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Focus on small hydro


Gema San Bruno, Lauha Fried and David Hopwood

For centuries civilisations have taken advantage of the power of water. Once used by the Greeks for grinding wheat into flour, the water wheels of the past have been transformed into highly-efficient turbines that generate electricity. Renewable Energy Focus takes an in-depth look at the current renaissance in Small Hydropower in the EU.

What is Hydropower – and SHP?

In general, hydropower's chief advantage is that it provides a steady and secure source of electricity, and it can counter (and provide backup for) the intermittency of other renewable energy technologies such as solar PV and wind power. Because it is fuelled by water, it does not pollute the air or produce any other liquid or solid wastes.

And its other benefits are growing in importance now that climate change is a real issue. Hydropower for example can manage water supply during dry summer months, as well as address flood control. In addition, a comparison of yield factors for different energy technologies shows that hydropower is the most reliable and cost effective renewable energy source [the yield factor is the ratio of the quantity of energy produced by an installation during its life time, and the energy required manufacturing the installation, its operation and disposal – including secondary energy (see ‘how does the yield factor of SHP compare with other renewables')].

Small Hydropower (SHP) is defined as installed hydropower capacity of up to 10 MW, and is the backbone of electricity production in many EU countries. Why? Because it can be one of the most reliable and economic methods of generating electricity. Its power profile allows it to immediately respond to fluctuations in demand, and address both base-load and peak-load demand. A well-designed SHP system can blend in with its surroundings and offer very low environmental impact.

SHP schemes are mainly run-of-river with little or no reservoir impoundment, but it is important to realise that SHP is not simply a reduced version of a large hydropower plant. Specific equipment is needed to meet the fundamental requirements of simplicity, high-energy output, environmental measures, and maximum reliability.

The following sectors within SHP show important potential for growth:

  • New low-head SHP schemes;
  • Mini- and micro-hydropower;
  • Repowering and upgrading of existing sites;
  • Development of pumped-storage facilities.

Eastern Promise – why and where is SHP a hot opportunity?

The urgent need for clean energy has directed interest back to SHP in recent times. With the EU's increased (and undesirable) energy dependency on less stable regions, together with volatile oil prices, the problematic question of whether a project could be feasible in economic terms (but not realisable in financial terms) is finding new answers – and there is growing interest from investors in the hydropower sector. Speculative investors as well as public funding, debt financers and equity investors are all trying to find their place in the development of hydropower.

There has also been a change of attitude within the big electricity utilities towards renewables in general, and this has manifested itself in the opening of new divisions, businesses and portfolios in the sector. This has undoubtedly helped hydropower too, due to the stable and predictable nature of hydropower's supply.

Moreover, the enlargement of the EU has opened doors to new investment in countries where the political and economic situation previously offered challenges for potential investors. In the case of SHP, the Balkan region is experiencing a boom, and offers potential projects to an established European industry keen to supply technology transfer expertise and know how into the developing East.

It was the start of the new Millennium that ushered in the new era of SHP plants. In Bosnia and Herzegovina, more than 100 concessions have now been granted to new investors, and every few months new tenders are published.

Montenegrins started with a ‘policy first' approach and published one intriguing tender in September 2007; Macedonians, after publishing several unsuccessful tenders, awarded 41 concessions out of 400 potential sites; Croats decided on optimistic feed-in tariffs, and Serbs are proceeding cautiously, but taking firm steps. These countries are developing rapidly, and as a result need financial, technical, strategic and political support.

SHP benefits
  • Clean, sustainable and emissions-free source of renewable energy;
  • Highly efficient (from 70% to 90%);
  • Proven and reliable technology;
  • Predictable and easy to manage;
  • Long lifespan of up to 100 years;
  • Attractive energy pay-back ratio;
  • Improves grid stability;
  • Is an indigenous resource;
  • Improves the diversity of energy supply;
  • Technology suitable for rural electrification notably in developing countries.

Much of the EU's SHP potential can be found in Romania and Poland, Czech Republic, Slovenia, Bulgaria and Slovakia (despite the French Government's new plan to increase hydropower production to 7 TWh/year by 2020), and experts agree that the highest expectations for further development of SHP are focused in Central-East Europe:

  • Bulgaria's SHP installed capacity is estimated to reach 543 MW in 2015 and 696 MW by 2020;
  • In Croatia, a study of SHP potential has shown that there is a technically-feasible SHP potential of 570 GWh/year;
  • SHP potential in the Czech Republic is about 1,115 GWh/year;
  • In Romania the potential reaches 625 GWh/year and the future outlook includes upgrading and rehabilitation as one of the main priorities;
  • In Slovakia there is a potential of 1200 GWh/year. The country's planned RES target for 2013 includes 180 GWh/year of SHP.

