Available. Reliable. Affordable. Sustainable.

National Association An Overview of Hydropower

NASEO 2018 Western Regional State and Territory Energy Officials Meeting

April 3-4, 2018 1 Available. Reliable. Affordable. Sustainable. Presentation Overview

• About NHA • Current state of hydropower • Growth potential • Benefits – climate, environmental, grid reliability • Federal and state policy, market and valuation challenges • Q&A

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Current state of hydropower

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5 Available. Reliable. Affordable. Sustainable. Wind surpassed hydro in capacity in 2016.

6 Available. Reliable. Affordable. Sustainable. Hydro still top generator of RE power.

2018 Sustainable Energy Factbook. Bloomberg Finance LP 2018. Developed in partnership with The Business Council for Sustainable Energy. P.25 7 Available. Reliable. Affordable. Sustainable.

RE comparisons

Total renewable capacity has nearly doubled since 2008, reaching 239GW in 2017 (excluding pumped hydro). Nearly all the growth has come from wind and solar, which together jumped 471% during that period while other technologies held flat, in part due to weaker tax policy support. Wind and solar have also benefited from state-level renewable portfolio standards (RPS) and rapidly declining system costs.

Wind capacity overtook hydropower for the first time in 2016, and extended its lead to 10.6GW in 2017 from 3.4GW the year prior.

Hydro generation experienced a large rebound in 2017, leaping 13% year- on-year to 303TWh. This is up 22% from 2015, the last year before the West Coast’s record-breaking drought began to ease.

2018 Sustainable Energy Factbook. Bloomberg Finance LP 2018. Developed in partnership with The Business Council for Sustainable Energy. P.25 8 Available. Reliable. Affordable. Sustainable. Map of Hydro Resources https://www.hydro.org/map/hydro/

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Growth Potential

10 Available. Reliable. Affordable. Sustainable. DOE Hydropower Vision

With NHA as the lead partner, DOE issued a first-of-its kind report in 2016 of hydro’s contributions to the nation’s energy portfolio as well as its future growth.

Hits the reset button on hydropower.

The Report finds upwards of 26 GW by 2030 and almost 50 GW by 2050.

https://energy.gov/eere/water/articles/ hydropower-vision-new-chapter-america-s -1st-renewable-electricity-source

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DOE Hydropower Market Report 2017 update. Sources: FERC, Reclamation LOPP database, HydroWorld, and web searches. 14 Note: Map only includes projects with a capacity greater than 0.1 MW. Available. Reliable. Affordable. Sustainable. 2016 Snapshots Authorization pathways: • FERC original license or exemption (193) • “Qualifying conduit” determination from FERC (37) • Lease of power privilege from Reclamation (12)

2016 permitting activity highlights: • FERC issued 44 preliminary permits, 11 licenses, and 2 exemptions. • 7 projects > 0.1 MW obtained “qualifying conduit” determinations. • Bureau of Reclamation issued 2 preliminary leases of power privilege.

Number of issued preliminary permits in 2016 was almost double than 2015 and number of issued licenses/exemptions similar to 2015.

At least 17 projects (93 MW) were under construction at the end of 2016. At least 9 projects (225 MW) reached commercial operation in 2016. • Most of the new capacity (211 MW) is located at 3 Corps dams developed by American Municipal Power in the Ohio River. 15 Available. Reliable. Affordable. Sustainable.

16 Available. Reliable. Affordable. Sustainable. 2016 Snapshots

There were 38 projects in the development pipeline at the end of 2016. • 32 at early stages in which feasibility studies are being performed. • In January 2017, there was an uptick in preliminary permit applications with 21 new applications; most of them in PA by a single developer.

The regional distribution of proposed projects has changed from the previous year: numbers have decreased in the SE and increased in the NE. • Four projects have pending license applications (Mineville, NY; Swan Lake, OR; Parker Knoll, UT; Lake Powell, UT). • Two licensed projects have not started construction. Gordon Butte (MT) and the Eagle Mountain project (CA). It was allowed to extend the deadline to commence construction to June 2018. • The Sacramento Municipal Utility District (SMUD) announced it would not pursue the licensed Iowa Hill project citing increased cost and financial risk estimates.

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Benefits: climate, environmental, and grid reliability

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DOE Hydropower Vision Report 19 Available. Reliable. Affordable. Sustainable. Grid reliability and resiliency benefits

Hydropower is a premiere flexible generating resource.

Unlike any other generating resource, hydro can provide all components of reliability, including: energy, peak capacity, voltage support, regulation, spinning and non-spinning reserves, storage, capability, and inertia.

Energy - flows can vary, but hydro is a reliable resource that produces energy throughout the year. systems use hydro to both avoid building new generation and reduce the use of existing fossil resources.

Peak Capacity - hydro systems are generally built to take advantage of high streamflows and hence have available capacity that can be called upon at virtually no additional cost to meet system peaks due to low or high temperatures. Meeting these extreme events is one of the most significant costs for any .

Slides 19-22 developed from House Energy and Commerce testimony of Steve Wright, General Manager of Chelan 20 County PUD. October 2017 Available. Reliable. Affordable. Sustainable.

Voltage Support and Reactive Power - reactive power is necessary to keep voltage at levels needed to maintain reliability under a wide range of conditions. Hydro generators are well suited to maintain system voltage, providing substantial increase or decrease as required. Some hydro units can produce reactive power even when not producing power (MWs).

Regulation - to preserve grid reliability, supply and demand must remain in balance – not only hour to hour, but second to second. Hydro projects are best suited to provide this service because it can be accomplished merely by allowing more water to pass through turbines using automatic generator control or simply by relying on the large inertia of the machines.

Spinning Reserve - On a sub-hourly basis, generating units are maintained in a “spinning” status ready to rapidly react to unanticipated increases in load or decreases in generation. Spinning reserves respond as fast as 10 seconds and up to 10 minutes and stabilize system frequency during emergency operating conditions and unforeseen load swings. Because hydro projects generally have multiple turbines that are not fully loaded, it is a 21 natural fit to supply reserves, including over extended periods of time. Available. Reliable. Affordable. Sustainable.

Non-spinning Reserve - non-spinning resources are units that are able to quickly turn on and provide power in less than 10 minutes, maintaining output for at least two hours. Hydro can also provide this service using less than fully loaded turbines.

Storage - Many large hydro projects can provide storage capability through the use of reservoirs, providing opportunities to better balance loads and generating resources. Pumped storage is particularly well positioned to reduce curtailment of excess generation by providing load (to pump water uphill), in the upper reservoir, and generation. These units can rapidly increase generation or load as needed for grid stability and economic efficiency.

Black Start Capability - During outages, hydro can help restart the power system without support from the transmission grid, enabling other generators to come online. Hydro can normally be operational very quickly to support grid restoration and generally have adequate fuel supply (the reservoir), and can provide a sustained response. 22 Available. Reliable. Affordable. Sustainable.

Inertia - hydro units are also a source of inertia that is important for avoiding widespread blackouts. Inertia provided by the large rotating mass of traditional generators has historically stabilized the Western Interconnection’s frequency by slowing frequency decline and, with the help of power system stabilizers, dampening the cascading oscillations that can occur when there is a disturbance (such as the sudden loss of large generation). Hydro resources have a lot of mass providing significant inertia.

Flexible Capacity - As the grid becomes increasingly reliant on variable energy resources, there is an increasing need for flexible capacity that can respond, given the production uncertainty of resources, such as wind and solar. Many hydro projects are flexible enough to move generation around during the day to provide a dispatchable generation to assure loads and resources stay in balance. Unlike fossil resources, hydro can be available to respond to change in net load (load minus variable energy resources) without burning fuel to be kept in a ready state.

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Federal and state policy, market, and valuation challenges

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Challenges to Hydro Growth

• Permitting, licensing can take up to or longer than a Long development decade, followed by construction. lead times • Incentives expired, or extended on short-term basis. • Hard to attract investment

• In addition to licensing, study PM&E costs, projects can Large up-front require significant up-front capital. (e.g. new pumped capital investment storage projects - $1-2 billion). • Projects are economic over long-term, but have high required immediate start-up costs.

