A River runs through it
Canadian Hydro Developers Inc. is proving that
smaller run-of-river hydro developments, like its recently completed
Upper Mamquam project, have a place in the alternative energy
spectrum.
By Tony Kryzanowski
A downturn in the energy business in the mid-1980s
spurred two Canadian entrepreneurs involved in oil and gas
exploration to hitch their wagon to renewable energy and the
development of smaller hydroelectric power projects and other
alternative energy projects instead. It seems that taking that risk
was definitely well-timed and worth it.
John and Ross Keating—the former a chartered
accountant and the latter an electrical engineer—founded Canadian
Hydro Developers, Inc. after energy prices went south, along with
oilpatch activity. John says it seemed like a more viable business
than the energy industry.
Their very first project featured run-of-river
technology tied into the extensive irrigation water works
constructed in southern Alberta, Canada.
"We were unique, and people didn’t really understand
what we were doing on our first project," says John Keating. "But it
was our intent, certainly, to develop a long-term sustainable
business model and I think we have accomplished that."
The company’s first run-of-river irrigation project
cost $3 million, and it took a lot of time to navigate through the
red tape within a regulated electrical power generation environment.
The company later sold a 50 percent interest in the project for $2.5
million.
"I thought, well, that’s pretty good," says Keating.
"We almost got our money back and still had half an interest in the
plant."
The company’s business plan to pursue smaller power
projects based on renewable energy sources progressed slowly through
the 1990s. But things really took off when power brownouts and
blackouts started occurring regularly in the summer of 2000 in
heavily populated areas like California, due to a shortage of
electricity.
"It showed what can happen to power prices if supply
is not maintained properly," says Keating.
Canadian Hydro Developers’ 25-megawatt Upper Mamquam project near Squamish, British
Columbia has been certified as a Green Power facility. The
company has a 20-year agreement to supply power generated at the
plant to BC Hydro.
Today, Canadian Hydro Developers is said to be
unique with its varied portfolio in renewable energy projects. A
publicly traded company with a market capitalization of about $850
million, the company now fully owns or has a partnership in 12
water-based power plants, six wind power plants, and one biomass
power plant. The facilities are located in the Canadian provinces of
Ontario, Alberta and British Columbia. The company also has five
water-based and two large wind power projects on the drawing board.
Unlike other small hydro developers, Canadian Hydro
Developers never had the intention of leveraging its projects to the
hilt, producing three or four projects, and then profiting from
being bought out by someone larger. It prefers to have 100 percent
ownership—16 of its 19 projects are wholly-owned. It also typically
operates on a 65 percent debt to 35 percent equity ratio on a
construction project.
"What this means is that when we build a plant, even
if we have the worst hydrology years or the worst wind years in
terms of historical records, the project will stay afloat," says
Keating. "I think we have an exceptionally strong business model.
Smaller independent power producers or aspiring independent power
producers will quite often refer to us as the ideal case."
Being headquartered in Calgary, Alberta, home to one
of North America’s largest concentrations of oil and gas company
head offices, has benefited the company. "We are in the energy
business," says Keating. "I don’t see electricity generation from
renewable sources as being any different from gas production,
because natural gas is only good if you burn it to create either
heat or electricity. With our fuel sources being wind, water and
wood waste, these are natural sources, but the end product is the
same. It’s energy."
He points out, however, that there is a distinct
cost advantage to using renewable energy sources to generate power
versus fossil fuels.
"Renewables do not have a fuel consumption cost," he
says. "The fact that we have no fuel input costs means that our
gross margins are very large.
"We can sign a contract with the longevity of a
hydro plant, for as long as 50 years. You will not find a coal-fired
plant capable of doing that."
Canadian Hydro Developers’ most recent project was
the commissioning of the 25-megawatt (MW) Upper Mamquam
Hydroelectric Plant near Squamish, British Columbia at a cost of $33
million U.S. The company has a 20-year agreement to supply power
generated at the plant to provincially-owned BC Hydro. The project
features run-of-river technology, which Keating describes as,
"beautiful technology that has been around forever." Essentially, it
starts with the selection of a watercourse that has a steep vertical
drop over a short distance. A portion of the water is diverted
through a pipeline and the force of gravity pushes the water past a
set of blades that turn a shaft on a power generator.
