Incentives Provide Boon to Hydropower Industry

The U.S. hydropower industry has undergone a renaissance in recent years. One of the major drivers of the industry’s growth, the establishment of the production tax credit (PTC) for hydro, has seen strong policy support from our elected officials in Washington, D.C. More than any other federal policy, tax incentives, particularly the PTC, have sparked a level of growth in the industry not seen in nearly two decades.

The pending deadline of the placed-in-service date to qualify for the PTC at the end of 2013 is already creating uncertainty among project developers and threatening the industry’s momentum—and the jobs that go along with it. This makes it imperative that Congress enact a long-term extension of the PTC to provide certainty to developers and support the growth of the hydropower industry.

Hydropower: Leading Renewable Energy Source

Hydropower is the nation’s largest source of renewable, reliable electricity. America’s original renewable electricity source, hydropower has been around for almost 130 years. Today, hydro provides 8% of all electrical generation and remains the dominant renewable, providing two-thirds of all renewable generation.

Numerous studies have demonstrated what the industry has long known: Hydropower resources in the U.S. have huge untapped potential. A report by Navigant Consulting finalized in 2010 found that with the right policies in place, the hydropower industry could add 60,000 MW of capacity by 2025. A preliminary study by the U.S. Department of Energy concluded that 12,600 MW of capacity could be added through conversion of the nation’s non-powered dams.

This growth is more than theoretical; we are seeing an unprecedented level of interest in new hydropower development all over the country. Today, more than 640 projects totaling over 82,000 MW in capacity sit before the Federal Energy Regulatory Commission (FERC), at various stages of the licensing process. In 2011, the total capacity of projects filing for regulatory approval at FERC increased six-fold from 2010.

This level of growth is new. In the 1990s and the early part of the last decade, hydropower growth had leveled off. But in 2005, Congress qualified new hydropower development for the PTC in the Energy Policy Act.

Since then, the U.S. hydropower industry has been resurgent. Not only has the industry grown, but more Americans now also benefit from clean, renewable electricity. After six years of PTC eligibility, 85 projects in 23 states have increased their generation output by 11%, on average. The result is that an additional 84,000 American families now have gained access to the most affordable U.S. electric resource.

Negative Impacts of PTC Uncertainty

But without the long-term predictability provided by consistent federal policies, today’s growth in the hydro industry will slow to a trickle. Indeed, the industry is already feeling the effect of the PTC’s impending expiration. This is because, of all renewable technologies, hydropower has the longest development time frames, due in part, to the extensive multiyear federal and state licensing process. In addition, hydro projects are highly capital intensive.

The lack of PTC incentives will make it difficult for developers to attract the financing needed to support this considerable investment. Utilities, in turn, will be driven by default to other resources with shorter development timelines, such as wind and natural gas, resulting in a less-diverse generation mix. That’s the risk we face.

Many of our members are already putting projects on hold due to the uncertainty about extension of the PTC and are being forced to consider discontinuing projects should the PTC be allowed to expire. One company reports that of its 450-MW portfolio of potential development, only 23% would move forward without incentives in place. Another reported that it currently has seven projects on the fence for construction. In each case, the PTC plays a vital role, largely because hydropower has longer lead times for development than other renewable energy technologies.

Fortunately, lawmakers on Capitol Hill recognize the benefits of hydropower and its growth potential. There is broad bipartisan support for the industry. In recent months, hydropower legislation—including bills reducing regulatory barriers and supporting the industry’s continued growth—has been one of the few areas of bipartisan agreement on energy.

In November 2011, Representatives Dave Reichert (R-Wash.) and Earl Blumenauer (D-Ore.) introduced H.R. 3307, the American Renewable Energy Production Tax Credit Extension Act, which would extend the PTC for hydropower and other renewables through 2015. Since then, Reps. Reichert and Blumenauer have been joined by more than 70 additional bipartisan co-sponsors.

Support for hydropower can also be found on Pennsylvania Avenue, where President Barack Obama moved for a permanent extension of the PTC with the release of his proposed corporate tax reform plan in February.

As our elected officials debate extension of the PTC, they should remember that the policies signed into law over the past decade that extended federal support to a wide range of renewable energy technologies have been successful; they’ve created momentum for new construction, new capacity, and new jobs across the U.S. Instead of threatening that momentum, they should be protecting these important incentives that provide Americans with clean, affordable electricity.

— Linda Church Ciocci ([email protected]) is executive director of the National Hydropower Association. She is an expert on energy issues and a frequent speaker at national and international energy events.