The PA Environmental Council this week released a new report on the business case for hydropower called, Low-Impact Hydropower in Pennsylvania Financial Feasibility Assessment, as part of PEC’s Low-Impact Hydropower Project.
For the past several years, PEC has focused considerable effort on understanding and illuminating the licensing and permitting process for hydropower projects in the state, with the hope of making the process easier to navigate for small, low-impact projects.
Through this work, PEC learned of an additional challenge to developing many low-impact hydro resources.
Many of the best opportunities at sites with existing infrastructure are located at publicly-owned facilities, such as municipal water treatment plants, reservoirs, and state parks.
These entities often find it difficult to develop a hydropower project due to 1) lack of staff capacity to take on the extra work; 2) lack of technical expertise; and 3) hesitance to take on new debt, particularly when the project is not integral to the entity’s primary purpose.
PEC embarked on this research project, completed by Palo Alto Partners, to explore the following questions:
-- What are the key variables that make small and micro-hydro projects at existing infrastructure financially viable?
-- Is it economically-feasible for a third-party developer (non-profit or for-profit) to assist in bringing these projects online?
-- If so, what unique financing and ownership models could be developed?
The key variables that determine whether a project is financially feasible are 1) the costs of equipment, installation, and permitting and 2) the savings from avoided electricity purchases or revenue generated through the sale of power onto the grid.
The final report released by PEC this week found that, assuming an electricity price of $0.07 per kilowatt-hour (including transmission and distribution), a project would need to have installation costs of less than $4,500 per kW in order to have a payback of 10 years or less.
Two local projects at water treatment systems investigated as part of this study had installation costs at least twice this amount and relied on significant state subsidies.
Projects are most successful when the owner has motivation for the project other than payback, such as a need for power in a remote location or sustainability goals.
In general, the economics for these types of projects improve greatly when the power is used on site, rather than connected to the grid. In addition, projects that require the least amount of changes to existing infrastructure have greater feasibility.
Recommendations for changes that could improve the economics of low-impact small and micro-hydro include adjusting the Low Impact Hydro Institute (LIHI) certification process to be simpler for true low-impact projects, such as those within an existing conduit.
This certification allows hydro projects to qualify as Tier I sources under the state’s Alternative Energy Portfolio Standard, adding a revenue stream from the sale of credits. Additionally, changes to net metering laws in the state could facilitate greater utilization of low-impact hydro resources.
The report also explores sample pro formas under different incentive scenarios. We welcome feedback on this work and potential next steps.
A complete copy of the report is available online.
Feel free to reach Lindsay Baxter, Program Manager, Energy and Climate, by sending email to: lbaxter@pecpa.org with questions and suggestions.
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