Hydropower industry in the USA to grow to $17 B by 2024

The companies in the U.S. as well as the regulatory bodies have been making substantial investments toward the adoption of sustainable energy, which will lead U.S. hydropower industry to grow at a CAGR of 2% over 2018-2024 reaching from $15 billion to $17 billion in terms of revenue.

Definition / Scope
Market Overview
Market Risks
Top Market Opportunities
Market Trends
Industry Challenges
Technology Trends
Pricing Trends
Regulatory Trends
Market Size and Forecast
Market Outlook
Technology Roadmap
Competitive Landscape
Competitive Factors
Key Market Players
Strategic Conclusion
References

Definition / Scope

Hydropower is energy derived from flowing water. More than 2,000 years ago, the ancient Greeks used waterpower to run wheels for grinding grain; today it is among the most cost-effective means of generating electricity and is often the preferred method where available.

In Norway, for example, 99% of electricity comes from hydropower. The world’s largest hydropower plant is the 22.5 gigawatt Three Gorges Dam in China. It produces 80 to 100 terawatt-hours per year, enough to supply between 70 million and 80 million households.

Small-scale micro-hydropower projects can make a big difference to communities in remote locations.

The basic principle of hydropower is using water to drive turbines. Hydropower plants consist of two basic configurations: with dams and reservoirs, or without. Hydropower dams with a large reservoir can store water over short or long periods to meet peak demand.

The facilities can also be divided into smaller dams for different purposes, such as night or day use, seasonal storage, or pumped-storage reversible plants, for both pumping and electricity generation.

Hydropower without dams and reservoirs means producing at a smaller scale, typically from a facility designed to operate in a river without interfering in its flow. For this reason, many consider small-scale hydro a more environmentally-friendly option.

Market Overview

The United States is second only to China in terms of the generating capacity of its hydropower plants, with a total installed capacity of almost 103,000 MW. This comprises about 80 GW of conventional hydropower and almost 23 GW of pumped storage hydropower.

Hydropower provides approximately 7% of the U.S. electricity supply—enough to power more than 20 million homes—and has experienced nearly 2 gigawatts (GW) of growth over the last decade in all regions of the country.

The report also highlights the flexibility and reliability services that hydropower and pumped-storage hydropower (PSH) provide to the grid, which are particularly important as the U.S. grid and generation mix continues to change.

According to the Hydropower Market Report, the current development pipeline covers 214 projects totaling 1,712 megawatts of additional potential capacity. Projects adding new capacity at existing water resource infrastructure dominate the pipeline.

By making use of existing water resources and infrastructure, the majority of new hydropower projects built over the last decade have added electric generating equipment to dams or conduits that were previously not powered.

For PSH, the U.S. pipeline is the second largest in the world and covers 48 projects totalling almost 20 GW in various stages of planning and permitting. PSH plants provide 95% of the nation’s utility-scale electrical energy storage—a key contribution to grid reliability and stability.

U.S. hydropower grew nearly 2 GW over the past decade as owners optimized and upgraded existing assets and some new projects were constructed. Growth was seen in all regions of the country.

Market Risks

Construction risk

Construction costs represent up to 80% of hydropower project development costs, so any cost overruns or schedule delays can have a significant impact on project finance. The main issues that can increase construction risk exposure include geological conditions, scope changes in design and technology, and poor execution of the construction contract.

Hydrologic risk

The ‘take or pay’ nature of the power purchase agreement (PPA) guarantees that all energy produced by a plant, depending on the availability of water, irrespective of whether the season is dry or wet, shall be turned into cash.

However, if there is no water to generate energy due to the change in the level of precipitation, climatic reason or change in the hydrology of the catchments area, then these projects are on there own.

This risk emanates from the fact that seasonal rainfall patterns affect the amount of water available to a hydropower plant and generation may fall below contract levels in any season, thus threatening the revenue stream of such projects.

Obviously, a dry year will be an unmitigated disaster for a hydropower plant. The most effective way to mitigate hydrology risk is to gather hydrological data for reasonable number of years in the past and design the project accordingly, after having selected a project with better hydrological potential as well as information.

Revenue risk

A developer can have a long term PPA, but such a PPA may not ensure plant factor at a specific level if the utility accepts delivery of the energy at its pleasure, mainly in the case of a run-of-the-river type project lacking poundage.

