Project Economics: Calculating the Cost of Instream Flows
One of the many challenges in hydropower relicensing is determining the true dollar value of instream flows and recreation flow releases. While appearing to be little more than simple calculations, you will be challenged in this area for several reasons. Hydropower operations, like many other unique industrial operations, tend to be multi-generational careers. When you interact with system operators, you'll discover that their whole life, along with their father, and even grandfather, has been hydropower. One of the cardinal rules of hydropower operations is to never spill water - spill is wasted revenue (also known as foregone generation). This has been ingrained into their thinking for their entire career. Further, utilities tend to develop a sense of ownership of the water used in their operations. This has been fostered by the forty or more years of relative freedom to utilize nearly the entire streamflow at will. With the advent of environmental legislation which calls for enhanced protection of habitat and species, along with consideration of other beneficial uses, hydropower generation is no longer the sole consideration. Simply put, while the utility may possess the right to use streamflow for hydropower generation, the actual ownership of this public trust resource belongs to the entire public and all interests need to be considered, including returning flows to reaches dewatered by project operations (referred to as bypass reaches in hydropower jargon).
Utilities often make the argument that restoring flows to bypass reaches is too expensive and economics justify continued hydropower generation over environmental, recreational and aesthetic uses. In many instances the utility has brought their economist to the negotiations to pronounce the “horrendous expense” of a proposed flow, without supplying the methods used in arriving at their figure, often claiming they are not at liberty to divulge their calculations because it is proprietary information. This claim should never be accepted without solid supporting information and by doing some research on your own part. American Whitewater staff utilize a simple Excel worksheet to quickly calculate the expense of flow releases. Keep in mind that this is just for quantifying the actual expense of a flow, not the value. Always compare apples to apples in these discussions and avoid getting sidetracked with other issues.
In the energy business, utilities are continually generating, buying, and selling power based on their load (electrical demand) and generational capability. The wholesale price of electricity is constantly changing based on demand vs. capacity. In the springtime, when demands are lower and high streamflows provide abundant generation, wholesale prices are low. In contrast, during the fall and winter, low flows and high demand drive the wholesale price much higher. Research in the late 1990's in California showed wholesale prices during the springtime of $0.00 to $15.00 per megawatt hour (mw/hr), as opposed to fall prices greater than $80.00 per mw/hr. Using three full years of hourly price data, we found that the average wholesale price of electricity was $30.00 per mw/hr.
Calculating “Cost of Instream Flows” Based On Foregone Power Generation
Hydropower operations have a rated generation capacity at a given flow value i.e., 112 MW @ 3,000cfs. The spreadsheet tool allows you to insert the generation capacity and corresponding flow, proposed instream flow, and wholesale price of electricity. This then allows you to calculate the cost of the proposed instream flow. The spreadsheet also includes the proposed instream base flow. This is included to avoid adding the cost of this flow twice into the calculations. We refer to this as “double dipping” by the utility and results in inflated costs for recreational releases. The cost of an instream flow is one expense, recreational or other flows are additional expenses on top of the instream flow. Therefore, you need to factor in the instream (base) flow.
|Calculate Cost of Bypass Flows|
|(Enter Values in Red Cells)|
|Input Powerhouse Rated Capacity (MW)||70\\|
|Input Powerhouse Maximum Flow (CFS)||3560|
|Generation per 1cfs =||0.0197||MW/Hr|
|Generation per 100 cfs =||1.9663||MW/Hr|
|Generation per 1000 cfs =||19.6629||MW/Hr|
|Desired Recreation Flow||1600||cfs|
|Instream (Base) Flow||250||cfs|
|Duration of Recreation Release||6||Hours|
|Forgone Generation =||159.270||MWh|
|Cost per Acre/Foot =||$7.14|
|Input Wholesale Power value $||$30|
|Cost of Release =||$4,778.09|
In the above example the powerhouse capacity is 70 megawatts @ a flow of 3,560 cfs which means for every hour that 1,000 cfs passes through the turbines; 19.66 megawatt/hours of electricity is produced.
The next group of input values will give the cost of a flow release. The desired release level is 1,600cfs, with an existing instream(base) flow of 250 cfs, with a duration of 6 hours and the wholesale price of power is 30.00 per MW/Hr. Based on the calculations above a 1600 cfs release for six hours costs $4,778.00 in lost power generation. Additionally, you have calculated the total forgone generation and total acre/feet of water needed for the release.
Philosophically, some river advocates oppose placing a value on instream flows claiming environmental laws require sufficient instream flow to protect non-power values such as fisheries and recreation. While on paper these laws may indeed identify non-power beneficial uses in reality the final decisions on the volume and timing of instream flows are ultimately driven by the project's economics. Doing your homework on the project's economics beforehand enables you to call the bluff when the utility claims instream flow proposals will make the project economically marginal. Furthermore, knowledge of project economics enables you to make reasonable proposals (economically viable) for recreation instream flows. This knowledge of project economics and effort to make reasonable flow proposals will be a great asset to the relicensing process and other stakeholders as well. American Whitewater always crafts recreation instream flow proposals based on the hydrology of the system and project economics. As a result we almost always achieve our restoration goals in relicense proceedings. Along the way other stakeholders including utilities notice our reasonable approach thus enhancing our credibility and expertise in the field of hydropower relicensing.