SHP and electricity production in the EU-27: the facts

  • SHP installed capacity accounts for about 12.5 GW in the EU-27, an increase of around 2.7% from 2000. SHP now represents about 9% of the total hydropower installed capacity, and around 2% of the total electricity capacity installed in the EU-27;
  • As far as production is concerned, total gross production of electricity was about 3,358 TWh in the EU, of which about 344 TWh was supplied from hydropower. This means EU-27-generated hydropower represented around 10% of the EU's electricity production in 2006;
  • SHP accounted for about 40.5 TWh of electricity production in 2006, representing 12% of the total hydropower production, but a mere 1% of the total electricity production in the EU-27;
  • Hydropower is very dependent on a country's geography. 85.1% of installed SHP capacity is concentrated in 6 Member States. These leading 6 countries are Italy, accounting for about 21% of the total SHP installed capacity; followed by France (17.5%); Spain (15.5%); Germany (14%); Austria (9.4%); and Sweden (7.7%). The largest capacities in the new Member States are in Romania (3%), Czech Republic (2.4%) and Poland (2.3%).

SHP and renewable electricity production in the EU: the facts

  • Hydropower still dominates electricity production from RES; in 2006, its share was 79%. Of that, large hydropower accounted for 69% and SHP for 10%;
  • However, other renewable sources, especially wind power, are growing at a higher rate than hydropower and there has been a decrease in Hydropower's renewable electricity production share of around 10% since 2000;
  • When talking about SHP the picture is slightly better, but wind's contribution to renewable power is higher at present.

SHP and the EU's “20% by 2020” target

In January 2008, the European Commission published an integrated energy and climate package proposal, to fight climate change and promote renewable energy. The package seeks to mandate the European Union to reduce greenhouse gases by at least 20% (this target will be increased to 30% by 2020, as soon as a new global climate change agreement is reached).

For renewable energy, a Directive on the promotion of the use of energy from renewable sources has been proposed and will be signed into law soon. This provides the legislative base to implement a binding 20% renewable energy share (in energy consumption) by 2020, compared to a renewable energy share of just 8.5% today.

Take this new political momentum and add increasing dependency on energy, the volatile oil, gas and electricity prices, together with the impact of regulatory changes, and development of SHP has the potential to speed up as EU countries look for ways to achieve targets – the forthcoming Directive obliges Member States to redefine clearer regulatory frameworks, and to reconsider their national hydroelectric potential in light of 2020 targets.

SHP in the future

But despite the above drivers, SHP has not grown as expected, mainly due to administrative and environmental barriers. Long and complicated administrative procedures to get licenses and comply with the requirements for commissioning a plant – as well as a growing concern about the implications of hydropower for ecosystems and water – are the main drawbacks for the sector. And the costs of getting permits (mainly hydrological and EIA; preliminary designs; permits and approvals for water, land use, construction and land rights; interconnection studies; PPA; project management and financing fees) can range from €10,000–€30,000. And this is lost if the authorisation is denied.

When considering future potential for EU SHP, it has been estimated that 450 TWh/y for total hydropower (100 GW installed capacity), is technically achievable (according to the EU Master plan 2002). Within this potential 68.4 TWh/year could be the SHP contribution (Green-X EU project 2007) and upgrading may represent 30 TWh/year. (TNSHP, 2005).

Drivers and challenges

The main driver to further development of SHP in Europe is the implementation and transposition of the new Directive, mentioned above, which seeks to promote renewable energies in Europe. Nevertheless, even if the Directive results in binding targets for 2020, the impact on SHP growth will be reduced if parallel actions are not implemented.

Concerns about the environmental impact and/or the slow process of licensing and administrative obligations will counter potential SHP growth driven by the proposed European legislation. In this respect it is important to find a balance between producing enough electricity, and meeting environmental standards.

More proactive cooperation is needed between the local authorities (in charge of the licensing process and the administrative procedures) and the SHP producers/developers. SHP is a site-oriented technology and even if national or European support can help develop the sector, only local action can really make the difference.

Making money from SHP

And what about potential investment? Can SHP generate a healthy profit? Hydropower in general is capital intensive and highly site-specific, and involves a heavy initial investment cost. The problem is that hydropower can appear expensive in the early years even though it is cheap thereafter.

The initial investment costs associated with SHP (1,200 €/kW –3,500 €/kW is the typical European average), necessitates high tariffs in the first 10 to 15 years. This is needed to repay loans, satisfy the bank's debt coverage ratios, and provide an acceptable rate of return.

How does the yield factor of SHP compare with other renewables?
  • Small Hydropower: 80–100
  • Large Hydropower: 100–200
  • Photovoltaic: 3–5
  • Solar (thermal): 20–50
  • Wind Power: 10–30

But once the investment loans are repaid, the cost of hydropower drops dramatically because the project owner only needs to pay for O&M costs, royalty payments and regular electro-mechanical refurbishments and upgrades. The cost becomes very stable over time, and is not subject to fuel fluctuations. In addition, the lifetime of a SHP plant could be well over 100 years.

