2014 was an interesting year for the hydropower and dams industry, with a number of stories hitting the headlines that could have far reaching effects throughout the sector. Carrieann Stocks identifies five stories which she believes made the biggest impact, while industry members highlight what they think were the big news stories of the year.
As we come into the new year, I thought I would take a look back over the past 12 months and pinpoint what I thought were some of the most important stories of the year, and ones that would likely have an impact on the industry in the future. These are my personal views and I'm sure that many of you will have your own versions of the top five stories, indeed at the end of the feature a few industry members have shared their views and highlighted what they believe are the most important issues of 2014. The stories I have chosen are: Alstom sells to GE; the World Bank's positive review of the Hydro Sustainability Assessment Protocol; Dam construction making a comeback in Australia; other renewables overtaking hydro output in the US; and finally the controversial study which said large dams were not viable.
Alstom says yes to GE
In June, the Board of Directors of Alstom unanimously voted to accept General Electric's (GE) €12.35 billion offer to acquire it's energy business - choosing the deal over a rival bid from Siemens and Mitsubishi Heavy Industries.
As part of the deal, GE will acquire Alstom's thermal power, renewable power and grid sectors, as well as corporate and shared services for an equity value of €12.35 billion and an enterprise value of €11.4 billion. The firms are also set to establish joint-ventures in grid, renewables and nuclear steam turbines, with the deal proposing the sale of GE's signaling business to Alstom for €602 million.
The deal means that GE would take a 50% stake in Alstom's hydro and offshore wind businesses, while in grid, each company would hold a 50% stake in a global business combining Alstom Grid and GE Digital Energy.
Completion of the GE transaction is expected in 2015, subject to works council consultation, customary regulatory approvals and Alstom shareholder approval.
Speaking at the time, Patrick Kron, chairman and CEO of Alstom, said: "The combination of the very complementary Energy businesses of Alstom and GE would create a stronger entity, best placed to serve customers globally and invest in people and technology over the long run.
"Alstom would be associated to this ambitious combination through the Energy alliances. Alstom Transport, a solid leader with a large portfolio of technologies and a worldwide presence in a dynamic market, would be further strengthened through the acquisition of GE's signaling business as well as a far-reaching rail alliance with GE."
Alstom chose the deal over one submitted by Mitsubishi Heavy Industries (MHI) and Siemens in early June, which could have seen MHI take a 20% stake in the French group's hydropower division.
If the deal goes ahead, it could have an impact on the industry as Alstom is one of the leading equipment manufacturers in the hydropower sectors - and the company is involved in a huge number of hydro and dam projects worldwide. It will certainly be interesting to see what happens with the company in 2015.
A useful tool says the World Bank
In August, the World Bank has published a review of the International Hydropower Association's (IHA) Hydropower Sustainability Assessment Protocol (HSAP) providing recommendations on its usage.
The review, entitled "The Hydropower Sustainability Assessment Protocol for use by World Bank clients: lessons learned and recommendations', describes the protocol as "a useful tool for guiding the development of sustainable hydropower in developing countries".
The protocol is a tool for measuring the environmental, social, technical, financial, and economic aspects of a hydropower project's performance. It was developed by a multi-stakeholder forum featuring representatives from industry, civil society, donors, developing country governments and the finance sector over a three-year period.
Among its findings, the review concludes that:
- Developers that have applied the protocol have experienced that protocol assessments deliver value for money
- The protocol complements the World Bank's policies and procedures for social and environmental performance, but does not replace them
- The protocol has a range of other potential uses, including a transparent framework for stakeholder dialogue and conflict resolution
The review also features a set of recommendations for World Bank clients, including that:
- A full commitment from the developer is crucial to the success of assessments, given the reliance on evidence provided
- Basic good practice defined by the protocol may not reflect standard practice in a client's country, so managing expectations is key to successful implementation
- Achieving basic good practice across all topics is difficult in the short term, and so the focus should be on the process of continuous improvement and not a measure for comparison between countries and projects.
The HSAP is one of the major developments in the industry over the last few years, and one that can certainly benefit hydro developers. The Protocol is the result of intensive work from 2008 to 2010 by a multi-stakeholder body with representatives from social and environmental NGOs (Oxfam, The Nature Conservancy, Transparency International, WWF); governments (China, Germany, Iceland, Norway, Zambia); commercial and development banks (Equator Principles Financial Institutions Group, The World Bank); and the hydropower sector, represented by IHA.
The fact that the World Bank has reviewed the protocol and suggested it can help guide the development of hydro in developing countries is a great endorsement and highlights the importance of the tool.
