(NASDAQ: APPL) Why small hydropower is a big deal
Hydropower doesn’t have to involve huge, expensive, and potentially environmentally damaging projects such as the Hoover Dam or China’s colossal Three Gorges power-plant. In fact, three quarters of hydropower projects now operating in the U.S. are small, sub-10MW facilities —and a growing number of companies, including tech giants, like Apple Computer (NASDAQ: APPL) are thinking smaller still, with “micro-hydro”projects that top out at around 100kW.
The sheer scale of the biggest hydropower plants means that they will continue to play a plus-sized role in utilities’ energy portfolios: one recent study suggests that about 150 huge, 1GW-plus hydropower projects, mostly in Asia and Latin America, will be brought online over the next two decades, providing 432GW of clean energy. That would dwarf the 6GW in total new capacity forecast from the 1,300 or so small-hydro projects expected to come online over the same period.
Still, small-hydro and micro-hydro projects are potentially a big deal. Since 2005, at least $6 billion has been spent improving and extending U.S. hydropower, according to the Department of Energy, and many of the new projects are relatively small-scale attempts to retrofit existing dams. There’s plenty of growing room in the sector, too: by one count, the U.S. still has about 72,000 dams, mostly small-scale, that currently lack hydropower equipment.
Some adventurous individual investors are buying into small hydro directly, by snapping up and refurbishing abandoned hydro-plants. Utilities’ renewable-energy requirements mean there’s steady demand for energy from small-hydro plants, but water shortages can make running your own facility a risky business. "Cash flow is entirely dependent on water flow," says Sam Perry, who earns up to $12,000 a month from a 480kW Washington state hydro-plant he bought for $150,000. ”When there's no water, you could find yourself in a little bit of a liquidity trap,” he warns.
One way of avoiding such problems: do away with the dams. One small-hydro technology known as “run-of-the-river hydropower” allows companies to forgo dams altogether, by feeding water into turbine systems through a series of canals and tanks — potentially a much more eco-friendly approach.
Another promising low-impact option captures energy from existing pipelines, canals, and waterways. Known as conduit hydropower, such systems use tiny turbines, but can cumulatively generate serious amounts of energy: a study by U.K. researchers found that conduit micro-hydro systems could capture 10 gigawatts of energy from water moving through Welsh water mains, saving the country more than $1.5 million a year.
The U.S., too, has abundant untapped conduit resources, says Eric Thompson, VP of California-based Natel Energy, which recently partnered with Apple (NASDAQ:AAPL) to install an irrigation-canal hydropower system at one of the tech giant’s Oregon data centers. "We could generate in aggregate tens of gigawatts of energy in the U.S. alone,” he asserts. Combined with 2013 legislation giving small-hydro developers more leeway to operate without regulatory oversight, that prospect has led a number of companies to roll out new conduit-hydro systems in recent years.
Municipalities are among the biggest potential customers for conduit hydro, given their existing pipeline infrastructure and their need to offset ongoing maintenance and energy costs. The city of Boulder, Colorado, has been installing pipeline hydropower systems since the 1980s, and currently nets about $2 million a year from a network of small-scale plants with a combined capacity of 16 megawatts. More recently, Portland installed a $1.7 million conduit system built by Lucid Energy, in a 20-year deal that will generate enough energy to power 150 households. Similar municipal projects have also been built by NLine Energy in Fontana, Calif., and by Rentricity in Pittsburgh and elsewhere.
Municipalities are using a combination of VC capital, crowdfunding, the municipal bond market, and private financing deals to fund the installation of conduit technology, industry experts say. "Private capital is willing to finance projects for cities that need to rebuild their water and energy infrastructure," explains Lucid CEO Gregg Semler.
Even so, small hydro remains a risky venture for investors: promising conduit-hydro startup Hydrovolts stumbled in 2013, running out of cash despite raising millions of dollars to commercialize its conduit-hydro technology. Small projects also lack big hydro’s economies of scale, with energy from small projects likely to cost about twice as much per megawatt as electricity from major projects, according to a World Energy Council report.
Still, there’s no doubt that hydropower of all sizes is booming: the U.S. added almost one and a half gigawatts in hydropower capacity between 2005 to 2013, according to the Department of Energy, with small hydro accounting for at least half of all new projects. That suggests that for investors who can handle the risks and can find the right play, small hydropower could have a big upside.
Companies to watch
* Gravity-fed micro-hydro startup Rentricity last month announced a new partnership with water-tech company Xylem to provide conduit hydro systems for municipal, industrial and agricultural users. “We’ve identified a sizable market opportunity for modular, plug and play configurations that can easily fit into existing any water operator's infrastructure,” says Rentricity CEO Frank Zammataro.
* Canadian turbine-maker New Energy Corporation has recently been rolling out its 5kW EnCurrent hydropower systems in Nepal through a partnership with the World Wildlife Fund.
* Hydro Green Energy was the first U.S. company to win regulatory approval for a conduit hydropower system. Its first project should come online this year, and it holds development rights on existing unpowered dams with 300MW in hydropower capacity.
Ben Whitford is the U.S. correspondent for The Ecologist. He has written for the Guardian, Newsweek, Mother Jones, Slate, and many other publications.