So it is clear that the question of making money depends very much on the tariff system that applies in different countries. In this respect, public support and buy-back prices play a key role, as does the selling price of SHP-derived electricity, At the moment, the typical range for EU tariffs varies from 4 €-cents/kWh to 9 €-cents/kWh. This tariff would mean an internal rate of return of 8%–9% over 15 years.

It is also important to distinguish between total financing requirements and construction costs. Although construction represents a large part of the sum, the actual amount of money needed for the financing package has to include all expenditure up to the commercial operating date, after which the project creates its own revenue stream. It should be noted that in the case of SHP the investment mainly comes from the private sector, so the public sector and the debt financers have little role to play, although potentially they could play more of a role in SHP development.

What about carbon trading and SHP development?

The Clean Development Mechanism (CDM) and Joint Implementation mechanism (JI) – Kyoto Protocol schemes that, put simply, allow “credits” generated from clean energy (such as from SHP plants) to be traded on different markets to allow countries to meet emissions reduction targets – can certainly boost development in the case of SHP, probably more so than with any other energy source (and that includes other renewables). SHP for example can exploit untapped potential in developing countries where hydropower is a very feasible option for electricity generation (and where at the same time demand for power is extraordinary) – like in India or China. And of all CDM project types, hydropower projects are rated with a 90% chance of issuance success, compared to 76% for wind.

Currently there are more than 3,000 CDM projects that have entered the validation phase, and they are expected to generate some 2.5 bntC02 emission reductions up to 2012. China, India, Mexico and Brazil have dominated CDM activities, with 77% of all projects hosted in one of these countries.

RES projects represent 55% of all projects and 28% of all expected Certified Emissions Reductions (CERs). About 15% of all projects deal with the operation of hydropower plants of less than 20MW installed capacity (which represents only 3% of all expected CERs).

China is the best example of CDM SHP development in recent years, the country not only developing clear CDM regulations, but central and local Governments also having provided a series of policies and measures to promote rural electrification. This has in turn favoured SHP. In addition, China is blessed with ample water resources for rural electrification, which suggests SHP development will be an important solution.

SHP – technology innovations

There is a general misconception that SHP is a mature technology with no significant prospects for future development. Some significant advances have been made in hydroelectric equipment over the past few decades, with important prospects for future improvements. The main developments have focused on low-head installation, fish friendly-turbines, and other measures that improve environmental integration.

What is the total potential for SHP as a share of renewable energy sources by 2020? The table shows the total potential (existing plus new plants) estimated for 2020, based on 2005 existing potential (source - Green-X EU project)

 

SHP Forecast TWh

Renewable energy sources (RES) forecast TWh

SHP % to RES

Austria

9.6

60.3

0.16

Belgium

0.3

16.0

0.02

Denmark

0

32.4

0.00

Finland

1.6

50.1

0.03

France

11.8

242.5

0.05

Germany

10

227.0

0.04

Greece

0.4

31.0

0.01

Ireland

0.2

17.1

0.01

Italy

10.9

136.2

0.08

Luxembourg

0.1

1.0

0.10

Netherlands

0.1

42.3

0.00

Portugal

1.9

47.2

0.04

Spain

7.8

188.7

0.04

Sweden

5.3

119.1

0.04

UK

0.7

202.5

0.00

EU15

60.7

1413.5

0.04

Cyprus

0

1.5

0.00

Czech Republic

1.6

15.9

0.10

Estonia

0

5.3

0.00

Hungary

0.1

13.5

0.01

Latvia

0.2

7.9

0.03

Lithuania

0.1

5.7

0.02

Malta

0

0.5

0.00

Poland

1.7

48.3

0.04

Slovakia

0.5

9.9

0.05

SIovenia

0.8

9.0

0.09

Bulgaria

1.3

24.4

0.05

Romania

1.2

45.3

0.03

New Member States

7.7

187.3

0.04

EU27

68.4

1600.8

0.04

Also, the European Small Hydropower Association (ESHA) is a partner in a Hydroaction project – an EU-funded FP6 research project that started recently. This project seeks to develop small hydro turbines (up to 5 MW) that will increase productivity by 3%–5%.

One thing is certain. In the future, increased investment in R&D activities is needed in order to harness SHP potential in the most environmentally-friendly and sustainable way.

About the authors

Gema San Bruno and Lauha Fried work for the European Small Hydropower Association (ESHA).

The European Small Hydropower Association is a non-profit International Association representing the sector of small hydropower. The association was founded in 1989 as an initiative of the European Commission. ESHA is a founding member of EREC (European Renewable Energy Council), which groups together all main European renewable energy industry and research associations. Since March 2000, ESHA has shared its headquarters with other EREC members in the Renewable Energy House, in Brussels.

 

 

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