Dam construction making a comeback in Australia?
New sites for water infrastructure projects, including dams, have been identified in the Australian Federal Governments new Agricultural Competitiveness Green Paper, which was published in October.
Chaired by Minister for Agriculture Barnaby Joyce, a ministerial working group outlined it recommendations for water infrastructure projects in the paper in a bid to help meet future water demands across Australia.
"Effective water infrastructure will be critical to the profitability and productivity of Australian agriculture into the future," Minister Joyce said. "Earlier this year I chaired a ministerial working group to identify how investment in dams and other water infrastructure could be accelerated and we shortlisted potential projects that can deliver Australia's water supply needs in the future.
"We have now done the hard yards and taken an important step towards stimulating the discussion about how we get viable projects moving," he added.
Minister Joyce said the working group consulted with states and territories to consider projects worthy of further investigation and consideration by governments. The group will also be consulting government, industry and local communities on the perceived barriers to water infrastructure development and exploring ways to facilitate investment in water infrastructure.
In total, 27 projects were identified for possible commonwealth involvement in the paper, including Wellington Dam Revival project in Western Australia, Needles Gap Dam in New South Wales, Burdekin Falls Dam and Connors River Dam in Queensland, Northern Dams Upgrade in South Australia and Adelaide River Dam in the Northern Territory.
In the November issue, we run an interesting feature which highlighted that an inquiry into the development of Northern Australia recommends that priority is given to the construction and upgrading of several dam projects. With Prime Minister Tony Abbott asserting that his government does not have a dam phobia, it looks as if dams are set to drive infrastructure development onwards and upwards in the country.
Renewables revolution
Statistics from the Energy Information Agency (EIA) in the US suggest that in 2014, non-hydro renewables - including solar, wind, geothermal and biomass power - are set to overtake hydro as the largest source of US renewable electricity generation for the first time.
Only a decade ago, US hydropower accounted for three times as much generation as non-hydro sources. It appears that, in particular, wind and solar power are driving the shift, fueled by government incentives and tax credits. At the same time, hydropower generation has been affected by lengthy droughts in arid states like California
"EIA projects that 2014 will be the first year in which annual nonhydro renewable generation surpasses annual hydropower generation," the agency said. According to its long-term outlook, "by 2040, nonhydro renewables are projected to provide more than twice as much generation as hydropower."
In 2013, non-hydro energy sources accounted for roughly 6.2% of all US electricity generation, while conventional hydropower supplied about 6.6% of the country's energy resources.
From September 2013 to April 2014, non-hydro was consecutively higher than hydro, although from May onwards, hydro has picked up and has been higher, although only slightly. This means that, if things go on as they are, non-hydro renewables will be higher overall. It will be interesting to see in January if those projections are correct, and whether hydro loses its long held crown.
An unviable option?
Earlier this year, a new study by the University of Oxford's Blavatnik School of Government and Said Business School suggested that large dams in a vast majority of cases are not economically viable, with construction costs on average +90% higher than their budgets at the time of approval, in real terms.
Published in Energy Policy Journal, the study - Should we build more large dams? The actual costs of hydropower megaproject development - is based on data from 245 large dams in 65 different countries, including Brazil, China, Ethiopia, Indonesia, and Pakistan. The study says that the magnitude of cost overruns has not declined over time, and cites examples including Itaipu dam and Belo Monte in Brazil.
Costs aside, the study also says mega-dams have long construction periods - 8.2 years on average and often more than 10 years, which can leave projects vulnerable to currency volatility, hyperinflation, political tensions, swings in water availability and electricity prices.
Report co-author Prof Bent Flyvberg says the research shows that as a general rule of thumb, many smaller, more flexible projects that can be built and go online quicker, and are more easily adapted to social and environmental concerns, are preferable to mega-dam projects and warns developing countries against embarking on major dam construction.
What really struck me about this story, and why I've included it here, is the industry's immediate and united response to the story. Industry banded together to refute the claims - in our May issue, industry stalwarts expressed their concerns about the study, questioning the methodology used and the subjective conclusions it makes. Adama Nombre, ICOLD President, for example, said the study focused on cost and time overrun without addressing the true challenges. He said the study sample was biased and unrepresentative - that fact that it was based on a sample of 245 dams, which appears as a total misrepresentation of the 50,000 large dams existing today.
This illustrated to me that the hydro sector is willing to stand up for itself, and can stand up to criticism.