This means there will not be a guaranteed stream of revenue to the project in order for it to meet its financial obligations with regard to (a) operation, maintenance and repairs, and (b) debt servicing. A ‘take or pay’ type of PPA mitigates this risk.

Legislative change risk

Here we are talking about the risk of changes in the country’s laws that (a) increase rates and taxes or other expenses and liabilities, (b) reduce project revenues, or (c) reduce the value of the assets.

Such changes adversely impact the viability of a project. Generally, an entrepreneur has to take such risk. However, it can also be mitigated by passing the impact through to the utility provided that the utility is amenable to such a pass through.

Top Market Opportunities

The U.S. Department of Energy and its Oak Ridge National Laboratory have released a new renewable energy resource assessment that estimates as much as 65 GW of new hydroelectric power capacity could be developed across more than three million American rivers and streams. These findings demonstrate one of the ways the United States can further diversify its energy portfolio with sustainable and clean domestic power generation.
Hydropower is believed to have excellent potential for meeting future energy needs. The U.S. Department of Energy (DOE) has already announced that the currently available water resources can satisfy 15% of U.S. energy demand by 2030. There are approximately 54,000 non-powered dams in the U.S. that can be used to generate electricity.
Building dams and hydroelectric power plants is expensive but the cost of producing electricity thereafter is extremely low. So you can expect minimal electricity bills. This is one of the main reasons behind the high demand for this source of energy.

Market Trends

In 2017, the U.S. House of Representatives approved a pair of bills that would promote the development of pumped storage projects and add hydroelectric capacity to existing non-powered dams. This is projected to cost as much as USD 2 billion and create more than 2,000 jobs through to 2027.
Under the 2018 government funding bill, the DOE’s Water Power Technologies Office would be awarded a record USD 105 million with USD 35 million going to hydro-pumped storage programmes and USD 70 million going to marine energy and hydrokinetic programmes. In addition, the Promoting Hydropower Development at Existing Non-Powered Dams Act would enable the retrofitting of existing non-powered, federally-owned dams that have the greatest potential for private sector hydropower development.
The past decade has seen greater recognition of hydropower’s role in achieving internationally agreed development outcomes, such as through the Sustainable Development Goals and climate goals including the Paris Agreement which have influenced national policy targets. Small hydropower projects (under 20 MW) in particular have benefited from the Clean Development Mechanism which was introduced under the Kyoto Protocol, the precursor to the Paris Agreement, to encourage clean and sustainable development.
Lending from the World Bank for hydropower development increased from a few million dollars in 1999 to nearly USD 2 billion in 2014. The World Bank also extended its role from a ‘primary investor’ to an important ‘convenor’ that provides assistance in technical knowledge and bringing other financiers to the table. While the monetary value of the World Bank’s lending is a small fraction of the total amount invested in the sector each year, the bank’s recommitment to hydropower encouraged greater private sector investment and engagement.
Since the significant FERC process reforms of 2018, only 94 new qualifying conduit projects totaling slightly over 30 MW have received FERC approval — a rate considerably less rapid then FERC staff had expected in 2018.
Governments are failing to take up the challenge and lead the way on renewables. The energy debate has become too politicised and a lack of cohesive and stable policy has undermined a long-term view on investment in hydropower. Among the problems are skewed tax relief, fossil fuel subsidies and retroactive changes to renewable incentives, which make hydropower risky to investor.
The simplest explanation for slow industry growth is low electricity prices. Average wholesale electricity prices are low by historical standards, ranging from $35 to $45 per MWh in 2018. For comparison, in 2008, average prices nationwide ranged from $63 to $113 per MWh. In addition, federal production and investment tax credits for hydropower expired at the end of 2018, further adversely impacting the already challenging economics of new hydro project development.

Industry Challenges

Expensive to Install and Maintain

One cannot overlook the fact that the cost of construction and maintenance of dams, power plants, and support infrastructure to produce the power required for everyday use can run into billions of dollars. This directly implies that the high costs of building and maintenance can undermine the overall production cost of electricity.

Social Unrest

Building dams on rivers and other water bodies will limit the accessibility of water to people who make their livelihood through agriculture and fishing, thus adversely affecting their income. Most of the time, people caught in such situations are left with no choice but to relocate to other places to make ends meet. This relocation may bring about social unrest among them due to the lost agricultural land.

Land Use

The size of the reservoir created for hydroelectric projects depends on the size of the hydroelectric generators and the topography of the land.

