The Case of the Missing Hydropower Credit

In the EPA’s plan to reduce carbon emissions from the power sector, one renewable energy source is noticeably absent: hydropower.

While the federal government has been promoting the potential of getting more electricity from waterways around the country, their landmark carbon emissions proposal is largely silent on hydropower. Instead, it focuses more on wind and solar energy.

Stakeholders are still deciphering the draft rule, and the National Hydropower Association is working to develop a stance in advance of a mid-October deadline for comments. But at least one hydropower-heavy state is leaning toward asking the EPA to find a way to incentivize hydroelectricity.

South Dakota generates nearly half its power from water resources, but most of the dams and electric generating stations have been in place for decades—meaning the state likely won’t get credit for them.

Brian Rounds, an analyst for the state’s Public Utilities Commission, says regulators are considering asking for hydropower to get special treatment, and looking to how nuclear power fared in the proposed rule as an example.

States with nuclear plants get a 6 percent credit toward emissions reductions if they keep them running.  The provision is meant to help an ailing industry that is struggling to compete with low natural gas prices. Critics have argued the boost isn’t enough and it’s structured in a way that creates odd incentives, but it’s still more than hydropower gets.

“Even though hydropower is not a new renewable, it’s also a non-emitting source similar to nuclear,” Rounds said. “There’s been some special provisions for nuclear…but you don’t see that for hydro.”

HYDROPOWER LEFT AT THE ALTAR

Outside of the carbon emissions rule, the federal government has been stressing opportunities to develop hydropower in recent months.

“The United States has tremendous untapped clean energy resources and responsible development will help pave the way to a cleaner, more sustainable and diverse energy portfolio,” said Energy Secretary Ernest Moniz in April.

Hydropower already represents about 7 percent of the country’s electric capacity and about half of renewable generation. An Energy Department report this spring estimates there are enough potential projects to double the amount of hydropower in the U.S., adding 65 gigawatts of electricity. An analysis by Ventyx predicts that nearly 39 gigawatts of hydropower are under study or proposed and about half a gigawatt of that is already under construction.

Yet in the EPA’s proposal, hydropower has a limited role.  Technically, states appear to be able to use new hydropower to meet emissions reductions. Although the draft rule says it “does not prevent states from considering incremental hydropower generation from existing facilities (or later-built facilities) as an option for compliance with state goals,” the plan advocates more for wind and solar energy.

Marc Chupka, a principal with the Brattle Group who has been doing analysis of the proposed rule for several parties, says hydropower is “largely ignored” in the EPA’s building blocks, or suggestions for achieving emissions reductions.

Experts say that could be because hydropower is unique to certain regions or because it can have some damaging effects on the environment. But it’s more likely that hydropower was left out because many of the big hydropower projects that could quickly slash carbon emissions have already been built.

“It’s been true for some time that large scale hydropower expansions projects are not cost-effective in general,” says Chupka.

Much of South Dakota’s hydropower has been operating for more than 50 years, and Rounds says it would be impossible to develop anything of that scale now without flooding farmland and other valuable properties.

The opportunities left are mainly for smaller “run-of-the-river” projects, Rounds said. Those are less disruptive because they don’t require as much water storage.

But Joe Nipper, senior vice president of government relations for the American Public Power Association, said there’s still “a lot of untapped hydro potential” from those smaller projects. Federal studies have also pointed out opportunities to develop 12 gigawatts of electricity from existing non-powered dams.

Nipper said last month that hydropower could provide power needed to back up intermittent wind and solar, but so far his organization wasn’t seeing how states would get credit for it from the EPA.

That’s why states like South Dakota may seek credit for hydropower they’ve already built. But that will likely be an uphill battle. EPA said the reason it offered more credit to states with nuclear plants is because six percent of nuclear capacity is at risk of shutting down. Hydropower just isn’t seeing that same level of risk.

