6.3.3 ECONOMIC

In the last sentence, the phrase 'potentially economical' was used for good reason; paradoxically, using modern conventions for financial and economic appraisal, most new SHP installations appear to produce rather expensive electricity as the high up-front capital costs are usually written off over only 10 or 20 years (yet such systems commonly last without major replacement costs for 50 years or more). In contrast, an older hydro site where the capital investment has been written off is cheap to run as the only costs relate to occasional maintenance and replacements.

 

Source: Ref 6.5

Figure 6.12 Effects of hydraulic head and size on installation cost

As an example, the unit cost of owning a typical small low head hydro site in the UK might be typically €0.07/kWh during the first ten years while the capital investment is being repaid, but subsequently, because of the low running costs, the unit costs could fall to around one tenth of this level (say €0.007/kWh). Clearly the output for the first decade will be more costly than power bought from the grid in most cases, although after the capital investment has been paid off, the hydro plant power prices become exceedingly attractive. Unfortunately, most potential investors take a short-term view and are put off by the initial high costs.

Decisions to use a technology are generally driven primarily by economics, so naturally there is a need to drive down the costs of SHP. Least cost hydro is generally high head hydro (see fig 6.12), since the higher the head, the less water is required for a given amount of power - so smaller, less costly equipment is needed. Therefore, in mountainous regions even quite small streams, if used at high heads, can yield significant power levels at attractively low costs.

However, high head sites tend to be in areas of low population density where the demand for electricity is small, and long transmission distances to the main centres of population can nullify the low cost advantages of remote high head systems. High head sites are also relatively rare, and most of the best ones in the developed world have already been exploited.

So the greatest scope for new SHP is at low head sites, although many good high and medium head sites still await development. Unfortunately, at present most low head sites are at best only marginally attractive economically compared with fossil fuel power generation and for this reason many potential sites remain to be exploited. For example, the UK has some 20,000 disused water mill sites, all low head, which so far have not been redeveloped; in many other countries a similar situation can be observed.