Can Horizontal Hydraulic Fracturing Lead to Less Expensive Achievement of More Natural River Flows?

Abstract:

High ramp rates and low costs make hydropower an extremely valuable resource for meeting “peak” hourly electricity demands, but dams that employ variable, stop-start reservoir releases can have adverse impacts on downstream riverine ecosystems. In recent years, efforts to mitigate the environmental impacts of hydropower peaking have relied predominantly on the use of ramp rate restrictions, or limits on the magnitude of hour-to-hour changes in reservoir discharge. These restrictions shift some hydropower production away from peak hours towards less valuable off-peak hours and impose a financial penalty on dam owners that is a function of: 1) the “spread” (difference) between peak and off-peak electricity prices; and 2) the total amount of generation shifted from peak to off-peak hours. In this study, we show how variability in both the price spread and reservoir inflows can cause large swings in the financial cost of ramp rate restrictions on a seasonal and annual basis. Of particular interest is determining whether current low natural gas prices (largely attributable to improvements in hydraulic fracturing) have reduced the cost of implementing ramp rate restrictions at dams by narrowing the spread between peak and off-peak electricity prices. We also examine the role that large year-to-year fluctuations in the cost of ramp rate restrictions may play in precluding downstream stakeholders (e.g., conservation trusts) from “purchasing” more natural streamflow patterns from dam owners. In recent years, similar arrangements between conservation trusts and consumptive water users have been put into practice in the U.S. for the purposes of supplementing baseflows in rivers. However, significant year-to-year uncertainty in the size of payments necessary to compensate hydropower producers for lost peaking production (i.e., uncertainty in the cost of ramp rate restrictions) makes transactions that aim to mitigate the environmental impacts of hydropower peaking untenable. In order to reduce this financial uncertainty, we propose the use of “collar” agreements between a downstream stakeholder and a third party insurer that would provide a stable price for parties “buying” more natural flows.