However, flooding land to create a hydroelectric reservoir has adverse environmental impacts as it destroys forests, wildlife habitats, and agricultural and scenic lands. In many instances, such as the Three Gorges Dam in China, entire communities have had to be relocated to build reservoirs.

Geographical Limitations

It is not possible to build a hydroelectric power plant at a random location as the plant will require specific conditions to be functional. A dam needs to be constructed over a water body which should have enough water to be able to successfully produce electricity. Hence, the construction of such facilities is primarily dependent on areas with ample supply of water.

Technology Trends

Low-Head Hydropower

There is a significant opportunity across the country to add new hydropower generating capabilities at low-head sites (i.e., those that operate with a change in elevation ranging from 2 to 20 meters). These types of waterways are often present at existing non-powered dams, canals, and conduits across diverse areas of the United States.

The Water Power Program is investing in innovative low-head hydropower technology R&D, such as Percheron Power’s installation of the nation’s first Archimedes Hydrodynamic Screw system. This project demonstrated that the low-head technology is simple, robust, and economical.

Hydropower Systems

The Water Power Program works to develop and test new technologies and techniques that can reduce operations and maintenance costs; increase unit availability and plant capacity factors; reduce risk through enhanced system reliability; and improve the quality—environmental performance attributes, as well as ancillary power benefits—of the energy produced.

Areas of focus include water-use optimization, the application of advanced materials and manufacturing methods, and the assessment of the value of water power grid services. For example, existing hydropower facilities in the United States show signs of deterioration, and the data used to evaluate these facilities are scattered and outdated.

The Water Power Program is working with partners to integrate and update information in order to understand the declines in electricity generation, capacity factors, and facility availability.

Pumped-storage hydropower

Pumped-storage currently accounts for 95% of all utility-scale energy storage in the United States. The U.S. Department of Energy’s (DOE’s) Water Power Technologies Office (WPTO) invests in innovative pumped-storage technologies and research to understand and value the potential benefits of existing and prospective advanced pumped-storage facilities.

WPTO is currently developing a research portfolio to evaluate and expand hydropower and pumped-storage’s contribution to grid resiliency and reliability.

Pricing Trends

In the U.S., hydropower is produced for an average of 0.85 cents per kilowatt-hour (kwh). This is about 50% the cost of nuclear, 40% the cost of fossil fuel, and 25% the cost of using natural gas.
Recent data shows that in Wisconsin hydropower is produced for less than one cent per kwh. This is about one-half the cost of nuclear and one-third the cost of fossil fuel.

Regulatory Trends

Federal Power Act

The Federal Power Act, enacted by Congress in 1935, was the result of a long debate over whether the Federal Government should permit private interests to develop the hydroelectric potential of the waters of the United States, or whether it should reserve such development for itself for the public benefit.

The Federal Power Act resolved this question by creating an independent commission (The Federal Power Commission, now known as the Federal Energy Regulatory Commission or FERC) with the exclusive authority to grant licenses permitting private and municipal developers to construct and operate hydropower projects.

FERC’s decision to license a hydroelectric project must be in the public interest and must be “best adapted to a comprehensive plan for improving or developing a waterway” that considers multiple uses of that waterway, an evaluation that FERC describes as “balancing.”

These licenses are granted for terms of up to 50 years, after which the licensee is presumed to have recouped its initial investment and must apply for a new license, subject to competing applications.

Public Utility Regulatory Policies Act

The Public Utility Regulatory Policies Act (PURPA, enacted November 9, 1978) is an United States Act passed as part of the National Energy Act. It was meant to promote energy conservation (reduce demand) and promote greater use of domestic energy and renewable energy (increase supply).

The law was created in response to the 1973 energy crisis, and one year in advance of a second energy crisis. The Public Utility Regulatory Policies Act of 1978 (PURPA) encouraged

creating a market for power from non-utility power producers
increased efficiency by making use of cogeneration.
ending promotional rate structures.
encouraging the development of hydroelectric power.
the conservation of electric energy and natural gas.

Energy Policy Act

The Energy Policy Act of 2005 is a bill passed by the United States Congress on July 29, 2005, and signed into law by President George W. Bush on August 8, 2005, at Sandia National Laboratories in Albuquerque, New Mexico. The act, described by proponents as an attempt to combat growing energy problems, changed US energy policy by providing tax incentives and loan guarantees for energy production of various types.

