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US hydropower experiencing revival, S&P says

Despite ageing infrastructure and a weak pipeline of new projects, the agency believes the power source will play a significant role in cutting carbon emissions.

American hydropower assets may be experiencing “a renaissance” even as the construction of new hydro facilities remains rare, according to Standard & Poor’s.

Insulation against commodity price fluctuations, the increasing decarbonisation of North America and the significant value of existing hydro plants has contributed to the subsector’s resilience, the ratings agency said in a report released this week.

The construction of new plants is scarce due to high capital costs, historically low power prices and the prevalence of local opposition to such projects. However, a wave of hydro closures is unlikely, even as plants approach or surpass their expected lifespans. Between 2005 and 2013, $6 billion of capital was spent on hydro assets, with most going to the maintenance of existing plants.

“Incumbent plants, especially, retain significant value,” the report states. “They are especially valuable as we move into a period in which demand patterns are less predictable.”

While Donald Trump’s election to the presidency has cast doubt on federal efforts to limit carbon emissions, the report posits that some form of carbon regulation is likely in the longer term and that hydropower will play a significant role in reducing emissions.

With many of the major US hydro plants ageing – the seven largest structures date back between 30 and 80 years – they will continue to need capital investments, particularly as facilities are required to renew their Federal Energy Regulatory Commission licences. A number of them will face relicensing in the next 10 years, the report notes, requiring a surge in capital spending.

The lengthy track records of longstanding facilities provide performance and risk indicators with multiple decades of data. Variations in long-term water levels due to climate change, however, risk undercutting confidence, S&P noted.

Hydropower accounts for approximately 80GW, or 7 percent of the US’s power-generating capacity. It is particularly prevalent in the country’s north-west, with Washington, California and Oregon accounting for half of the country’s hydropower capacity.