Energy Industry Entrepreneurs
Hydro Power - Potential and Opportunities
Written by Gautam Patil for Gaebler Ventures
Hydro power is one of the largest and cleanest sources of electricity in the world. Many believe that its potential has been reached but newer and more efficient turbine technologies combined with a closer look at micro hydro power could change this belief. Many challenges related to climate change, rural electrification and urban growth management could be addressed if this valuable resource is tapped.
Hydroelectricity accounts for more than 15% of the world's electricity production and constitutes about 60% of the total renewable energy produced worldwide.
China alone had a hydroelectricity capacity of 115 GW at the end of 2005 and accounted for about a quarter of its power needs.
Hydroelectric power projects have been found to have good financial viability with a payback periods typically between 5 to 10 years of full generation. This is quite impressive given the huge initial capital investment.
Some of them have, however, run into controversies because of their environmental impact and safety related issues. Construction of huge dams sometimes results in extensive damage to the surrounding ecosystem and forces locals to rehabilitate.
Micro hydro power potential is being discovered by many countries like China in their search for a clean, affordable and reliable power source.
About 2/3rd of China's rural power comes from such mini hydro power projects and through appropriate policies - which surprisingly include few or no subsidies - they have been able to build a competitive industry to support such projects.
Even in the US, a study of sub 1 MW hydro power potential revealed untapped resources worth 170 GW (even at a lower rate of $.03 per KWhr, 170 GW of power translates to $44.5 billion in revenues annually for its investors). This class of hydro power provides a lot of potential for small businesses, entrepreneurs and investors with a small outlay.
Using established technologies (mainly water turbines) and some basic civil and structural engineering, it is possible to set up these plants and cater to local demands. Highly advanced turbine technologies make it possible to get customized and highly efficient equipment depending on the nature of the stream.
Due to the commoditized nature of this equipment such projects also enjoy good returns.
Small hydro power projects on perennial water sources encourage development of industry in the proximity of these sources and draw demand away from highly strained national grids. This also has implications for urban growth as industry (and thus population) steers away from cities and towards these rural locations. They also enjoy higher efficiency (about 70%-90%), higher predictability (water flow in most sources is dictated by seasonal factors like rainfall), high capacity factor (typically above 50%, which directly impacts financial returns) and use highly durable and robust technology.
From a utility perspective, mini hydro power is an attractive proposition for companies wishing to serve populations in rural, remote and hilly areas without undertaking costly grid extension. It is however important to clarify issues related to water rights before setting out on such projects.
Micro hydro power is thus an ideal solution for individuals and utilities alike to get access to clean and affordable power for local generation and consumption.
The low capital investment and widely available know-how have lowered barriers for entrepreneurs and the only hurdle that remains is to build demand around these projects.
Gautam Patil is a recent MBA graduate from the Indian Institute of Management, Bangalore. In addition to serving as a contributing writer for Gaebler.com, he will join the consulting firm Oliver Wyman at their London office.
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