National Environmental Policy Act (NEPA)

NEPA requires all federal agencies to analyze the environmental impacts of their actions along with alternatives to those actions. As a Federal agency, FERC is required to prepare an environmental document analyzing the consequences of issuing a license for a hydropower project along with reasonable alternatives to issuing a license. FERC staff’s environmental analysis informs the development of the Commission’s ultimate licensing order.

FERC generally prepares an Environmental Assessment (EA) instead of a full Environmental Impact Statement when relicensing an existing hydropower project, although the choice of EA or EIS is case-specific and depends on the complexity of the resource issues to be analyzed.

FERC typically analyzes only three complete alternatives in an environmental document:

the applicant’s proposal
FERC staff’s preferred alternative
the no-action alternative.

Other proposed alternatives to the proposed action are broken apart into components (e.g. fish passage alternatives or alternative instream flow regimes) and analyzed in the context of FERC staff’s preferred alternative.

Clean Water Act (CWA)

Section 401 of the Clean Water Act (CWA) bars FERC from issuing a license for a hydropower project until the state or states where the project is located certify that the project will comply with applicable state water quality standards.

These water quality certifications often contain conditions as a condition of certification, which FERC must include as license conditions.

Market Size and Forecast

The U.S. held more than 50% of North America hydropower industry share in 2018 and is expected to grow massively over the coming years. The region is a treasure house of untapped reserves, which will propel the business trends.

Market Outlook

According to DOE’s Hydropower Vision, the United States could increase its hydropower electricity generation capacity from about 102.4 GW to 150 GW by 2050 with more than 50% of this growth by 2030, by energizing existing dams (dams that presently have no ability to produce power), upgrading plants already producing power with more capacity, and constructing new pumped hydro storage facilities to support renewables.

An additional 50 GW of hydropower capacity could be added nationwide by 2050, according to the DOE. The department envisions an aggressive programme that could see up to 6.3 GW added through upgrades and the optimisation of existing hydropower plants, 4.8 GW by retrofitting existing non-powered dams, 1.7 GW through instream-reach developments and up to 35 GW with pumped storage projects.

The DOE said it would award up to USD 30.6 million in Recovery Act funding for seven hydropower projects that modernised existing facilities. The selected projects are to be environmentally friendly and should increase electric generation by an estimated 187 GWh per year. The department estimates the incremental energy from these seven plants will reduce carbon dioxide emissions by over 110,000 tonnes per year.

Retrofit projects under construction include the 36.4 MW Red Rock7 project which involves a new powerhouse to contain two Kaplan turbine-generator units on the downstream side of the dam and an intake structure on the upstream side of the dam, being built at an existing dam on the Des Moines River in Iowa.

Other planned projects include Absaroka Energy, which received a 5-year operating licence from the U.S. Federal Energy Regulatory Commission in December 2016 for the 400 MW Gordon Butte pumped storage project. Construction on the project began in 2018, with a projected on-line date of early 2022.

In addition, the San Diego County Water Authority and the City of San Diego announced plans for an energy storage facility at the San Vicente Reservoir in California and are assessing the potential to develop the 500 MW San Vicente Energy Storage Facility to increase the availability and efficiency of renewable energy for the region.

By 2050, hydropower can reduce cumulative greenhouse gas emissions by 5.6 gigatonnes – equivalent to nearly 1.2 billion passenger vehicles driven in a year – saving $209 billion from avoided global damages from climate change.

Moreover, hydropower can avoid the withdrawal of 30 trillion gallons of water for the electric power sector by 2050, equivalent to about 45 million Olympic-size swimming pools and can save $58 billion from avoided healthcare costs and economic damages from air pollution.

Technology Roadmap

While hydropower is the most efficient power generation technology, with high energy payback ratio and conversion efficiency, there are still many areas where small but important improvements in technological development are needed.

Work is underway to identify and apply new technologies, systems, approaches and innovations, including experience from other industries, that have the potential to make hydropower development more reliable, efficient, valuable and safe.

Improvements along the lines of those made in the last 30 to 50 years will also continue, though with smaller incremental benefits: mainly in physical size, hydraulic efficiency and environmental performance.

Competitive Landscape

US hydropower accounted for 7 % of world hydropower generation, while about 290 TWh. Three states (Washington, Oregon and Idaho) generate the majority of their power from hydropower resources, while four states (Washington, Oregon, New York and California) generate more than 20 TWh per year of hydropower.

As shown in Table , although public owners of hydropower (municipal, non-federal and federal organizations) only operate 31% of the plants, they control 73% of the US capacity, of almost 54,000 MW. Studies estimate that 65,500 MW of new hydro capacity could technically be developed.

The amount of power generated each year from the nation’s hydroelectric facilities varies by the water available in dams and rivers. Many reservoirs must balance power output with competing water demand for irrigation, municipal, industrial, and other needs, as well as concerns with fish migration.

As a result, hydroelectric facilities often do not run at full output. U.S. hydroelectric capacity factors, which measure actual output as a percent of total capacity, average between 30% and 40%.

Hydroelectricity generating capacity has increased slightly in recent decades. Capacity can be increased at existing facilities by either adding or repowering turbines. Turbines have also been added at previously nonpowered dams, such as those used for flood control.

Competitive Factors

Hydropower has the largest electricity generation capacity compared to other renewable energy sources. The International Renewable Energy Agency (IRENA) has collected extensive data on how different renewable energy sources have performed worldwide, the energy they output, the cost it takes to implement these technologies, and the employment opportunities per renewable energy source. According to IRENA, renewable hydropower is the largest contributor to electricity generation at almost 70%
Growth in demand for electricity, including hydroelectricity and electricity from renewable sources, is closely linked to overall economic growth. An increase in electricity transmission and distribution lead to an increase in hydroelectric demand. Electric power consumption is expected to increase in 2018, representing a potential opportunity for the industry.

Key Market Players

The key players in terms of market value

NextEra Energy

NextEra Energy, Inc. (NEE) is a Fortune 200 energy company with about 45,900 megawatts of generating capacity, revenues of over $17 billion in 2017, and about 14,000 employees throughout the United States and Canada. It is the largest electric utility holding company by market capitalization.

Its subsidiaries include Florida Power & Light (FPL), NextEra Energy Resources (NEER), NextEra Energy Partners (NEP), Gulf Power Company, and NextEra Energy Services. FPL, the largest of the subsidiaries, delivers rate-regulated electricity to approximately 5 million customer accounts, or an estimated 10 million people, across nearly half of Florida and is the third largest electric utility company in the United States.

Duke Energy Corp

Duke Energy is the largest power utility holding company in the US and serves 7.2 Million grid-tied customers. They own and operate diverse power generation assets in North America and Latin America, including a portfolio of renewable energy assets. Their portfolio includes 31 hydroelectric power stations ranging in generation capacity from 4 MW all the way up to 350 MW.

Georgia Power Company

Georgia Power is the largest power utility company in the Southeast United States, serving 2.4 Million grid-tied customers in all but four of Georgia’s 159 counties. Georgia Power is investing in renewables as it phases out coal fired power stations. Georgia Power owns and operates 19 hydroelectric power stations with a total capacity of 1,087 MW.

Southern Company

The Southern Company is an electricity producer and distributor based in Atlanta that constructs, acquires, owns and manages assets and sells electricity in the wholesale market. It operates through subsidiaries including Alabama Power, Georgia Power, Gulf Power, and Mississippi Power.

It serves approximately nine million customers and has a 46,000 MW generating capacity. The company has 32,000 employees, $23.78 billion in operating revenue as of 2018 and a $45.28 billion market capitalization.

Exelon

Chicago-based Exelon Corporation) is one of the largest U.S. power generators, with more than 35,500 MW of nuclear, gas, wind, solar and hydroelectric generating capacity. Exelon conducts business across the U.S. and Canada; it had 2018 revenues of $34.48 billion, approximately 34,000 employees in the U.S. and a $40.38 billion market capitalization.

Strategic Conclusion

Potential sites for all types of hydropower exist that would double the U.S. hydroelectric production if they could be developed. However, a variety of restraints exist on this development, some natural and some imposed by our society.

The natural restraints include such things as occasional unfavorable terrain for dams. Other restraints include disagreements about who should develop the resource or the resulting changes in environmental conditions. Often, other developments already exist at sites otherwise suitable for hydropower generation.

Finding solutions to the problems imposed by natural restraints demands extensive engineering efforts. Sometimes no solution is possible, or is so expensive that the entire project becomes impractical. Solutions to the societal issues are frequently much more difficult to resolve and the costs are far greater than those imposed by nature.

Developing the full potential of hydropower will require consideration and coordination of many varied factors.