Hydropower Burnishes Climate Credentials in Push for Tax Credit

Hydropower producers and some environmentalists are joining forces to push lawmakers to agree to a 30% investment tax credit to upgrade hundreds of aging dams—a policy they say would back hydropower as a next-generation clean energy resource.

So far, lawmakers have come up short in putting hydropower on a “level playing field” with other non-emitting power resources such as wind, solar and nuclear, said Alicia Barton, CEO of FirstLight Power, a Massachusetts-based company operating a dozen hydropower facilities in New England.

The House-passed version of the Build Back Better, the $2 trillion climate and social spending legislation advanced by Democrats, dropped such a tax credit, which the industry could apply to environmental and dam safety investments.

The Senate is in the final stretch this week of reviewing the legislation, with all eyes on Sen. Ron Wyden (D-Ore.), chairman of the Senate Finance Committee, which oversees tax issues in the chamber, and Sen. Maria Cantwell (D-Wash.), who has advocated for the credit.

Wyden wouldn’t speculate Wednesday about whether the credit would make it into the bill.

“Senator Cantwell and I in particular feel very strongly about this thing, very much consistent with clean energy,” Wyden said. “We have championed it repeatedly for both the Finance Committee and the Energy Committee, and we’re going to continue to do it.”

Senate supporters of hydropower lobbied the House Ways and Means Committee to include the tax credit along with other measures in the Build Back Better plan but came up empty, according to a Senate aide who spoke on background to describe negotiations. That aide added the tax credit is “still under active discussion.”

“Supporting our nation’s existing hydropower system is an important investment in maintain affordable electricity rates, balancing water needs across the West, and addressing the climate crisis,” Cantwell (D-Wash.) said in a statement to Bloomberg Law. Spokespeople for the Ways and Means Committee didn’t return requests for comment.

Barton said she’s worried that hydropower has been “somewhat left out as the individual pieces have come together. We can’t afford to take a single step backward when it comes to the installed baseline of zero-emission resources.”

‘Once-in-a-Generation’

The debate over hydropower comes amid a split among Democrats on how to meet the Biden administration’s clean energy and climate goals in the legislation.

Democrats have fallen back on tax credits and other incentives following the collapse of the Clean Electricity Payment Program. The $150 billion program was proposed to spur electric utilities to procure clean energy for their customers, but it was dropped amid staunch opposition primarily from Sen. Joe Manchin (D-W.Va.), chairman of the Senate Energy and Natural Resources Committee.

Hydropower has gotten the short shrift in the frenzied energy lobbying on Capitol Hill, industry supporters said. The bipartisan infrastructure bill last month included about $550 million for existing hydropower—compared with $6 billion to aid struggling nuclear plants, $10 billion for carbon capture, $8 billion for hydrogen research, and $7 billion for the battery supply chain.

The industry’s roughly 2,000 dams produce about 7% of U.S. electric generation, the second-largest source of non-emitting energy, behind wind power, according to the Energy Department.

Tax credits and state renewable energy policies have generally favored new construction for wind and solar to the detriment of the existing hydropower fleet, said Scott Corwin, executive director of the Northwest Public Power Association.

“It really deserves to be at the same level of incentives and also regulatory treatment,” Corwin said.

The tax credit is “once-in-a-generation” opportunity for the industry to make dam improvements ahead of federal re-licensing, said LeRoy Coleman, director of communications for the National Hydropower Association.

Such improvements are usually ineligible for existing renewable energy production tax credits that apply to projects that increase capacity, add generation, or make efficiency improvements.

Installing a new aerating turbine that improves dissolved oxygen levels in a river, spillway upgrades, and fish passage facilities would generally fall outside the bounds of the tax incentive—and deter dam operators from making the environmental improvements necessary to hold their licenses, Coleman said.

Coordinated Effort

By 2030, licenses at 281 hydropower facilities with about 13 gigawatts of generation capacity will come up for renewal, the National Hydropower Association estimates. Nearly 38% of its members surveyed are “actively considering” decommissioning, up from 13% a few years earlier. Hydroelectric dams are on average more than 50 years old.

The tax credit, along with other dam removal funding efforts, has the support of river protection groups historically opposed to dam operators.

In June, Cantwell and Sen. Lisa Murkowski (R-Alaska) introduced legislation, S. 2306, establishing a hydropower tax credit. Two related bills, H.B. 4375 and S. 2356, were introduced in July to provide tax credits, invest $26 billion investment in existing dams, and fund dam removal. Thirteen industry and environmental groups supported those measures, including the American Rivers, Association of State Dam Safety Officials, World Wildlife Fund, and the Union of Concerned Scientists.

“Investing in dam removal and river restoration will revitalize ecosystem health, improve public safety and strengthen communities,” Tom Kiernan, president and CEO of American Rivers, said in a statement this summer.

The conservation groups are working to ensure lawmakers keep all the hydropower proposals together, suggesting the tax incentives must be paired with dam removal and river rehabilitation. The tax credit is “still on the table,” said Colleen McNally-Murphy, associate national director for the Hydropower Reform Coalition, said Tuesday.

“As the bill moves forward, it is critical that incentives for removal, rehabilitation, and retrofits all stay in, including language that provides a credit for dam removal and investments in environmental improvements, not just production,” McNally-Murphy said.

Trumpeting Hydropower

The Biden administration has trumpeted hydropower’s cause as lawmakers negotiate. Energy Department officials have recently applauded money and bipartisan infrastructure bill, and expressed support for permitting changes to make it easier on dam operators.

In October, the department flagged hydropower’s concerns over relicensing, which the agency found takes an average of 7.6 years. While the process “protects local water quality, wildlife species and habitats, cultural resources, and recreation, it can also increase the cost, risk, and timeline of licensing hydroelectric plants,” the department said in the report.

If the government doesn’t “back up” older dams, “we risk losing these major sources of pollution free energy,” Jeremiah Baumann, the department’s deputy chief of staff, told reporters last month.

— With assistance from Kaustuv Basu.