The Hydropower Pipe Dream

The world is increasingly looking to renewable power, so why is hydropower stuck in neutral?

Jul 23, 2014 at 4:57PM

According to the U.S. Department of Energy (DOE) there's over 60 gigawatts of renewable power that could be generated in the United States that's going unused. That power would come from new hydro installations and expansions on U.S. rivers. However, the U.S. Energy Information Administration (EIA) only expects 2 gigawatts of that power to be tapped by 2040. Why?

Power industry trade-offs
Generating electric power is all about trade-offs. Typically, that has meant utilities using the fuel that will create the most power for the least cost. Increasingly, that trade-off includes the impact of power generation on the environment. That's why utilities are moving away from coal and toward natural gas and renewables.

Southern Company (NYSE:SO) is a prime example. In 2000, coal represented two thirds of the company's fleet. By 2020, however, coal will fall to under 33%. Natural gas will be the offset, growing from under 15% to about 50%. This shift allows the utility to choose the cheapest power.

In 2020, either coal or gas could provide half of the power Southern Company expects to produce. For comparison, renewable fuels, which in Southern Company's case primarily means hydropower, will remain at roughly 8% in both periods.

Forget about hydro for just one second; why isn't Southern Company building more nuclear power, a source that doesn't emit CO2? It is, but that project is over budget, and opening day has been pushed back. Cost and construction issues help explain why nuclear, like hydro, will remain a bit player at roughly 10% of Southern Company's generation in both periods.

Source: Wikimedia Commons.

Connections matter, too
Texas provides another example of the problems hydro faces. The state's supply of solar power doubled between 2006 and 2009 according to the EIA. But the state lacked the infrastructure to get the power to where it was needed, and basically told the wind farms to stop their turbines. It took three years and 3,500 miles of transmission lines to get things worked out.

Attaching new power sources to the grid is a huge opportunity for utilities. Berkshire Hathaway (NYSE:BRK-B) and American Electric Power (NYSE:AEP) are teamed up 50/50 in Electric Transmission Texas. This joint venture essentially builds and owns transmission assets. Over the next decade, they expect to spend about a billion dollars on expansion. And clearly, Texas could use more power lines.

Bershire Hathaway and American Electric Power's big opportunity shows that building new green power assets is one thing, but it takes more than that to make them useful. And when it comes to renewable power, you have to go where the power is. For hydropower, that means rivers and streams.

Now I understand the problem!
According to the EIA, the vast divide between the DOE's 60 gigawatt number and the EIA's 2 gigawatt estimate "represents the significant gap between technical potential on the one hand and economic and operational potential on the other hand." The EIA concludes that "because hydropower is a mature technology, most of the technically and economically superior sites have already been developed."

Source: Western Electrician, via Wikimedia Commons.

So, Southern Company is comparing the construction of relatively cheap to build and run natural gas plants, which are favored by the industry, regulators, and environmentalists right now, against finding out-of-the-way rivers and streams to tap (including the construction of the power lines to get that power back to civilization). There's no competition there.

And don't forget that building a hydro facility will have a material impact on the river on which it's built -- something environmentalists abhor. Even wind farms like the ones American Electric Power and Berkshire Hathaway are attaching to the grid are facing environmental pushback.

The potential offered by hydropower makes good headlines, but it isn't going to be a major contributor to the power industry. The cost-benefit analysis just doesn't play out right now. Wind and solar are bigger green opportunities. But keep an eye on companies like American Electric Power and Berkshire Hathaway, which are looking to cash in by connecting new renewable sources to the grid.

Warren Buffett: This new technology is a "real threat"
At the recent Berkshire Hathaway annual meeting, Warren Buffett admitted this emerging technology is threatening his biggest cash-cow. While Buffett shakes in his billionaire-boots, only a few investors are embracing this new market which experts say will be worth over $2 trillion. Find out how you can cash in on this technology before the crowd catches on, by jumping onto one company that could get you the biggest piece of the action. Click here to access a FREE investor alert on the company we're calling the "brains behind" the technology.

Reuben Brewer has no position in any stocks mentioned. The Motley Fool recommends Berkshire Hathaway and Southern Company. The Motley Fool owns shares of Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers