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The Economics of Low-Head Dams
How they can generate green energy and improve a municipality’s bottom line.
Federal incentive payment of 1.8 cents/kWh for the generation of renewable energy—part of The Energy Policy Act of 2005 (EPACT)—increases the economic attractiveness of many potential hydro sites, and, as a consequence, could revive the building of low-head dams.
Many rural areas have existing low-head dams constructed in the early 1900s. Refurbishing these old assets could bring in increased revenues by generation of hydroelectric energy and used by the municipal governments and others. Any excess energy from the hydroelectric power plant would be sold to the existing grid system currently supplying power to the surrounding area.
With today’s high cost of electricity, a small community could find this hydroelectric generation attractive. Thus, utility executives, citizens, environmental groups, politicians, and commercial companies recently have expressed interest in low-head dams. This is particularly true for municipalities that abandoned hydropower generation in the 1950s.
Small-scale power plants have an electrical capacity of less than 15 MW; low-head dams have a dam height of less than 65.6 feet.
A typical existing low-head dam facility for potential refurbishment—the Nashua Mill Dam and Powerhouse, in Nashua, Iowa—is pictured.
A $2.675 million project—including generating equipment, controls, switchgear, transmission line, transformers, and an upgrade to the existing dam—would consist of one turbine and a capacity of 600 MW. The design flow is 416 cubic feet per second and the design head is 17 feet.
This run-of-the-river facility would exist on the Cedar River in Iowa and would generate an average of about 3,966,700 kWh/year of electricity, based upon a 20-year flow curve. 1 We estimate maintenance and operating costs at $9,917/year because the facility is considered integrated with the existing city municipal operations.
The current purchase price of electricity for the municipal government use has an average value of 5.94 cents/kWh, with capital at a cost of 5.75 percent interest, including the cost of financing and insurance for 20 years. This amounts to $226,800 per year for the capital cost of the project. We escalated revenues and expenditures at 2 percent per year, and included a capital reserve of $12,500 per year at a fixed value, since it is considered to be in an interest-bearing account.
Analysis of Dollars and Sense
Revenue to the hydro facility comes through the city’s purchase of electrical energy at 5.94 cents/kWh, which is the current purchase price of energy from the utility company. Additional cash flow results when excess energy is generated beyond the needs of the local city government and sold to the existing utility company at 4.5 cents/kWh. A federal incentive payment made under EPACT provides for a cash flow of 1.8 cents/kWh
