Its contribution to peaking power and ability to complement base load plants are just two of hydro power’s valuable characteristics, making it an important player in any nation’s electric grid. Although such attributes of hydro are fully acknowledged by those in the industry, many outside have little appreciation of this power source’s unique and often unseen electrical benefits.

William Coley is the group president of Duke Power in the US. He is more than aware of the valuable role hydro power plays in the electric grid. Duke Power serves over 2M customers throughout 32,000km2 in North and South Carolina. A well known nuclear generator with its three nuclear power stations, Duke also has 29 conventional hydro units and two pumped storage units.

‘We have a capacity of more than 19,000MW,’ Coley explains, ‘and only 2700MW of this is hydro power. This is a fairly small proportion of hydro but it is extremely important to the operation of our system and to provide service to the people of Carolina.’ Over the years the company’s emphasis on hydro has changed. When it was founded at the turn of the 1900s it was 100% hydro-based. But as ideal sites along the Catawba chain and within Duke’s service area were utilised, compounded by the experience of several years of drought, the company built its first steam electric station in the 1920s. This was soon followed by the construction of additional fossil and nuclear plants.

So how does hydro fit into Duke Power’s portfolio? Coley says that 15-25% of peaking demand is met by hydro when the margins are greatest. He marvels about the instant response hydroelectric units can provide, giving the example of a 2000MW fluctuation which hydro compensated for in less than two hours.

‘Pumped storage is just marvellous in meeting large step changes in load in our system,’ Duke’s group president adds. ‘One of our 615MW pumped storage plants has been able to move from full pumping to full generation in just minutes. So these assets are highly valuable, especially as we have large nuclear and fossil units and need to compensate for any outages we may experience.’ Another attribute of hydro is its capability to smooth loads. Coley gave one example of a 7765MW trough between minimum and maximum load. Over 4400MW of swing can be accommodated by Duke Power’s conventional hydro and pumped storage units, meaning that just over 3300MW had to be accounted for by fossil plants.

A successful partnership

‘There is great synergy between nuclear generation and pumped storage,’ says Coley. He spoke about an incident several years ago when at the weekend the minimum system load on the Duke system was actually less than the maximum load on its nuclear units. So this would normally mean that the company would have to decrease load on the nuclear units, and also bring fossil units off line, which can be expensive and create maintenance problems over a long period due to stresses and thermal cycling.

But with its pumped storage Duke was able to pump with the nuclear energy when the load was low, keeping the nuclear units operating at 100% output. Nuclear units are most reliable and efficient when at full output and reliability is enhanced at a constant load. It is also more economic — each time loads are changed on such a unit low level waste is produced which must be processed and disposed of, both of which are costly. ‘Pumped storage enables us to operate our nuclear units at a full and constant load,’ says Coley.

Another benefit derived from the synergy between pumped storage and nuclear generation is a commercial one. The pumping to generating ratio of pumped storage means it is good to use nuclear energy to pump up the reservoir, providing pumped storage energy available for sale or use in Duke’s own systems during peaking. ‘We believe it is highly important to keep nuclear and hydro power coupled together as we consider the deregulated power market,’ Coley says. ‘There are many benefits to having hydro in the system. Spinning reserve, its responsiveness, regulation and voltage control are among a whole host of others. Many of these are unacknowledged and underappreciated in today’s market. This means that hydro power has a unique value in restructured markets. The only question is, can you translate operating value into economic value?’

Reacting to energy prices

Robert Hiney is the executive vice president of project operations for the New York Power Authority (NYPA). The authority has over 7000MW of capacity. Hydro comprises 4270MW of this (a large proportion of which is pumped storage). The rest is almost entirely thermal.

Late in 1999 the New York independent system operator (ISO) replaced the New York power pool. The operational control of transmission systems was turned over to ISO and separate markets established for installed capacity, energy and ancillary services. The energy market is a day ahead market with binding forward contracts to sell power on an hourly basis the next day. There is also a real time balancing market where every five minutes prices are calculated. This is highly autonomous and internet-based.

Hiney says that as a hydro generator the deregulation and unbundling of generation services, as well as the increased price visibility of an internet type market, produces significant benefits for NYPA. ‘We operate in a largely thermal market and this could be one of the best things to happen to hydro,’ he says about deregulation. ‘There can now be formal recognition through the market of services that have been taken for granted in the past. Hydro is better suited than thermal to supply most ancillary services. Hydro’s niche is in raising and lowering generation quickly; lumbering steam units and even gas are not very flexible in comparison.’ In a deregulated market hydro can respond quickly to volatile energy prices. Hiney says that it is not at all unusual to have a ten-fold increase in the price of energy in one five-minute interval to the next. As transmission congestion eases or kicks in, prices will dramatically change.

