By Michael Harris
When U.S. President Barack Obama enacted the Hydropower Regulatory Efficiency Act in August 2013, the door was opened for an expedited licensing process intended to help private parties better utilize existing federally-owned non-powered infrastructure for small conventional and closed-loop pumped-storage projects.
Key to the success of the legislation was streamlining approval procedures by the Federal Energy Regulatory Commission (FERC), which in August 2014 selected for a pilot a proposal for a 4.9-MW plant from Free Flow Power and its subsidiary, Rye Development, for installation at the Kentucky River Authority’s Lock and Dam 11.
|Rye Development chose to use the Kentucky River Authority’s existing Lock and Dam 11 in its bid to participate in a FERC two-year licensing pilot program designed to help streamline the approval process for similar developments.|
The pilot program resulted in Rye Development receiving an operating license for this project from FERC in May 2016.
Hydro Review editor Michael Harris recently talked with Rye Development Chief Commercial Officer Paul Jacob about the group’s experiences participating in the program.
Paul, start off by telling me a little bit about Rye Development and what your group does.
Rye Development and its predecessor and affiliate companies started pursuing the development of new hydro on existing dams in 2009. We currently have 23 projects advanced stage projects that are, for the most part, grouped in geographic and river basin clusters to facilitate development. Thirteen of those projects have received FERC licenses and we’re expecting licenses for the others in the relatively near future. In addition, we have more than 20 earlier stage projects in the pipeline. The potential for new hydro on existing dams is really exciting, both in number as well as scope.
Walk me through how the Kentucky Lock and Dam 11 project was selected by FERC and what that process looked like for Rye Development.
At Rye, we wanted to do whatever we could to ensure that the pilot two-year licensing process was a success. So we started out by looking at the rather restrictive criteria FERC was using to evaluate projects for the pilot program. Certainly, we wanted to receive an operating license in two years, but looking beyond that single project, we are focused on doing everything we can to reduce the timeline of and increase the transparency of licensing new hydropower on existing dams. We sat down with our list of projects and looked to find a best fit based on the FERC criteria. It is my understanding that not a lot of projects were submitted to FERC, but given the restrictive criteria that is not surprising.
Why Kentucky Lock and Dam 11, given the other portfolio of projects also currently being developed by Rye?
Kentucky 11 is an exciting project, owned by the Kentucky River Authority. The Commonwealth of Kentucky has some great potential for new hydropower and we’re certainly excited to be working there.
We went through a lot of projects that we had preliminary permits on, and the Kentucky Lock and Dam 11 project was the only one we had that we thought would qualify. The criteria basically meant that any project on a U.S. Army Corps of Engineers facility would not be eligible for selection. I would note that this type of restrictive criteria, while perhaps suitable for a pilot program, if adopted on a long-term basis would effectively render an expedited licensing process meaningless given that the resource base associated with Corps and Bureau of Reclamation facilities would be excluded.
Was FERC’s involvement during the pilot program different from other projects Rye has developed?
It was, and I think there were a lot of takeaways for all of us from this. What we saw with the two-year pilot project were clear, shorter timelines, imposed on both us and FERC. FERC was turning things around very quickly and was requiring us to do the same. The communication was fantastic across the board. FERC staff were responsive and helpful and required the same from Rye as a developer. The deadlines were shared deadlines.
I think the accountability – which was also mutual – was key to making the pilot project a success. We both knew we had two years to get this done. This stands in stark contrast to our usual five- to seven-year FERC license timetable. But what we saw in this process was, again, a joint commitment to getting that done in that two-year window. I would also add that the project benefited from a great deal of visibility on the Hill and elsewhere, casting a bright light on both Rye and FERC in terms of accountability.
You mentioned the implications a two-year FERC licensing program might have for the wider hydro sector. Did the opportunity to be an industry leader, so to speak, sway Rye’s decision to pursue the proposal?
Our primary motivation was that we really didn’t want to see the mandated two-year process fail due to a lack of industry participation. Certainly, Kentucky Lock and Dam 11 was a project that we’d wanted to pursue, but the two-year pilot program moved it to the front of the line for us.
What makes the two-year licensing process so important for the hydro industry?
When you look at the development cycle for wind, solar or all other renewables, one can go from initially planning the project to completely constructed within a two-year period. With hydro, the most aggressive timelines are roughly eight to ten years and when you look at some of the bigger projects, it’s closer to 15. The biggest obstacle to development of new hydro on existing dams is the tremendous regulatory timeframe involved.
What do you mean when you say the biggest obstacle has been the timeframe involved?
The approval process is certainly a thorough process, but the time it takes just really discourages investors. That’s been a real issue.
It’s very difficult to attract capital and investors when you have to tell them they’re going to wait a decade for a return-of-capital. As individuals we don’t take that risk, and asking investors to doesn’t make sense. That’s really why we wanted to participate in the two-year process and wanted to prove that it could be a success. The investment community needs to be able to see that there’s a path to some kind of quicker payback: that will encourage more investment.