"It’s very simple technology," says Keating.
Development of smaller hydroelectric projects based on this
technology is essentially a throwback to how power was typically
generated at the turn of the last century.
"Projects in those days were built to provide power
to a local community or industry like a sawmill," says Keating. "Now
we have electric grid everywhere. So when we put a project on line,
it just goes into the grid as opposed to serving a local community."
Over time, smaller projects like these became less
popular as large megaprojects built and operated by government-owned
utilities gained favor with politicians because of their political
appeal. Projects like the Hoover Dam in Nevada and James Bay in
Quebec are examples of those types of projects.
However, two shifts in government policy have worked
to Canadian Hydro Developers’ advantage. The first is a program
launched by the Alberta government in 1988 called the Small Power
Research and Development Act. It required the locally regulated
power utility to buy independently produced power at legislated
rates that were designed to approximate their replacement cost if
the utility were to have built a facility themselves.
It functioned like an incubator for renewable power
projects. The market for renewable power really spiked when
deregulation of wholesale electric power production occurred in
January, 1996. Today, Alberta is the only Canadian province that
does not own a utility, in an environment of deregulated retail and
wholesale power marketing.
Water flows over the intake weir at the Upper Mamquam project and guests
tour the powerhouse at Upper Mamquam (inset photo).
The second shift in government policy since the turn
of the millennium has come about as a result of the public’s greater
concern for the environment. Recognizing the winds of change, the
environment has now become a political priority. According to
Keating, both large utilities and governments now want more
renewable power capacity put in place, in response to consumer
demand, As a case in point, the Upper Mamquam project is certified
as a Green Power facility under the Environmental Choice Ecologo
program, which requires that projects use a renewable resource, and
be environmentally and socially responsible.
Keating says that run-of-river hydroelectric
projects have a lower impact on the environment than traditional
hydroelectric projects. That’s because they do not require dams,
rely on the natural downward flow of the stream, and only divert a
portion of the river flow. The Mamquam project begins upstream of a
15-meter waterfall on the Mamquam River. The distance from the water
intake to the powerhouse of the Upper Mamquam Hydroelectric Project
is 1.7 kilometers, or about a mile. At full flow, 513 million
gallons of water per day pass through the turbines
"A lot of studies go into in-stream flows and
acquiring a water license that allows for a portion of the stream
flow to be diverted while maintaining in-stream flow to maintain the
aquatic life," he says. "Not all watercourses have fish." In
situations where there are fish, smaller hole sizing on the trash
rack prevents larger fish from entering the intake.
Besides stream flow and the drop in elevation from
the intake pipe to the power house, other factors taken into
consideration when evaluating a possible run-of-river project
include the project’s proximity to tie into the power grid and
whether there is room on the distribution line. The Mamquam project
required Canadian Hydro Developers to gain permission from the
Squamish First Nation to run a transmission line across their
property to tie into the provincial grid. Keating says those
negotiations were very successful.
There is much more potential for run-of-river
project development in Canada than in the United States, says
Keating, where somewhere in the neighborhood of 700 projects already
exist. He says that’s because of the larger population in the U.S.
and the need for greater power demand at an earlier stage of
development.
That doesn’t necessarily mean that the potential for
more projects doesn’t exist, but it is more difficult to find the
right infrastructure to produce a viable run-of-river project in the
U.S. However Canada, particularly northern Canada, is another story
entirely. The power grid is still developing as one travels further
north and there are many potential watercourses that would lend
themselves to installation of this type of technology.
Canadian Hydro Developers has shown, of course, that
is also possible to use run-of-river technology on irrigation
systems. In fact, there are certain economic advantages to investing
in this environment versus a typical mountainous locale where a
river undergoes a steep drop. "If you are on the prairie and it’s an
irrigation structure, chances are it’s pretty simple, because you
are not having to build too many roads or take too many trees down,"
says Keating.
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