Darren Walsh, Slava Kiryushin, Joshua Coleman-Pecha and Barnaby Rosenthall, from DWF Law, explore the history and future of hydropower as a form of renewable energy.
The Hoover Dam ushered in the modern hydropower era. The legacy of the Hoover Power Plant’s 17 turbines is the production of 4 billion KWh of hydroelectric power annually, which serves 1.3 million people, and has fueled the development of major cities across the American Southwest.
However, fast forward 85 years and global investment in wind and solar energy far outpaces investment in hydropower.
What is hydropower?
Hydroelectric power is electricity produced from generators driven by turbines that convert the potential energy of falling or fast-flowing water into mechanical energy.
The upside of hydropower is often misunderstood and/or underreported. Hydropower offers a considerable range of benefits over other methods of producing energy, most notably:
• It’s a clean fuel source – it’s fuelled by water and does not pollute the air, leading to a reduction in carbon emissions.
• It’s a renewable power source – it relies on the water cycle driven by the sun, making it a more reliable and affordable source of energy than fossil fuels.
• It’s an effective energy source – it provides 71% of the electricity that comes from renewable sources globally.
• It’s an economic source of energy – it exploits domestic water resources, thereby achieving price stability, by avoiding market fluctuations.
Hydropower plant projects (“HPPs”): the engineering, procurement and construction process
HPP projects are unique, custom-designed, site-specific projects. Developing a HPP can be challenging and it is crucial that planning and implementation is comprehensive and co-ordinated from inception to commissioning.
The key steps involved in the development of an HPP are:
• Site Selection – potential sites for medium to large HPPs in most developed countries are already well known. Most potential sites were located and assessed for master projects during the second half of the 20th Century. It is thought that only a few unknown large potential sites exist in developing countries such as Myanmar. Environmental impact assessments (EIAs) are crucial in establishing the appropriateness and viability of sites.
• Feasibility Studies and EIAs – are conducted to confirm the appeal of a site, develop preliminary plant design, estimate investment requirements, establish a project schedule and prepare the project for financing.
• Financing/Contracts – most HPPs are financed through a project or corporate finance. Also common are public-private-partnerships (PPP schemes). Irrespective of the source of financing, the capital investment is typically re-paid under long term off-take power-purchase agreements.
• Construction – this can be a long process and is often made more difficult as a result of HPPs often being built in remote areas with difficult access or underlying physical conditions.
• Commissioning – the easiest and legally simplest way to carry out commissioning is under an EPC contract. This is where the party commissioning the project contracts with an EPC contractor to deliver a ‘turn-key’ facility (i.e. the EPC contractor handles every aspect of the project from conception to finished project). There are, however, a number of different contracting models which we discuss in a different article.
The future of HPP construction
A 2014 Oxford study of 245 large dams constructed between 1934 and 2007 concluded that in most developed countries large HPP projects are too costly and take too long to build to deliver a positive risk-adjusted return. The same study advised that policymakers, particularly in developing countries, should prefer agile energy alternatives, which can be built over shorter time horizons, to energy megaprojects.
Despite this, more than 3,500 hydropower dams are being planned or built around the world, and this number could double by 2030.
This is because, rightly or wrongly, hydropower remains the ‘go-to’ project for developing nations that want to resist burning fossil fuels. As energy demand in developing nations rises, they either cannot, or choose not to, rely on fossil fuels, so large HPPs are often a political compromise between meeting power demand, meeting cost requirements and reducing reliance on fossil fuels.
One example is the Grand Ethiopian Renaissance Dam. Construction on this mega-project began in 2011. It is a matter of national pride for Ethiopia and on completion will be the largest hydroelectric dam in Africa. It is expected to be able to generate more than 6,000 MWhs of electricity which is enough for about half of Ethiopia’s population whilst also allowing Ethiopia to export electricity to neighbouring nations.
As a nation, Brazil has long been associated with large-scale HPPs, which have been a symbol of national pride. Despite some scepticism over past projects (due to alleged corruption, unintended environmental damage and overall project success) Brazil is still the nation with most HPPs under construction and 67% of its power is generated by hydropower.
One thing that may slow the proliferation of hydropower, however, is lack of finance. The World Bank has, in recent decades, reduced funds available for HPPs. China has, instead, financed around half of all hydropower projects in the 21st Century.
As a nation, China produces more electricity than any other from hydropower sources. The single biggest contributor to this fact is that China boasts the world’s largest hydroelectric dam (the Three Gorges Dam spanning the Yangtze River).
However, internally at least, China is now focusing its efforts on completing the ‘South-to-North Water Diversion Project’, planned for completion in 2050 at an expected cost of $62billion, which will eventually draw 44.8 billion cubic metres of water annually from southern rivers and divert it to populous centres in the arid north.
This is to facilitate the economic growth that has occurred on the North China Plain around the cities of Tianjin and Beijing. It remains to be seen whether China retains an appetite for financing HPPs around the globe.
The hydropower industry appears to have recognized that its position as the go-to, de-facto, solution for nations who wanted to deliver large volume energy in a sustainable fashion is under threat. It no longer markets HPPs as stand-alone monuments of perpetual electricity generation (as, for example, the Hoover Dam was once perceived). Instead, so-called ‘smart dams’ are seen as the new solution.
These are intended to complement other renewable electricity sources. For example, they might integrate solar power production for use in the dry / sunny season, and use hydropower capacity in the rainy season.
In China, some of the vast reservoirs created to supply HPPs, are being filled with floating solar panels. This avoids occupying valuable land, reduces reservoir evaporation and takes advantage of existing power infrastructure that distributes electricity from the hydropower facility.
Many nations, not just China, are finding ways to integrate hydropower with other energy sources. Colocation of green sources of energy with hydrogen electrolysers is becoming popular with developers and governments around the world, and it might be possible that existing or future operators of HPPs will seek to collocate their assets with this technology as the nascent green hydrogen market looks for ways to provide green energy sources to produce hydrogen.
The US Department of Energy’s ‘Hydropower Vision Report’ predicts that hydropower’s contribution to the power mix will increase in the future because of its ability to flexibly and rapidly increase or decrease electricity generation.
It appears that hydropower will remain an important part of the energy mix in a lot of nations – both developed and developing.
Despite the Oxford study mentioned above, as well as cautionary tales from HPPs that were not as successful as projected, it does offer large-scale, flexible and ‘green’ energy production, not offered by other renewable energy sources nor fossil fuels.