1 Growing Problem Could Endanger Hydropower

Hydro is headed into stormy waters, according to a new report that links deforestation to reduced power output for a proposed dam in Brazil. While Amazonian rain forests might seem miles away from your portfolio profits, there are direct impacts and sector-wide implications from these new findings. Here's what you need to know.

All dried up
The Proceedings of the National Academy of Sciences released a report (link opens a PDF) last week turning power preconceptions upside down. Before this week, commonsense thinking proposed that if forests around a river were chopped down, more water would hit dam reservoirs, increasing capacity and maximizing electricity generation. In reality, although trees do take their fair share of groundwater out of river flow, they play a vital (and relatively larger) role in cloud and rainfall creation.

The study focuses its findings on Brazil's 11,200 MW Belo Monte Dam, currently under construction. According to the report, 40% deforestation in key forested areas could drop capacities by as much as 75% during dry months.

Dividend drought
While the second-largest hydroelectric dam in the world  is collectively owned by the Brazilian government and local energy corporations, this study is hardly good news for Duke Energy's (NYSE: DUK  ) own Brazil operations. The North Carolina-based utility owns eight hydro facilities in Brazil with a total generation capacity of 2,300 MW. In its latest earnings report, CEO Jim Rogers noted that low reservoir levels helped knock 5% off the company's adjusted EPS. Rogers assured investors that Duke "will continue to monitor the reservoir levels." Unfortunately, monitoring is all that the company is capable of.

Seasonally unstable sales
Rain forests aside, this new report is also a reminder that hydroelectric power is hardly a steady source. Belo Monte is expected to hit 85% of its 11,000 MW capacity every April, but plummets to 5% in September. According to the study, the dam's annual generation could average out to just 35% (3,850 MW) of total capacity.

NextEra Energy (NYSE: NEE  ) sold off its last hydro assets in March to "further optimize [our] generation portfolio and concentrate [our] resources." NextEra is the largest renewables energy producer in the United States, and has been adding on heavily to other alternative energies. Just last week, it announced an order for 59 of General Electric's (NYSE: GE  ) new 1.7 MW wind turbines, the largest and most efficient turbines to date.

FirstEnergy (NYSE: FE  ) is following NextEra's lead, and plans to sell its 1,240 MW of hydro assets by 2014. The sale will improve FirstEnergy's debt dilemma, but should also help the utility concentrate resources on more stable energy sources.

Is hydro's heyday over?
Hydroelectric power was once espoused as the cleanest, greenest renewable energy around. However, over the decades, its expected efficiency has dropped as environmentalists and economists alike shattered investors' dreams.

Investing in the energy sector is a moving target, and wise investors will keep track of the latest news to make sure that their energy investments' energy portfolios will continue to pump profits for their own portfolios.

Hydro may not hold up, but there's another clean energy source that's making a comeback. As the nation moves increasingly toward environmentally friendly energy, Exelon is perfectly positioned to capitalize on having the largest nuclear fleet in North America. This strength, combined with an increased focus on balance sheet health and its recent merger with Constellation, places Exelon and its resized dividend on a short list of the top utilities. To determine if Exelon is a good long-term fit for your portfolio, you're invited to check out The Motley Fool's premium research report on the company. Simply click here now for instant access.

Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2451894, ~/Articles/ArticleHandler.aspx, 9/28/2016 8:28:38 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,339.24 110.94 0.61%
S&P 500 2,171.37 11.44 0.53%
NASD 5,318.55 12.84 0.24%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/28/2016 4:01 PM
DUK $81.10 Down -0.33 -0.41%
Duke Energy CAPS Rating: ***
FE $33.54 Down -0.13 -0.39%
FirstEnergy CAPS Rating: **
GE $29.90 Up +0.02 +0.07%
General Electric CAPS Rating: ****
NEE $126.48 Down -0.31 -0.24%
NextEra Energy CAPS Rating: ***