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State Models to Incentivize and Streamline Small Hydropower Development

This report analyzes state-led initiatives and programs that incentivize and streamline small hydroelectric development.


In 2016, the hydropower fleet in the United States produced more than 6% (approximately 265,829 gigawatt-hours [GWh]) of the total net electricity generation. The median-size hydroelectric facility in the United States is 1.6 MW and 75% of total facilities have a nameplate capacity of 10 MW or less. Moreover, the U.S. Department of Energy’s Hydropower Vision study modeled a scenario identifying approximately 49 GW of deployable hydroelectric potential by 2050. Much of the hydroelectric potential identified is at low-impact new stream-reaches, existing conduits, and non-powered dams with a median project size of 10 MW or less. To optimize the potential and value of small hydropower development, state governments are crafting policies that provide financial assistance and expedite state and federal review processes for small hydroelectric projects.


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Regulatory Streamlining and Permitting Assistance Initiatives

State-led regulatory streamlining efforts are promoting small hydropower development. Simplifying federal and state permitting can lower costs and reduce the amount of time required for approval, increasing the economic feasibility of developing small hydropower. National Hydropower Association – Comments on Small Hydropower Development, FERC Docket No. AD09-9 (2009). Programs in Colorado, Vermont, and Oregon expedite state regulatory reviews required for FERC approval and provide permitting assistance. The design, administration, and operation of these initiatives vary by state. Legislative mandates in Vermont and Oregon task existing state regulatory agencies with administrative responsibilities, while in Colorado a non-regulatory office of the governor oversees the streamlining efforts. Other legislative designs in Oregon direct an independent, nonprofit organization to administer the program with oversight from the state public utility commission. For more information on Vermont’s expedited state review and permitting assistance program, see:

Small-Low Impact Hydropower Program:
7-CO-a


For more information on Colorado’s expedited state review and permitting assistance program, see:

Small Hydropower Assistance Program:
7-VT-a


Comparison of Regulatory Streamlining and Permitting Assistance Programs

Table 1 highlights the advantages and challenges associated with the state regulatory streamlining and permitting assistance programs discussed in this report, providing an assessment of the state programs: implementation history, design, efficiencies, utilization, administration, and ancillary benefits.

Table 1: Comparison of Regulatory Streamlining and Permitting Assistance Programs
CO: Streamlined Federal Permitting Assistance Service VT: Small Hydropower Assistance Program OR: Existing Water Rights Expedited Process OR: Energy Trust Hydropower Program
Advantages
  • Upfront communication and coordination
  • Ensures project qualification
  • Streamlines information gathering and consultation
  • Ensures adequate state agency consultation
  • Ensures state agency comments and initial fish and wildlife conditions under 30(c) of the Federal Power Act do not conflict.
  • Legislative and implementation design supports efficiency and effectiveness of program
  • Upfront communication and coordination
  • Ensures project qualification
  • Streamlines information gathering and consultation
  • Ensures adequate state agency consultation
  • Ensures state agency comments and initial fish and wildlife conditions under 30(c) of the Federal Power Act do not conflict.
  • Streamlines public comment process
  • Limits state agency review
  • Eliminates contested case hearings
  • Eliminates Fish passage requirements
  • Eliminates “No Dead Fish Rule” requirements.
  • Legislative and implementation design supports efficiency and effectiveness of program
  • Regulatory and financial assistance provided
  • Grant writing assistance
  • Couples agricultural irrigation infrastructure improvements with power generation
  • Upfront cash incentives
  • No default potential.
Challenges
  • Low utilization rates
  • Legislative and implementation design inhibits effectiveness and utilization.
  • Low utilization rates.
  • Low utilization rates
  • Only applies to existing water right holders.
  • Long-term implementation of surcharge for financial assistance
  • Independent organization accountability
  • Funding cap.

State Financial Incentive Models

State programs providing capital cost financial assistance for hydropower projects may increase the viability of small hydropower development. Energy Trust of Oregon – Hydropower Website; Summit Blue Consulting – Small Hydropower Technology and Market Assessment in Oregon Report (2009). High capital costs can impede the development of small-scale hydropower. Offering an alternative to commercial lending institutions, states can provide low-cost, long-term financing solutions for small hydropower development. Low-cost, long-term financing can reduce initial capital costs by lengthening the period of time over which installation costs are paid and/or reducing interest rates. National Renewable Energy Laboratory – State Clean Energy Policies Analysis: State, Utility, and Municipal Loan Programs Report (2010). States including Colorado, Oregon, Massachusetts, Rhode Island, and Vermont have implemented financial incentives that support small hydropower development. These financial incentives include low interest loans, loan guarantees, grants, and feed-in-tariffs.

Comparison of Financial Incentive Programs

Table 2 highlights the advantages and challenges associated with the state financial incentive program discussed in this report, providing an assessment of the state programs: implementation history, design, efficiencies, utilization, administration, ancillary benefits, and overall impact on small hydropower development among other factors.

Table 2: Comparison of Financial Incentives Programs
CO: Water Power Loan Program OR: Small-Scale Energy Loan Program MA: Commonwealth Hydropower Program CO: RCPP Irrigation Hydropower Program CO: Small Hydropower Loan Program w/ Match Grant RI: Renewable Energy Growth Program VT: Standard Offer Program
Advantages
  • Low-interest loan funding
  • Flexible loan terms
  • No funding cap
  • Revolving revenue stream.
  • Low-interest loan funding
  • Flexible loan terms.
  • Upfront cash incentive
  • No repayment obligations
  • No default potential
  • Reliable revenue stream.
  • Upfront cash incentive
  • No repayment obligations
  • No default potential
  • Couples agricultural irrigation infrastructure improvements with power generation.
  • Low-interest loan funding
  • Flexible loan terms
  • Flexible loan terms
  • No up-front funding requirement
  • Upfront cash incentive (possible).
  • Predicable return on investment
  • Reliable revenue stream.
  • Predicable return on investment
  • Reliable revenue stream.
Challenges
  • Loan funding above $10 million must receive state legislative approval
  • Funding restrictions on private developers and on-farm projects
  • Loan revenue fluctuations based on other water resource priorities.
  • Default potential created large deficit to state
  • Defaults could hurt state bonding.
  • Limited grant funding.
  • Limited grant funding
  • Complex application process
  • Coordination challenges between funding entities
  • Delays between funding announcements
  • Funding through reimbursement only
  • Availability of technical service providers required to access funding.
  • Loan revenue influxes based on other water resource priorities
  • $2 million loan cap
  • Loan eligibility restrictions.
  • Setting the right price is difficult and complex
  • Low utilization rates.
  • Setting the right price is difficult and complex
  • Low utilization rates.

Concluding Thoughts

Financial incentives or regulatory streamlining efforts alone may not be sufficient to develop additional small hydropower resources. Summit Blue Consulting – Small Hydropower Technology and Market Assessment in Oregon Report (2009); National Renewable Energy Laboratory – Financial Incentives to Enable Clean Energy Deployment Policy Overview and Good Practices Report (2016). However, a combination of streamlining efforts and financial incentives together, that align with state renewable portfolio standards and other state policies, may provide the path to success for encouraging small hydropower development. Implementation of incentive programs and other policies that are closely coordinated or bundled often improve overall program and policy efficiency. National Renewable Energy Laboratory – Financial Incentives to Enable Clean Energy Deployment Policy Overview and Good Practices Report (2016).

References