The Inflation Reduction Act (IRA), signed into law by President Biden in August of 2022, is a “win” for the hydropower industry. The act finally recognizes hydropower as a renewable clean energy source. As new hydropower is capital-intensive to design and construct, the renewable tax credits included within the bill will help develop new pumped storage hydroelectric facilities and new hydropower at existing dams. Improvements placed in service after December 31, 2022, are eligible.
One disappointment for hydro in the IRA is that it does not include capacity upgrades, dam safety, environmental, or grid resilience at existing facilities. These provisions were in the initial draft but were not included in the signed document. This is disappointing for existing small hydro owners. As small hydro facilities age, significant upgrades and rebuilds are required to keep these facilities operational. The 30% tax credit incentive would give owners a boost to make these upgrades and keep small hydro operational. Unfortunately, this can and will force the shutdown of some facilities. This is a heartbreaking loss for those who have older small hydro facilities.
What should small hydro owners do now?
It’s not all bad news for existing small hydro. The National Hydro Association (NHA) is collaborating with Senators Cantwell and Murkowski to secure a 30% Investment Tax Credit (ITC) for environmental and dam safety improvements at existing hydropower facilities. It is important for small hydro owners to reach out and support NHA in this endeavor and voice our concern about capacity upgrades at existing facilities. NHA can also help you reach out to your members of Congress to make sure they know about the needs and benefits of small hydro to gain their support.
Another venue for rehabilitation being released soon for hydro is the Department of Energy’s Hydroelectric Incentive Program. This program has three sections that support small hydro:
- Section 242 is the Hydroelectric Production Incentive Program. It adds generation to existing non-powered dams.
- Section 243 is the Hydroelectric Efficiency Improvements Incentive Program. It focuses on improving the efficiency of existing facilities by 3%. This would include turbine upgrade projects.
- Section 247 is the Maintaining and Enhancing Hydroelectricity Incentives Program. It includes support for grid resilience, dam safety upgrades, dam stability, dam seepage issues, and tainter gate rehabilitation.
Budgeting for each section is $125 million for Section 242, $75 million for section 243, and $553.6 million for section 247. Sections 243 and 247 have an applicable capital improvement grant of 30% maximum incentive payments for the project, up to a $5 million cap. Section 242 uses a formula for the grant incentive. These sections provide help for small hydro owners as they seek to avoid closure.