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The Economics of Low-Head Dams

How they can generate green energy and improve a municipality’s bottom line.

Fortnightly Magazine - December 2005

for renewable energy generated by the hydro facility. Green tags for the generation of green energy are considered to have a market value of 1 cent/kWh.

As a result of these revenues, a positive cash flow of $47,142 begins at year one and increases to $81,356 at year 10. Federal incentive payments from EPACT end at year 10. Even with no federal incentive payments for generation of renewable energy, the project continues to generate positive cash flow. After year 20, the bond has been paid so as to generate a positive cash flow of about $241,000/year for the life of the physical plant—typically another 30 years.

When financing over 30 years, the positive cash flow amounts to about twice the amount for 20 years, but much more interest is paid out for the life of the project. For example, the financing expenditures (bond + insurance + interest) for 30 years would be $188,164/year compared with the previous 20 years’ financing amount of $226,800/year. Using the 30-year amortization, positive cash flow to the city for these years would be: year one, $85,778; year five, $100,234; year 10, $119,992. In comparison, the 20-year amortization for these years is: year one, $47,142; year five, $61,598; year 10, $81,356.

The financial discussions above incorporate capital costs for new equipment. If used equipment is considered, a capital savings initially is realized, and the corresponding cash flow with 20-year amortization for year one is $86,482. (Note that the cash flow for year one with new equipment was $47,142.)

The use of used equipment reduced capital investment by 17.4 percent. A word of caution, however: The “used” equipment case may not realize the full economics due to possible lower energy generation efficiencies, reduced onstream time, and higher operating and maintenance costs.

The Nashua case illustrates the importance of selling “excess” power—the amount of electrical energy produced from the hydro facility above the city’s usage per year from the hydro facility—to a grid system. If this excess power is sold at 4.5 cents/kWh to the grid system, cash flow to the city and hydro-facility is attractive.



1. Sinclair, David, “Private Communications,” Advanced Hydro Solutions, LLP, 2004.