From the investor’s perspective, the worst outcome is a process that’s long and unpredictable, which is what we currently have. Long and predictable might be workable, but short and predictable is really what we’re looking for. That’s really what we’re focused on.
There is an enormous potential project development resource base that numbers in the hundreds at the least, but given the long, unpredictable timelines and the resultant lack of investor interest, as an industry we are just scratching the surface. As a sizable member of a relatively small community of hydropower developers, we would welcome more competition. More competition would mean more data points, more examples of project success, and more investors, and it would allow all of us to move from the bespoke model of hydropower development to a systematic approach to the development of the substantial hydropower resource base. Importantly, it would also mean substantially more consulting, equipment and construction dollars across the hydropower industry.
Any thoughts for FERC now that you’ve completed the process?
As we engage at the local, state, regional and federal levels, we find strong, bi-partisan support for these types of projects. We find great interest from within the industry. The off-taker community, even with the extremely soft energy price environment, is supportive. As we often hear on the Hill, new hydro on existing dams is a “no brainer.” But it has to be a shorter, more predictable process. We really encourage FERC and the other stakeholders to take a fresh look at the development of new hydro on existing dams to come up with a shorter, standardized, predictable process.
What could help standardize the process?
We see a duplication of authorities between FERC, the Corps and oftentimes the states, and that is problematic. There are some issues that do come up with communication between the agencies, as well. A clear charting of the process, and development of a solid understanding of the respective responsibilities and accountabilities involved with the 401, 404 and 408 processes, would be a helpful step if combined with the elimination of duplicative authorities and processes. On the FERC licensing side, we need to be emulating something that looks more like filling out a form rather than writing prose.
Obviously the nature of the license has to be maintained to an extent, and the considerable expertise and involvement of FERC staff is fundamentally valuable, but it really needs to be a shorter process and a more predictable process. In a practical sense, there are several current steps in the process that don’t add value in the context of new hydro on existing dams, which could be dropped or consolidated. The timetables, for FERC and the applicants, can be condensed, clarified and held to. A definition, by FERC, of the nature of the sufficiency of a 401 for purposes of licensing for these types of projects could benefit the timetables with the states. Without making the licensing process shorter and more predictable, we won’t really get the kind of investors that needed to move new hydropower projects forward.
Where is the Lock and Dam 11 project now in terms of development now that Rye has the license?
We’re in pre-construction. We’re doing some more of the engineering work currently and also some of the commercial work in terms of offtake. We also are interfacing with the Kentucky River Authority. We still have a lot more development work to go, but certainly, having that FERC license on a timely basis just really, really helps the prospects for this project tremendously. We believe that the hydro industry as a whole and FERC can take important lessons away from this to allow new hydropower projects on existing dams to get licensed in a manner that helps attract investment to our sector.
Has FERC indicated if it thinks the pilot program was a success?
I can’t really speak to that, but we certainly view it as a success in that we were able to get a license within the two-year period. We saw the way FERC was able to prioritize a project and process it quickly, with a timeline that really stands in contrast to other projects. It’s a terrific example.
Michael Harris is editor for Hydro Review.
Meeting FERC’s criteria
Federal and state agencies, hydro developers and non-governmental organizations presented ideas to FERC at an October 2014 workshop, at which time they discussed potential criteria for identifying projects that might be appropriate for the two-year pilot program. As a result, FERC issued Notice AD13-9 in January 2014, which established a number of criteria that stipulated, amongst other requirements, that eligible projects must:
- Cause little or no damage to existing surface and groundwater flows and uses;
- Not adversely affect federally listed threatened or endangered species;
- Include a letter from the dam owner saying the plan is feasible if proposed at or to use a federal dam;
- Include a letter from managing entities giving approval to use the site if it uses any public park, recreation area or wildlife refuge; and
- Not be continuously connected to naturally flowing water features, in the case of closed-loop pumped-storage projects.
FFP New Hydro was also asked by FERC to conduct studies relating to project hydraulics, water quality, aquatic habitat, fish entrainment and survival, cultural resources, and rare, threatened and endangered species.
What comes next?
The Federal Energy Regulatory Commission said it will hold a workshop to receive further public comments on the two-year pilot program, although a date had not been set as of the time this was written.
Once completed, FERC must then submit reports within 60 days to both the House Committee on Energy and Commerce and the Senate Committee on Energy and Natural Resources.
Per Section 6(d)(2) of the Hydropower Regulatory Efficiency Act, these reports will outline how FERC:
- Will adopt policies under existing law (including regulations) that result in a two-year process for appropriate projects;
- Will issue new regulations to adopt a two-year process for appropriate projects; or
- Identify the process, legal, environmental, economic, and other issues that justify a determination of FERC that no two-year process is practicable, with recommendations on how Congress may address or remedy the identified issues.