and create jobs.

This positioned NHA to lobby successfully for including additional tax incentives for hydropower in national economic stimulus programs. The $787 billion Recovery Act extends the placed-in-service date through Dec. 31, 2013, for small irrigation hydro, incremental hydropower from additions to existing hydro plants, hydropower development at existing non-powered dams, ocean energy, and in-stream hydrokinetic technologies projects. Developers of these technologies now have five years to bring new projects on line.

The act also allows hydro projects to claim a 30 percent investment tax credit (ITC) in lieu of a PTC. ITC eligibility follows that of the PTC, and, like the PTC, the credit was extended through 2013. The ITC is intended to help free up financing for renewables projects, given market conditions and uncertain future tax positions of potential investors.

Another incentive available to a hydropower facility, if the facility forgoes the PTC and the ITC, is a grant issued from the Secretary of the Treasury worth 30 percent of the cost of the project. Projects eligible for the grant program are those eligible to receive the Section 45 PTC. The Treasury grant program is designed to spur renewable energy production and is a way for developers to monetize the PTC and ITC during this time when the credit markets are near frozen.

The act also authorizes $1.6 billion of new clean renewable energy bonds (CREBs). This program is a counterpart for public power providers to the PTC. It allows them to finance development of facilities that generate electricity from renewables, including hydropower. In addition to the $800 million in funding that was provided under HR 1424, the program has an additional $2.4 billion to be awarded in 2009.

The act also created an advanced energy investment tax credit for companies that invest in clean-energy technology manufacturing facilities. Hydropower equipment manufacturers are eligible to participate in the 30 percent credit if they re-equip, expand, or restablish a facility to manufacture “property” for producing energy from the sun, wind, geothermal deposits, or other renewable resources, including hydropower. The original provision provided the tax credits only for wind, solar, and geothermal. NHA staff worked to ensure the definition included “other renewable resources” so hydropower and hydrokinetics also qualify.

Over the next year, NHA will be looking at ways to measure the industry’s economic impact based, in part, on these stimulus provisions. The association has contracted for a comprehensive national study on the hydropower industry’s job creation and growth potential. This will be the first such study to focus exclusively on the hydropower industry, similar to reports developed by other renewable energy industries.

Despite the turmoil and upheaval of the past year, NHA believes the U.S. hydropower industry remains positioned to succeed. In this time of “change,” America’s oldest renewable resource may turn out to be the best new option available!

Canadian Hydropower: weathering the storm

Despite the general uncertainty, one thing remains certain: hydropower development will be important to both energy policy and the economy in Canada.

Re-elected Conservatives promote hydro

During his first term (2006-2008), Canada’s Prime Minister Stephen Harper formally recognized hydropower as a clean, renewable energy that can contribute to economic growth and fight climate change. Harper committed, in several statements, including the November 2008 Throne Speech, to meeting 90 percent of Canada’s electricity needs with clean sources such as hydropower by 2020.

Canada’s Minister of the Environment, Jim Prentice, emphasized hydropower’s role in reducing U.S. reliance on coal-fired electricity in a January 2009 speech to the Canadian Council of Chief Executives. The country’s new Minister of Natural Resources Lisa Raitt, attending the Canadian Hydropower Association (CHA) annual meeting in November 2008, stated, “Our Government has long supported the use of clean, renewable sources of energy. I look forward to working with the Association and its members to further promote the development of Canada’s hydropower potential.”

When Parliament reconvened on January 26, 2009, after the October 2008 general election, it became evident that the hydropower industry was being heard, loud and clear. In the budget presented the following day, the government called for improvements not only to the federal regulatory framework through legislative, regulatory, and administrative actions, but also to the application of the Fisheries Act and Canadian Environmental Assessment Act. Most importantly, the budget included funding to support projects such as sustainable energy.

Regulatory obstacles

Despite the Canadian government’s stated intent of streamlining regulatory processes, major legislative hurdles to hydropower development remain. In some instances, legislation designed to protect the environment unwittingly favors the development of fossil-fuel-powered electricity. How? Coal- or natural gas-fired generating stations have the advantage of less costly and shorter environmental permitting processes. In addition, they are much quicker and less expensive to build than hydropower projects. On average, a large hydropower project requires eight to 12 years of preparation, from the beginning of feasibility studies to its commissioning, whereas a fossil-fuel power plant can be operational in four years.

When CHA was created in 1998, hydropower was not recognized as clean and green, nor even as renewable. Today, in 2009, hydropower is widely recognized as a clean and renewable energy, its economic and environmental advantages are better known, and its benefits increasingly appreciated by government officials. At least in theory. What is needed now is for that recognition to be an integral part of legislation, regulation, and policy.

Balancing environmental protection with energy needs

In Canada, the development of hydropower projects triggers the application of the Fisheries Act and the Species at Risk Act. The Fisheries Act, one of Canada’s oldest pieces of legislation, is in dire need of modernization, and several of its provisions pose problems for hydropower. After the 2008 election, the government confirmed its intention to present a revised version of the act. CHA will continue working closely with the government to ensure that changes reflect its concerns … that fish protection does not entail hydropower death. Given that hydropower plays a key role in meeting Canada’s energy needs in a sustainable manner, it is important to ensure that the Fisheries Act does not impede the future development of hydropower or the operation of existing facilities. CHA wants an act that balances fishery protection with energy development.

The Species at Risk Act also contains contentious provisions; for example, the definition of the habitat of species at risk needs to be clarified and circumscribed. In addition, socio-economic factors in the recovery strategy for species at risk need to be considered. CHA recently presented its recommendations to the statutory parliamentary review of the act.

To succeed in these upcoming negotiations, the industry needs to better communicate the advantages that hydropower brings to fisheries and ecosystems protection. For example, when hydropower displaces coal-fired electricity plants, fish benefit from the reduction of toxic pollution. The same can be said of endangered species: climate change and air pollution pose a greater risk to them than hydropower development.

In Canada, hydropower projects are subject to environmental assessment processes under both federal and provincial regulatory systems. Legislation requires the participation of all parties involved, including local and aboriginal communities that might be affected. A project can only be developed if it is deemed to be socially and environmentally acceptable and if it has broad support in the relevant communities.

The environmental assessment process places excessive emphasis on local environmental effects while ignoring clean energy’s larger positive impact — reduced acid rain, greenhouse gas emissions, and air pollution. Moreover, the process is extremely long and unpredictable, and the scope of the assessment is too broad and <. There is insufficient coordination between the numerous federal departments involved, and poor federal/provincial harmonization.

Since its foundation, CHA has worked with the federal government to reduce approval delays and the scope of study, to harmonize assessment processes, and to ensure recognition of hydropower’s environmental benefits.

CHA’s efforts led to the 2005 Cabinet Directive on Implementing the Canadian Environmental Assessment Act, which placed “priority on the delivery of high quality environmental assessments in a predictable, certain, and timely manner.” In 2007, the federal government announced its intention to reduce, by half, the time required for the regulatory review of major natural resources projects. The government also established a Major Projects Management Office (MPMO) to oversee all regulatory processes applicable to projects, including hydropower projects, and suggest improvement to problematic statutes, like the Canadian Environmental Assessment Act and the Fisheries Act.

CHA relays the expectations and concerns of the hydropower industry to the MPMO, providing, for example, comments on the guidelines for project descriptions to be used under environmental assessment and recommendations regarding desirable legislative changes.

The way of the future

Over the coming months, CHA will continue to lobby government departments and parliamentary committees for further necessary changes to the Fisheries Act, the Species at Risk Act, and the Canadian Environmental Assessment Act, as well as pursuing improvements to the regulatory system for hydropower projects with the MPMO.

CHA also will address climate change: the United Nations Climate Change Conference of the Parties will meet in December 2009 in Copenhagen, Denmark, to agree on a new international response to climate change, including emissions reductions. CHA is pushing for a climate change plan that includes emissions trading, caps on industry emissions, credits or offsets to low-emitting sources, and more ambitious targets for clean, renewable energy sources, especially hydropower. Canada must also face the cross-border trade issue of having all large hydropower recognized as green and renewable in all U.S. states.

With the election of Barack Obama as President of the United States, the development of clean, renewable energy is now at the forefront. During his first official visit to Canada on February 19, President Obama established with Prime Minister Harper a senior-level bilateral Clean Energy Dialogue to cooperate on clean energy research and development, as well as the establishment of more efficient grid based on clean and renewable generation.

CHA will continue to draw government and media attention to hydropower’s strengths. Hydropower already provides 60 percent of Canada’s electricity, and about 97 percent of existing renewable electricity. Potential development across all regions is significant. To date, 163,000 MW of technical potential has been identified — more than double the existing capacity. An increasing number of hydropower projects are being considered, planned, or built across Canada. For details, see “Hydro Development in Canada: An Update,” Hydro Review, November 2008. These projects involve more than C$50 billion in capital investment over the next ten years, and tens of thousands of jobs.

Hydropower can help Canada meet climate change objectives while contributing to its energy needs and to economic growth. When legislation to reduce greenhouse gases is implemented at the federal level in Canada, CHA will strive to ensure that the contribution of hydropower is recognized.

On the international scene, CHA will work with its partners, the National Hydropower Association and the International Hydropower Association, to position hydropower as a clean, green, renewable energy choice. The United Nations Climate Change Conference of the Parties and the World Energy Council meeting in Montréal in 2010 will be an important opportunity to get our message out — hydropower is the way of the future.

Linda Church Ciocci is the executive director of the National Hydropower Association (NHA), www.hydro.org. Pierre Fortin is the president of the Canadian Hydropower Association (CHA), www.canhydropower.org.


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