Fundamental Role for Hydroelectricity in the Energy MixMon, 02/25/2019 - 17:04
Wind and PV have been the stars of the long-term electricity auctions. The main drawback of these technologies is intermittency. Hydroelectric energy is a clean alternative that can fill the gap while offering a host of other benefits, according to Jacobo Mekler, New Business and Commercial Director of COMEXHIDRO. “Hydroelectric is the only renewable energy technology that provides a firm baseload,” he says. “Mexico has more than 12,000MW of hydroelectric installed capacity, the majority of which is installed at large-scale dams that double as water storage.”
Mekler says that although it is often overlooked, hydroelectric infrastructure is underpinning today’s energy transition. “Without today’s hydroelectric plants, it would be impossible to imagine how the country could expect to install close to 9GW of renewable energy capacity.”
COMEXHIDRO is a Mexican company founded in 1997 and specialized in the development of small-scale hydropower plants. Its portfolio includes seven operational projects, 250MW in PPA contracts and more than 1GW of project pipeline. Between 2018 and 2032, Mexico’s PRODESEN expects the installed capacity growth rate of PV, wind and hydroelectric to be 489 percent, 290 percent and 17.5 percent, respectively.
Despite this outlook, Mekler believes that as long as dam-based hydroelectric projects continue operating, intermittent energies’ installed capacity can increase, reducing the country’s dependency on fossil fuels. “While Mexico’s energy mix can also depend on combined cycle to inject baseload to the grid, hydroelectric power negates the need to import natural gas,” he says. “Reducing imports of this critical fuel improves the country’s geopolitical standpoint in the context of NAFTA renegotiations, natural gas imports and US-imposed tariffs.”
Mekler says companies are often discouraged by the expensive price tag associated with hydroelectric plants but he says they fail to take into account the technology’s uniquely-long life cycle. “Hydroelectric plants can last 40 years on average. The Necaxa hydroelectric dam was inaugurated in 1905 and is still operational,” he says.
Looking beyond the US$/MW benchmark is critical when gauging renewable energy projects, Mekler continues. “Considering utility-scale projects according to development costs is insufficient. