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Prospects for Hydro Development in Europe

With European leaders pushing hard to develop renewable energy sources, what are the prospects for hydro development? Although other renewables might be "hot," certain sectors of the hydro market look promising, and some nations are promoting the development of hydropower to meet their clean energy needs.

By Bob Doucette

As European nations focus on meeting the EU's target to increase renewables to 20% of all energy production by 2020 (current estimates have the EU at a little less than 11%), there are mixed signals as to where hydropower might fit in.

Opportunity exists in several nations for hydro development, but many of the support mechanisms enjoyed by other renewable energy forms - as well as the attention of policymakers - are seen by some industry observers as lacking.

Regardless, there are signs of optimism on certain aspects of hydro development, namely in the form of small projects and pumped storage.Finding ways to get around barriers such as high start-up costs, lengthy construction schedules and environmental concerns will be key to expanding the continent's largest source of renewable power. Hydropower accounts for 69% of all renewable electricity generation in Europe currently, according to electricity industry association Eurelectric.

The goal of increasing electricity supply from renewables has its roots in a desire to lower the continent's contribution to greenhouse gas emissions, but there is also the need to have a greater percentage of energy consumed in Europe produced within the EU.

Examining prospects for European hydro

Of all the renewables in Europe, hydro is still the biggest source, accounting for about 323 TWh in 2010, according to "EU Energy Trends 2030," which is published by the European Commission's Directorate-General for Energy. Onshore wind came in a distant second with 147 TWh.

That same report, however, predicts a boom in nearly every renewable except of hydro. By 2020, the report indicates onshore wind will grow to 348 TWh compared to hydro's 341 TWh. And biomass will grow from 120 TWh to 268 TWh.

By 2030, the combination of onshore and offshore wind will produce 694 TWh of electricity while biomass will increase slightly to 286 TWh. Solar, with just 17 TWh reported in 2007, will jump to 94 TWh by 2030, the report indicates.

Hydro, meanwhile, will likely see nearly flat growth at 358 TWh by 2030.

"Generation from renewable energy sources sees a major expansion and sees a modification in the structure," the report says. "Hydropower remains constant, thus decreasing considerably in share."

The main reasons for this lack of growth are well-documented: High up-front costs, the long regulatory approval process and the time it takes to make a hydro facility profitable.

"Hydro is so hard to ramp up because it takes so long to develop," says Paul Gipe, a renewable energy advocate and feed-in-tariff expert. "It's not that we don't want to do it, it's just so hard to do."

And in much of Europe, the number of available places to build dams and power stations is limited.

"The reason is probably that most of the technically and economically feasible potential has already been constructed, and that new large hydro projects would be difficult to get approved for environmental and social reasons," says Frederic Louis, senior hydropower specialist at the Washington, D.C.-based World Bank.

But that doesn't mean hydro is out of the renewable game in Europe.

Gipe, whose research includes studying all renewable energy prospects worldwide, says hydro developers need only look at the industry's recent past to see where it might head into the future.

Small hydro, feed-in tariffs and pumped storage

Feed-in tariffs - the government subsidies paid by utility ratepayers to help energy producers make ends meet while developing renewable energy projects - have been the key regulatory mechanism used to help EU nations meet the 20% renewable energy goal, Gipe says.

But as important as they are to technologies like solar and wind, they got their start with hydro.

German farmers who owned unused small hydro facilities began to look at their assets as a way to make up for lost agricultural subsidies but sought legislative help to make these projects work. Their lobbying efforts, which later gained broad ideological support among German lawmakers, led to FITs in 1991 that ultimately resulted in the system of FITs used today, Gipe explains.

"All the feed-in tariffs (in 1991) were done for hydro. Germany was the poster child for this," he says.

Today, the FIT system is the tool of choice in Europe for encouraging renewable development, with 23 of the EU's 27 countries having some form of FIT for renewable energy, Gipe says.

But this system has its limitations. Larger projects are commonly excluded from FITs because the funding would be exhausted if a large operation received the same level of support as is given to smaller ones. "There has to be a limit or there wouldn't be enough money for the fund," Louis says. Either that or the fees given to ratepayers to support larger projects would make utility bills prohibitively high, he concludes.

 
Pumped-storage projects such as the Limburg 2 facility in Austria are getting more attention in Europe as EU nations work to meet 2020 renewable energy targets. Austria is seen as one of the nations ideally suited for future pumped-storage development.

Smaller projects can still compete for FIT funds, however. Whereas economy of scale often works to the advantage of larger facilities during development and operation, that same rule proportionally drives up the cost of operation for smaller ones; their smaller size makes subsidizing them a cost-efficient target for FITs.

In Europe, projects with a capacity of 12 MW or less are typically eligible for FITs, Louis says.

While the EU forecasts limited growth in hydropower development overall, another study projects significant increases in small hydro development in the EU.

Small hydro projects in the EU accounted for nearly 41 TWh of electricity in 2008, a number that is expected to climb to more than 54 TWh by 2020, according to figures published by the European Small Hydro Association.

And while not every European country is a good candidate for hydro development, Louis noted that Portugal, Austria and Switzerland still possess potential, particularly for pumped storage. In fact, work is advancing on development of the 192 MW Frades II pumped-storage plant in northern Portugal, which is one of six new hydro plants being constructed by Energias de Portugal.

Additionally, the Joint Research Centre of the European Commission released a report in 2012 noting Croatia has the potential to triple its pumped-storage capacity from 20 GWh to more than 60 GWh.

Pumped storage has become a hotter topic recently as energy experts try to find a way to boost storage and supplement Europe's power grid during peak usage.

Throughout 2010 and 2011, Eure-lectric's working group on hydropower researched the hydro and pumped-storage potential in Europe, including obstacles to its development. The resulting report advocates increased attention to this technology. With Europe's energy transition under way, it will be vital to develop the remaining hydro potential and to make the most of existing capacity, not least by making it accessible at a European rather than the now predominant national or sub-national level. Eurelectric is an association that represents the common interests of the European electricity industry.

The technology has been proven over time, thanks in part to the wave of nuclear plant construction decades ago that also built a supporting infrastructure of pumped-storage sites, experts say.

Louis says that a push among some policymakers to integrate different forms of renewable energy production is ideal for pumped-storage development, particularly if such integration can easily cross borders between nations.

He describes a scenario in which French nuclear plants could be used to fill pumped-storage sites in Austria and Switzerland during off-peak hours, and then receive power back from those countries during peak demand periods.

Similar arrangements could be envisioned in Germany, which is increasingly looking toward renewables to scale back its reliance on nuclear power in reaction to the 2011 earthquake and tsunami in Japan compromised some of that country's nuclear facilities.

Legislative stirrings in hydro development

Europe's renewable energy push has helped foster the development of solar and wind, but similar development has been mostly absent when it comes to hydro.

It is up to the individual countries to figure out how to reach the EU targets. For hydro developers, this usually means finding their own funding as the EU doesn't have many specific incentives in place to help - even with increasingly popular projects like pumped storage, Louis says. "For the time being, new pumped-storage projects are still developed by utilities, or at least by entities with other types of generation in their mix," he explains. "They will use pumped-storage projects to optimize the operation of their generating facilities."

That doesn't mean the landscape is bare, however. Louis noted that in France, renewable projects of less than 12 MW are given a guaranteed price for power, and the UK has renewable obligation credits that are awarded on a per-MW basis.

Other efforts could likewise be used for renewables, including hydro.

Legislation being considered in Poland would increase funding of renewable energy development - including small hydro - from less than $1 billion in 2012 to $2.46 billion in 2020. A study by Coalition Clean Baltic notes that more than 90% of the country's hydro potential remains untapped.

And authorities in France have streamlined some regulations, allowing owners to increase hydro plant capacity by as much as 20% without having to apply for a new license from the government, Louis notes.

The key for future development, Gipe says, is to encourage policymakers to look at energy markets more holistically and avoid getting too focused on one energy source.

As with nuclear plants, hydropower (particularly pumped storage) could be tied in to different renewable energy sources. "Wherever you see nuclear facilities, you see pumped storage, but you can easily use that with other energy sources," he says.

Although there appears to be limited support for large hydro in Europe, the mechanisms being put in place to foster other renewable generating technologies create opportunities for hydropower, particularly with regard to small plants and pumped storage.

Bob Doucette is Associate Editor of HRW-Hydro Review Worldwide


Status Report: Ancillary Services Markets in Europe

By Elizabeth Ingram, Senior Editor

The landscape with regard to provision of ancillary services by hydroelectric projects in Europe is ever-changing. Ancillary services are all services required to maintain the integrity and stability of the system, as well as power quality.

Hydropower is the major technology in Europe, accounting for 69% of all renewable electricity generation, according to Eurelectric. Beyond electricity, hydro facilities deliver storage capacity and other services to the system. Thus, hydropower is crucial for a secure supply of electricity and as a back-up for intermittent renewables, Eurelectric says. The association recognizes eight ancillary services: frequency control, voltage control, spinning reserve, standing reserve, black start, remote automatic generation control, grid loss compensation and emergency control action.

These contributions to the power system are vital to the target date of 2014 set by the EU member states for completion of the Internal Energy Market, according to ENTSO-E, the European Network of Transmission System Operators for Electricity. The existence of a competitive market is intended to give European consumers a choice between companies supplying gas and electricity and to make the market accessible for all suppliers, especially those investing in renewable energy.

The directive on the internal market introduces common rules for the generation, transmission, distribution and supply of electricity. With regard to transmission, member states must unbundle transmission systems and transmission system operators. These operators are responsible for ensuring the long-term ability of the system to meet demands for electricity, contributing to security of supply, and managing electricity flows.

One complicating factor is the EU directive to have 20% of all energy come from renewable sources by 2020. Many renewable technologies, such as wind and solar, are intermittent, and supporting them requires a major adaptation across the entire energy system, with flexible and back-up generation needed, Eurelectric says. The association says hydro is the most responsive technology to variable renewable electricity swings.

Eurelectric recommends capacity remuneration mechanisms (CRMs), which reward generators for providing capacity availability, but warns first markets must be integrated and distortions such as regulated end-user prices and restrictions on plant operations must be removed. Moreover, CRMs should be designed in coordination with neighboring markets and be phased out once a market can deliver the required investment incentives itself.

ENTSO-E agrees a harmonized approach is needed, and its ancillary services working group is reviewing the situation.

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