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Brattle: Hydropower could make more money with market tweaks, upgrades

Hydropower is undervalued in electricity markets today, but its value could be enhanced by 200% to 500% if some changes are made, according to a new report by The Brattle Group. Among other things, the March 29 report found that hydropower could make significantly more in net revenues with different bidding and dispatch practices combined with equipment upgrades that allow faster response times.

To illustrate the point, Brattle examined a case study of an unnamed hydropower plant in a region overseen by a regional transmission organization. Brattle found that a pumped-storage hydropower project — one that uses a reservoir to store and release water to produce electricity at chosen times — could increase its revenues to $30/kW-year from $10/kW-year with optimized market bidding and scheduling practices alone. Equipment upgrades that would allow the plant to switch its modes of operation faster than before would provide an additional $14/kW-year in value for the plant, for a combined total possible value of $44/kW-year.

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Regional markets currently are designed to reward resources that can be flexible and help the grid stay resilient amid fluctuations in renewable power supplies and changing customer expectations.

"Together with battery deployment, increasing the operational flexibility of hydro resources will be a low-hanging fruit to help address growing flexibility needs in some regions," the report said.

The Brattle report also suggested that hydropower largely has been ignored amid market changes aimed at promoting resources with more flexible attributes.

While hydropower projects can make more money "simply by optimizing how the resources are bid" into markets, "capturing the full value stream may require some modifications to the [regional transmission organization's] existing market rules as well as improvements in the scheduling optimization procedures used by the plant owners," Pablo Ruiz, a Brattle senior consultant and study co-author, said in a statement.

The Brattle report also found that heavily used transmission lines may not always have the space to carry the power from hydro projects to customers. Advanced transmission technologies can increase the transferability of lines by up to 10% in the PJM Interconnection, the report said.

The Trump administration has placed a strong emphasis on improving grid resilience and has been looking for avenues to prop up financially ailing coal-fired and nuclear power projects that have become uneconomic in the face of low natural gas prices. The U.S. Department of Energy in September 2017 proposed that the Federal Energy Regulatory Commission direct markets to pay certain generators extra for keeping a 90-day fuel supply on-site. But the commission rejected that request and instead opened a new docket to review the issue of resilience more broadly.

Many of the arguments both the administration and the owners of struggling projects have made center around the idea that the power grid needs those resources to keep the lights on. But environmental groups and others contend the system is correctly designed to run the most economic plants, no near-term resilience problem exists, and regional grid operators have long-term planning processes in place to ensure they can handle any plant closures.

However, one day after saying it would close all three of its nuclear plants in PJM, FirstEnergy Solutions Corp. on March 29 asked the DOE to issue an emergency order that would require PJM to provide extra compensation for at-risk coal-fired and nuclear power plants within its control area. A DOE official in February said the agency had no intention of using its emergency authority to prop up uneconomic generation.