Views from industry
"Biggest looks to be Brazil heading for recession, building Biggest hydro Belo Monte, best efficiency by IMPSA. 'B' is the word this year." Rupinder Sra, New Delhi, India
"The biggest news was the drought of 2014 in the Pacific Northwest - Vancouver Island. BC Hydro's records go back about 50 years, and for our water supply year that goes from October to September, the 2013/2014 water year was the driest on record for our Vancouver Island hydroelectric facilities. We somehow managed to keep ahead of it by being in water conservation mode since the fall of 2013, and were somehow able to keep key river fish habitat wetted for the salmon eggs and fry emergence life-cycle, and maintained adequate reservoir levels for summer recreation. There wasn't a lot of power generation on Vancouver Island and we relied on our provincial energy grid, that's designed to deal with situations like this, to keep the lights on for our Island customers. To go through four consecutive seasons and not have one storm of significance for water inflows into our Island reservoirs was unprecedented for the Wet Coast. Thankfully, the skies opened up in a big way in mid-October and things are now back to normal." Stephen Watson, Stakeholder Engagement and Communications, BC Hydro
"I think that in 2014 most people in the utility industry and regional electricity markets finally realized the significance of energy storage for future grid operations and that energy storage will have to play a key role for integration of larger share of variable renewables, such as wind and solar. The AB 2514 in California and the CPUC requirement for 1,325MW in energy storage capacity to be procured by three investor-owned utilities in California by 2020, is just the beginning. A news just came out that Oncor Electric utility in Texas will ask state regulators to spend $5.2 billion on energy storage to be able to better integrate variable resources into the grid. And this is just one utility in Texas. It shows that energy storage, will be very big and important component of the future grid. I see a role for all energy storage technologies, including PSH, batteries, CAES, flywheels, etc. In addition to supporting integration of variable renewables, energy storage will be essential in providing a number of ancillary services and other contributions to power system operation, as well as serve as enabler of various smart grid technologies." Vladimir Koritarov, Deputy Director, Center for Energy, Environmental, and Economic Systems Analysis , Energy Systems Division, Argonne National Laboratory
"Although there are a great many BIG Stories of 2014, one story that likely flew under the radar is the Larji Dam Tragedy in India where, on June 8, 2014, 24 promising, bright engineering students drowned when the local electric utility unexpectedly opened their spillway gates. This was a senseless incident that highlights the worldwide need for owners and operators of dams and hydroelectric power plants to have in place documented procedures for discharging water. The Canadian Dam Association in its publication CDA Guidelines of Public Safety Around Dams addresses these procedures which were developed in response to similar incidents long ago in Canada. ICOLD via its committee for Public Safety Around Dams is currently working on a worldwide set of guidelines that will help dam owners and the public to recognize the risk around these dams and to safeguard the public so they can continue to enjoy these great assets and the recreational opportunities they afford. For Worthington, this tragedy reinforced our resolve to increase our efforts help dam owners know about the many resources available to them such as those of the CDA.
There is a detailed article in the Fall 2014 Canadian Dam Association Bulletin that gives more details and photos of this terrible tragedy." Paul S. Meeks, President, Worthington Products, Inc.
"Having been in post as BHA CEO now for just under 12 months, the main issue for us and our members during the year has to be the continued and significant problems created by the link between pre-accreditation and the degression trigger within the FiT scheme. We have been discussing this with DECC on what seems like a daily basis for the best part of the year and the frustration it has caused, in being unable to find a way forward with the support of DECC continues to cause the sector not only a great deal of concern, but it will hinder future development, which is precisely the opposite of what the FiT scheme was intended to do.
The increase by over 1000% in the cost of an abstraction licence in England was met with disbelief, continues to be concern and is a major hurdle for the smaller, potential hydro developers, a proposal by NRW to implement a similar increase in April 2015 is being fought from the very outset and the possible effect on hydro schemes through the implementation of the European Eel regulation in England is being vigorously addressed by the Association.
All of these issues are problematic in themselves, but cumulatively they have taken up significant chunks of BHA and members time. This is of course without mentioning the forthcoming 2017 business rates review for hydro or the problems with Grid connectivity....." Simon Hamlyn, Chief Executive Officer, British Hydropower Association
"The continued flooding in the early part of 2014 has caused many authorities to look at flood defence structures and re-evaluate their reliability and effectiveness. ECS Engineering has been involved in the repair, refurbishment and replacement of several large water control structures this year in order to deliver improved performance and safer working conditions for engineers. The Environment Agency has certainly heightened its commitment to improve many flood defence structures in an effort to reduce the number of people affected by flooding." Jamie Wesley, Commercial Manager - Water Control Division, ECS Engineering Services Ltd
