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Michael McDonald

Michael McDonald

Michael is an assistant professor of finance and a frequent consultant to companies regarding capital structure decisions and investments. He holds a PhD in finance…

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U.S. Failing To Harness Hydro Power Potential

U.S. Failing To Harness Hydro Power Potential

One of the more interesting types of green energy is hydroelectric power. Among green energy sources, hydroelectric power is second only to nuclear power in terms of generation capacity. In many respects hydroelectric plants are something like a miniature version of nuclear power plants; they are costly to put up but once they are built, they last for decades providing power at close to zero marginal cost. Yet despite their effectiveness, hydroelectric power plants have not garnered the kind of focus that wind turbines and solar arrays do.

Hydroelectric plants represent an intriguing opportunity to generate more energy without increasing carbon output. In particular, there are a significant number of existing dams at rivers across the U.S. where hydroelectric power is not being used. The U.S. Department of Energy did a study suggesting that up to 12 gigawatts of additional power could be generated simply by taking advantage of these existing plants. Beyond that proverbial low hanging fruit, there is a significant amount of construction activity around building new dams and hydro plants; over 600 dams are currently under construction with several thousand more planned for the future. Related: Oil Jobs Lost: 250.000 And Counting, Texas Likely To See Massive Layoffs Soon

Most of these new hydro power plants are being built outside the U.S. though. Like nuclear power plants, hydroelectric plants have gone out of vogue in the U.S. it would seem. The U.S. has plenty of opportunities to add to hydroelectric capacity as the DoE study demonstrates, yet little is being done on this front. In theory hydroelectric power could be a threat to the explosive trend towards greater natural gas use (and the associated phase out of coal power). Yet there is no indication that utility companies are looking to switch away from gas or any other source and towards hydroelectric in large quantities.

Fans of hydroelectric power talk about expanding its portion of the aggregate generation capacity in the U.S., but even for hydro-bulls, this is a very slow process that might see hydroelectric power double its share of generating capacity over the course of several decades. That growth trajectory pales in comparison to the level of growth in wind and solar (albeit off a much smaller base of installed capacity for the latter sources). Related: Oil Price Rebound Not Imminent, But Underway

The limited interest in hydroelectric plants might be for a couple of reasons. First, it is not a source of energy that many environmentalists are excited about. Critics deride its effects on river ecosystems, the fish it kills, the potential flooding of areas around newly built dams, and even the simple impact on views of rivers. Second and arguably more importantly, hydroelectric power seems to be being held back by its upfront capital cost. While hydroelectric power plants are far less expensive than nuclear plants to build, they are still very costly and entail extensive permits. A study by the EIA showed that conventional hydroelectric capital costs per kw were close to three times as expensive as a comparable natural gas project. Related: Big Oil: Which Are The Top 10 Biggest Oil Companies?

One of the most remarkable aspects of the decarbonization of the U.S. over the last 15 years is how wrong many pundits were when making predictions about the future of energy. Rather than clean energy sources like solar, wind, and ethanol helping to lower carbon output, the process has largely been driven by the switch from coal to cleaner-burning natural gas. This has been driven not by a desire to help the environment, but instead by the profit motive of utility companies. As long as hydroelectric plant costs remain uncompetitive with conventional sources, it’s likely the resource will remain underutilized going forward.

By Michael McDonald of Oilprice.com

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  • MrColdWaterOfRealityMan on November 28 2015 said:
    Hydroelectric plants, as currently built are also ecological disasters, blocking the movement of aquatic wildlife and flooding large areas of land as well as other problems ( http://www.nytimes.com/2011/05/20/world/asia/20gorges.html?_r=0 ).

    It doesn't *have* to be this way, however, civil engineers in the USA and elsewhere seem to have only one solution to the problem of hydroelectric power (i.e. build a new dam!). Politicians like that solution too, since dams are large, visible objects that get you re-elected by providing construction jobs in your district.

    Of course, large dams are rarely the best engineering solution that preserves the environment or provides maximum reliability. A series of low head hydropower stations build along the banks of all major rivers would solve the problem nicely with less infrastructure and relatively inexpensive maintenance (i.e. no silting and easy replacement of generators). Where damming a river is a viable solution, many smaller dams with diversion routes for wildlife yield a lot less maintenance and a lot more flood control than their counterparts.

    Hydropower is a great idea, if implemented in a way that makes engineering and not political sense.

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