Uncertainty re: • Financial community concerned that incentives for hydro may not be renewed before project comes online. support, incentives, • Affects both utilities and small developers abilities to and regulatory policy pursue projects (conventional and new).

26 Available. Reliable. Affordable. Sustainable. Policy Challenges Federal Example – Production & Investment Tax Credits (PTC and ITC)

• Current tax policy is picking winners and losers, driving investment away from hydro, pumped storage and . Today, tax incentives (PTC/ITC) for hydropower and marine energy have lapsed, while the credits for other renewables, such as wind and solar – industries with which hydropower directly competes – now enjoy long-term extensions.

This disparity puts hydropower and marine energy development at a severe competitive economic disadvantage in the market for new renewable electricity generation, particularly in the eyes of investors who are seeking clarity and certainty.

Also, there is no federal tax incentive for energy storage. 27 Available. Reliable. Affordable. Sustainable. Duration of Tax Credits

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State Example – Renewable Portfolio Standards

• Current state-level RPSs do not value existing hydro commensurate with other renewables. This discrimination reflects original design intent and construction of targets.

• Excluding Federal capacity, and assuming $5/REC in states w/o price data, a value gap for hydro of about $1.5 billion per year exists versus if hydro was supported similarly to wind and solar under State RPSs. Excluding State-owned capacity, estimate is about $1.1 billion per year. Excluding Federal, State and sub-State jurisdiction ownership, the estimate is $0.7 billion per year.

• The policy decision to exclude existing hydro may have made sense 25 years ago when there was significant existing hydro and minimal generation from other RE resources. But that has now changed. Yet, all of the now existing other RE generation continues to receive the financial benefit of RECs going forward, where existing hydro remains excluded.

Unpublished 2017 Brattle Group study performed for NHA 29 Available. Reliable. Affordable. Sustainable.

State Example – energy storage targets and treatment of pumped storage

• NHA has observed is an inconsistent treatment of pumped storage with some policies limiting it or specifically excluding it (through deadlines that do not account for longer development timelines, or setting project size restrictions, or limits on individual project funding, or through technology definitions, etc.)

• As an example, the California Public Utilities Commission (CPUC) when it established a target of 1,325 megawatts (MW) of energy storage by 2020 severely limited the eligibility of pumped storage resources.

• On page 34-35, the CPUC states, “However, the sheer size of pumped storage projects would dwarf other smaller, emerging technologies; and as such, would inhibit the fulfillment of market transformation goals. The majority of pumped storage projects are 500 MW and over, which means a single project could be used to reach each target within a utility territory. Therefore, we find it is appropriate to exclude large-scale pumped storage projects from the procurement mechanism outlined in this decision. Accordingly, large-scale pumped storage projects greater than 50 MW will not be eligible to bid into solicitations offered under the Storage Framework.” 30 Available. Reliable. Affordable. Sustainable.

2018 Sustainable Energy Factbook. Bloomberg Finance LP 2018. Developed in partnership with The Business Council for Sustainable Energy. P.92 31 Available. Reliable. Affordable. Sustainable.

Market Policy Example – compensation of grid services

NHA agrees with the analysis by the DOE in the 2016 Hydropower Vision Report:

“Changes and trends in the electric sector call for a fresh look at the future role for hydropower. Lower prices, as well as and plant retirements, contribute to a changing generation mix and potential markets for new generation sources. An increasing need to integrate variable generation resources, such as solar and wind, will lead to greater demand for grid flexibility and balancing services. Hydropower generation and PSH provide these needed services due to their consistent availability and their capability for rapid response to changes in demand.”

DOE Hydropower Vision Report. Executive Summary P.12 32 Available. Reliable. Affordable. Sustainable.

The Vision Report goes on:

“Inherent market and regulatory challenges must be overcome to realize hydropower’s potential to improve grid flexibility and facilitate integration of variable generation resources. The full valuation, optimization, and compensation for hydropower generation and ancillary services in power markets is difficult, and not all benefits and services provided by hydropower facilities are readily quantifiable or financially compensated in today’s market framework. In traditional and restructured markets, as well as in emerging environmental markets, many hydropower services and contributions are not explicitly monetized. In some cases, market rules undervalue operational flexibility, which is important to maintaining grid reliability and is a prime attribute of hydropower.”

DOE Hydropower Vision Report. Executive Summary P.12 33 Available. Reliable. Affordable. Sustainable.

34 Brattle Group Report: Maximizing the Market Value of Flexible Hydro Generation. March 29, 2018 Available. Reliable. Affordable. Sustainable.

35 Brattle Group Report: Maximizing the Market Value of Flexible Hydro Generation. March 29, 2018 Available. Reliable. Affordable. Sustainable.

36 Brattle Group Report: Maximizing the Market Value of Flexible Hydro Generation. March 29, 2018 Available. Reliable. Affordable. Sustainable.

37 Brattle Group Report: Maximizing the Market Value of Flexible Hydro Generation. March 29, 2018 Available. Reliable. Affordable. Sustainable. NHA Conclusions • Hydro remains an important generation asset not only for the clean, renewable generation it provides itself, but for the its ability to integrate more variable generation, and for the grid reliability services it performs.

• Hydro is not tapped out and has significant growth potential with capacity additions/efficiency improvements at existing plants, building on existing infrastructure (dams and conduits) and pumped storage.

• However, significant policy and market barriers will prevent the full realization of this growth, and the preservation of existing assets, if not addressed.

• Attention to these issues is needed by all levels of government - federal, state, and regional.

• As state energy officers, your engagement is needed to recognize these policy disparities and work toward solutions.

• NHA and industry members look forward to working further with NASEO and its members to implement solutions to these barriers. 38 Available. Reliable. Affordable. Sustainable. Contact Jeff Leahey Deputy Executive Director 202.682.1700 x. 150 [email protected]

Visit us on the Web

www.hydro.org Questions? NatlHydroAssoc

@NatlHydroAssoc 39 Available. Reliable. Affordable. Sustainable.

Miscellaneous slides & additional resources

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DOE/ORNL: 12 GW at over 54,000 sites

8 GW in top 100 sites

81 of top 100 sites are dams owned by the U.S. Army Corps of Engineers

Source: ORNL 41 Available. Reliable. Affordable. Sustainable.

Conventional Hydro Growth – Upgrades at Existing Facilities

The potential for new conventional hydro generation is not just about adding capacity at non-powered dams.

Existing hydro facilities are expanding through upgrades and efficiency improvements.

In fact, since EPAct 2005 and the inclusion of hydro in the production tax credit (PTC), 150+ projects have received PTC certification. These projects have seen, on average, about a 9 percent gain in generation.

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BuRec: Conduit Opportunities

Enough electricity for approximately 33,000 homes

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Typical Pumped Storage Plant Arrangement (Source: GE)

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Worldwide Installed Nuclear and Pumped Storage Project Development History (Source: GE and UDI database). 45 Available. Reliable. Affordable. Sustainable.

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Pump Storage Development Trends

GW 60 Asia 50 Total storage capacity in the 40 Europe world 30 Pumped Storage : 160 GW

20 North America CAES & Gas Turbine : 0.5 GW 10 Batteries : < 0.3 GW

0 1990 1995 2000 2005 2010 2015 2020 Source : Fraunhofer Institute, EPRI, EDF R&D

Source : EDF R&D

47 Available. Reliable. Affordable. Sustainable. Hydro is not tapped out.

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NHA Messages to Policymakers

Regulatory • Provide for a more efficient regulatory process for hydropower Improvements licensing, both new and existing projects.

• Properly value the grid benefits that hydropower and pumped storage provides (PUCs, RTOs and ISOs) Markets/Incentives • Provide continued tax policies that incentivize hydropower growth, in the same way that other renewables are incentivized.

• Support technology advancement and project deployment through Funding continued robust appropriations in FY 2018 and 2019 for the DOE Water Power R&D program and the federal hydropower owners’ budgets.

Clean Energy • Include hydropower in programs designed to spur clean electricity growth Programs (e.g. RPSs, renewable power purchase requirements, etc.)

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