‘There’s no limit to how low prices can go,’ says Hiney. ‘It doesn’t stop at zero. The NY ISO is very serious about achieving good control performance. It is a major reliability indicator to match your generation and load. What the ISO will do is go as far up or down the supply curve as it has to, in order to match generation and load. It does not stop at zero.’ For a pumped storage operator Hiney says it does not get any better if the price is negative in off peak hours and you want to pump. ‘Increased price visibility enables pumped storage to capture the value between on and off peak energy prices more efficiently. The characteristic of being able to respond fast is a very valuable attribute of hydro,’ he says.

However, Stephen Oliver from Bonneville Power Administration (BPA) believes that hydro has to step up and take some responsibility for contributing to the volatility of power price markets. ‘In the US, on our federal systems alone, we can have as much as a 44M MWh/yr difference in generation when moving from critical water to very wet conditions. This is an average difference in generation of 5000MW,’ he says.

Oliver goes on to add that the hydro systems in British Columbia, Canada, and North California can compound the effects of this. The difference between dry and wet conditions dramatically changes the underlying market price and availability of surplus power. The shape of hydro can really impact the market if there is a cool spring and late run-off, or warm spring and very rapid run-off.

‘The nature of the hydro system does add to market volatility,’ he believes. ‘But there are great benefits to hydro. These include its real time flexibility to meet different situations in terms of reliability in the market place. Hydro can react and operate very rapidly to meet several hours of super peak critical circumstances during the summer or winter.’ He adds that if BPA loses a large generator or a transmission line it is very rare for pumped storage or conventional hydro plants not to be a major part of the response. Hiney says he believes that without hydro, prices would be bouncing around a lot more than they are now. His view is that hydro’s fast response actually reduces price volatility considerably.

A banker’s view

‘Hydro power is one of the most agile resources capable of participating in a deregulated and restructured energy market,’ Charles Trabandt from the Merill Lynch investment bank says. ‘Hydro stacks up very well in a deregulated market place. In the generation asset auctions that we have been to, whenever hydro is involved, there is great interest in the acquisition of these assets.’ Michael Costello, chief executive officer of BC Hydro in Canada, agrees. ‘My view is that with 34,000GWh of hydro potential in our reservoirs it is a great time to be a hydro generation owner.’ BC Hydro is 97% hydro-based. It is the third largest hydro utility in North America and has the third lowest consumer tariff and prices in the same region. BC Hydro’s system is a winter peaking system of 11,000MW which serves 1.6M customers. The utility was the first in Canada to receive a power marketing licence from the Federal Energy Regulatory Commission in 1997, and now about half of its income comes from electricity trading.

‘Our hydro facilities and dams were built decades ago and today they add tremendous value to the wholesale power market,’ says Costello. ‘Energy is bought and sold in these reservoirs seasonally, daily and hourly. This is a capability that would never have been dreamt of when these dams and reservoirs were first built.’ Costello adds that the hydro facilities create many challenges for BC Hydro in today’s market. ‘Optimisation of the system is a fine balancing act between physical operations and limits, environmental and resource limits and new market opportunities. Balancing all of these is something that we have to deal with every day. But that is what makes our business so interesting,’ says Costello.

Maintenance issues

Balancing physical operations and limits gives greater importance to maintenance issues, especially when hydro power can play such a valuable role in the electric grid of a deregulated market place. Hiney says that everything related to maintenance practices needs to be re-evaluated. ‘We find ourselves with more starts and stops and so we must anticipate changes to the maintenance of unit circuit breakers, wicket gates and servomotors etc. These must be addressed,’ he said.

‘We had water management practices at NYPA that served us well for 40 or so years. But as soon as we got into a new market we could see ways to improve things in our maintenance strategy — we had to reduce wear and tear on our generating units when stopping and starting. As we all know,’ says Hiney, ‘the consequences of unscheduled outages can be very severe. I feel that the more plant operators and maintenance personnel know about and understand this energy market, the better it will be.

If they learn the rules they can figure it out faster than the traders will.

It is too complex to leave it all to the power marketers.’

Competing interests

Hydro power has many competing interests, and to some extent its role within the electric grid is heavily influenced by this. Stephen Oliver works at BPA which is 80% hydro-based with 29 hydroelectric dams. He speaks about the trade-offs that exist for hydro in the US.

