I am on a hunt for cheap energy. If we systematically catalog all the places in the world with the cheapest power, two broad categories emerge: Either energy costs are low because of some form of state subsidy that keeps them artificially low, or electricity is produced from large, legacy power plants that are usually (but not always) hydroelectric. The “legacy” part of this really matters. That’s because all of the debt associated with building the project has long been paid off, and is no longer included in the rates customers pay. In Alaska, the most recent entry in the “legacy” club is Bradley Lake — which, at less than 5 cents per kilowatt-hour, is now the cheapest source of power on the Railbelt. This contrasts markedly with the fact that it was the most expensive power on the grid when it first became operational in 1991, after five years of construction, and decades after it was first proposed.
The Pacific Northwest is a region that has benefited from large hydropower for the better part of a century. Construction of hydroelectric dams in the Columbia River Basin began in the 1930s. As part of the “New Deal” designed to pull America out of the Great Depression, President Franklin Roosevelt strongly advocated for the construction of hydroelectric dams in many of the nation’s river basins to provide electricity to rural residents and businesses, irrigate farms and provide jobs during construction. Our national ethos in this era was still “harnessing nature for the benefit of mankind,” a continuation of the railroad expansion and rapid industrialization that occurred in the decades after the Civil War. As such, no one was particularly concerned about the impact to fish and other aquatic species. Access to cheap electricity was the policy du jour, expected to serve the same function that access to land had during the settlement of the American West — providing the foundation for wealth and a utopian civic society.
The Grand Coulee Dam was considered the crown jewel of these public works projects. The dam was first proposed as a massive land reclamation project that would irrigate over one million fertile, but arid, acres of the Columbia Basin. Although there was not much local energy demand at the time of conception, electricity generation was seen as an important revenue stream. Proponents of the project believed in the adage, “If we build it, they will come.”
And industry did come, lured west by cheap and abundant power and accelerated by the outbreak of World War II and the resultant military/industrial demand for aluminum and vast fleets of aircraft to feed the Allied air forces. Industry quickly absorbed all the power the massive hydroelectric projects could produce. And this created a new problem. By the 1960s, all the dam sites in the region had been exploited and the region had to turn to other forms of energy to meet demand, including coal and nuclear.
Incidentally, industry’s hunger for cheap power also extended to the north, with several megaprojects proposed in both Alaska and the Yukon Territory in Canada. These projects included the Rampart Dam on the Yukon River, which, if constructed, would have flooded an area the size of Lake Erie. But by this time, the ecological and environmental damage from large dams plugging waterways was becoming harder to ignore, and ultimately the project was scrapped.
Today, a new challenge for Pacific Northwest hydropower is emerging. With the trend toward deregulation and opening up energy markets, hydroelectric no longer represents the cheapest source of generation on wholesale markets. Low natural gas prices, driven by advancements made a decade ago through hydraulic fracturing, have resulted in gas becoming the second-largest energy source in the region.
And, since 2010, wind development in the region has increased significantly, complementing huge increases in solar energy in the U.S. Southwest. Both are buoyed by renewable energy policies adopted in many states across the west, coupled with federal tax credits. For a while, developers could offer wind and solar at incredibly cheap prices — as low as 2-4 cents per kilowatt-hour, though that is now trending back upward with inflation. As a result of cheap renewables flooding the market, wholesale market prices have trended downward over the past few years. At the same time, hydropower’s firm power prices have been inching up, partly due to costs associated with reclamation and improved environmental stewardship.
It’s not completely fair to attempt an apples-to-apples comparison of different energy sources on the wholesale market, because some of the attributes of power produced from a source like hydroelectric are not reflected in the price structure. Most notably, storage hydropower is reliable, baseload power, meaning that it can be dispatched to the grid on an as-needed basis. Water (and hence power) in excess of current demand can be kept in the reservoir to meet later demand. This means that hydropower’s inherent flexibility is valuable beyond the simple value of the energy fed onto the grid.
Nonetheless, the growing divergence between wholesale energy prices poses a problem for the managers of hydroelectric assets. Retail utilities are less interested in entering into long-term contracts for hydropower, because they have an economic incentive to rely on short-term market purchases from “cheaper” sources of energy. Ultimately, this will all require some redesign of energy markets to better recognize the additional value of flexibility that hydroelectric power provides. And this value is growing fast as the proportion of variable renewables increases everywhere.
So, what does this mean for Alaska? Hydroelectric power may be as close as we ever get to perpetual motion, with the sun doing all the work of moving water from a low elevation to a higher one in the form of rain or snowfall. And hydro that has a light environmental footprint — like the dozens of well-designed run-of-river systems in Alaska — is really tough to beat. But just like any form of energy, the cost is very contextual and hydropower does not necessarily equate to cheap power. Now that the environmental impacts are more fully understood, permitting and costs are significantly higher than they were when the Grand Coulee dam was constructed. This also means the potential for litigation and licensing delays is high for new projects. And there are unknowns around construction costs, inflation and current labor markets.
“Modern” Alaska has its own case studies of long-lead big hydro challenges. Twice the state has embarked on Susitna hydro, in the 1980s and the 2010s. Neither effort came to fruition, and both faced familiar challenges of a slow project trying to maintain relevance in a quickly changing market. Ten years ago, expected delivered costs for power from the Susitna hydroelectric project ranged from 12 to 18 cents per kilowatt-hour, which equates to about 15-22 cents per kilowatt-hour in today’s dollars. Can we do better than that today? Probably. Do we have many options that can replicate the reliability and flexibility of hydro? Probably not.
Looking back on the unparalleled advances of the 20th century, when societies advanced from technologies and constructs that were still broadly familiar to our ancestors of 1,000 years ago to the high-tech, electrified, and fundamentally transformed society of the early 21 century, what themes and lessons emerge? Here are my five basic takeaways:
1. The cost of paid-off hydro is hard to beat.
2. Environmentally sustainable hydro is something we have learned how to do.
3. Renewables like wind and solar are not going away and have real value in the energy matrix.
4. In the time scales we are dealing with (decades), still-emerging technologies merit consideration. Nuclear, tidal and others have the potential to be just as disruptive as wind and solar have been. Some day. Maybe.
5. No one has a crystal ball. Preserving optionality, flexibility and diversity in supply is a smart strategy given future uncertainties. In other words, it is better to curate a portfolio of options rather than place a straight bet on any single technology.
Gwen Holdmann is a Senior Researcher at the Alaska Center for Energy and Power and the University of Alaska Fairbanks’ Associate Vice Chancellor for Research, Innovation & Industry Partnerships
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