But Rounds says the EPA should be careful about creating economic policies that incentivize nuclear without affording similar consideration to other non-emitting resources. That’s a political argument that the agency will likely hear over and over as the carbon emissions rule is finalized.

Source: Ventyx Velocity Suite 

A CREDIT THAT MIGHT BE CONFUSING

There aren’t many ideas yet on how the EPA could support existing hydropower, especially because many seem unhappy with the way the agency wrote incentives to keep nuclear power online.

“There seems to be a consensus that piece doesn’t quite work to effectuate EPA’s intent,” said David Littell, a commissioner with Maine’s Public Utilities Commission.

The nuclear industry is arguing that it’s unfair that states can get credit for 6 percent of their nuclear power but 100 percent of their renewable power, E&E has reported. The big difference, of course, is that the rule is crediting states for existing nuclear power, while it is incentivizing new wind and solar power.

It seems unlikely that the EPA would allow a credit for existing hydropower because of the fights that would ensue. Plenty of states are already upset they aren’t getting credit for other types of emissions-reduction work from before 2012.

But as the final rule is written, states might not be confident about pursuing new hydropower either.

Chupka thinks the EPA believes it is incentivizing hydropower by saying states are free to use it as an option. But that assurance isn’t as strong an endorsement as explicitly listing it in the one of the four building blocks next to other renewable energy sources. In the Northwest, where hydropower is prevalent, some in the industry have taken to referring to it as part of “Building Block 5,” which is a laundry list of ideas that seem to be allowed but aren’t outlined in the proposal.

WHO GETS WHAT CREDIT?

There are other big sticking points for hydropower’s role in the draft rule.

The EPA set each state’s renewable energy target by grouping states together and averaging the renewable power goals outlined in their Renewable Portfolio Standards. In doing so, it took hydropower out of the baseline.

There were concerns that including large amounts of existing hydropower could “distort regional targets that are later applied to states lacking that existing hydropower capacity,” according to the proposal. In other words, not every state already has a lot of hydropower, so including it in the baseline would make it difficult to compare each state’s ability to generate more carbon-free power.

The proposal has asked for comments on whether it should include hydropower in the baseline and account for year-t0-year variability in generation, which changes with the weather.

Oregon is one of the states worried that the starting year the EPA picked, 2012, is not representative, due to the amount of hydropower it used that year.  Susan Ackerman, chairman of the Oregon Public Utilities Commission, says 2012 was a high hydropower year, meaning the state used less coal.

“(That) means our carbon intensity is actually bigger than the rule indicates, making the task of finding reductions much harder.  We’d prefer an average baseline for that reason,” Ackerman said in an email.

There’s also some confusion over which states get credit for hydroelectric dams that are in rivers that act as state boundaries. It appears that Oregon is getting credit for power from the Columbia River, which makes the state look like a net exporter of electricity. Under EPA calculations, that may mean Oregon is required to make more emissions cuts than if it shared responsibility for the dam with other states.

In addition, Littell says the EPA made a mistake in New England, inadvertently leaving hydropower in the baseline for that group of states.

“That’s one issue that we’ll certainly be commenting on, that EPA can’t set the goal using averages (particularly when the two highest RPS states, New York and Maine, count existing hydro), and then say you can’t use it for compliance but you can use it for setting the goal.”

Littell says that has skewed the New England goals higher than they would otherwise be and that the EPA should either reconfigure the baseline and targets or allow existing hydropower to count.

At the end of the day, Chupka says hydropower’s future depends less on whether it’s specifically listed in the proposal and more on whether states implement plans that increase the price of electricity. Higher prices might be enough to spur investment in hydropower projects.

And regardless of how the EPA’s proposal treats hydropower or other resources, Littell says it’s unclear how strong of a financial incentive the rule will be anyway.

“The question lurking in the background is how much of a monetary driver is this really going to be,” Littell said.

The rule may have generated headlines for now, but whether it pays dividends into non-emitting power sources is yet to be determined.