‘Our systems operations are heavily guided by fish mitigation commitments, against the fact that the West Coast is very short of power supply at the moment.’ Oliver stresses that fish protection measures are very important but that in the future we will frequently see conflicts between meeting fish obligations, and the need to meet system reliability throughout the western US. ‘It will pit to some degree fish interests against public health and safety and reliability issues,’ he says.

This is demonstrated by the Snake river dams. These four dams, which provide 3500MW of power, are under investigation, and may possibly be facing removal. ‘We believe that the cost of breaching is significant,’ says Oliver. ‘The cost is not only significant in terms of the actual removal process, but in terms of replacing the power with alternative generation sources. This will also affect the transfer and transmission capabilities between the northwestern US states and the southern regions of the country, unless alternative power generation is located at these same sites.’ So how can you resolve such competing interests to safeguard hydro’s valuable contribution to the electric grid? Bill Coley from Duke Power explains that it is not easy. ‘We, like many hydro owners, find ourselves embroiled in a host of issues. For example we are urged to maintain constant reservoir levels during fish farming seasons, but those interested in fisheries and navigation below the reservoir want minimum flows. In this business we will continue to face unreasonable conflict. It will become increasingly difficult to get agreement between these opposing views.

‘In the future I think we may well face the choice of — do you have adequate electricity to supply customers versus do you have fish protection? I think it will be interesting to see the dynamics come into play then,’ he says. ‘How will decisions be made? Who will win then? The fish or the consumer?’ The problem of balancing fish and recreational requirements against operational system requirements, is a complex one. Power shortages are not uncommon in the US. As the national-hydropower-association (NHA) states, the Pacific Northwest faces a one-in-four chance of power shortages over the next four years. An early heat wave in spring this year sent utilities in the Northwest, mid-Atlantic and Midwest scrambling to find additional generation. Indeed in August 1996 widespread outages occurred in the western US. Voltage collapse was central to this problem but as fish passage requirements constrained the operation of a large hydroelectric plant in the Northwest, the problem was exacerbated by a lack of reactive power. The failure to add reactive power led to the automatic disconnection of the western power system from large areas of service territories in Canada, California and Mexico.

NHA acknowledges that threatened wildlife must be protected but the consequences of restricting hydro power in the grid must be fully understood. ‘When we restrict hydroelectric operations,’ it states, ‘we don’t just lose power to the grid, we lose operational flexibility and a measure of grid stability.’

Relicensing restrictions

It is becoming clear that hydro power relicensing in the US, specifically through environmental mitigation measures imposed on many licences, is restricting operational flexibility and the loss of peak power operations. According to the US Department of Energy, during 1987-97 nearly 10% of hydroelectric peaking capacity was lost during project relicensing. ‘I believe that relicensing is critical,’ Coley says. ‘We must absolutely find a way forward. Relicensing, coupled with deregulation, will determine whether hydro is of value in the future. I find it extraordinary that we recently relicensed three large nuclear units at Duke Power and extended their operating licences for 20 years. We did this in less then two years. If we can do the same with hydro it will be a monumental accomplishment.’ Costello explained how BC Hydro has water-use plans which are part of relicensing and have proved to be successful. In advance of relicensing hydro plants all interested parties (plant operators, fish concerns, tribes, regulators etc) take several months to agree a deal on water-use plans which are then turned over to the water regulator for its blessing. Costello says that in one or two cases adjusted flows have actually led to a win/win situation where all parties were happier than they were before.

‘This is a nice anecdote,’ Costello admits, ‘and it certainly can not be replicated everywhere. But it shows it is possible to have a process where we can work to minimise the impact on generation capabilities.’ Relicensing restrictions on hydro’s role within the grid have economic implications. Coley says that Duke Power has hydro units which represent value to the company, the shareholders and its customers. But relicensing can erode the value of these assets. ‘Our objective is to get through relicensing so we have assets of a positive value that can be used flexibly to serve our customers and the industry,’ says Coley.

These examples from the US clearly illustrate hydro power’s unique characteristics which can be so valuable in the grid. Its speed, flexibility and responsiveness make it stand out from the crowd — a crowd of slower, more rigid generation sources.

The benefits of hydro power are rarely given as much publicity as the adverse environmental impacts hydro plants and dams can have. Perhaps this is a wake up call for the industry — environmental protection and mitigation measures are vitally important, but so is the reliable provision of electric power. As William Coley from Duke Power asks, will it be a different scenario if consumers were faced with the choice between saving the salmon, or having electricity in their homes at the flick of a switch?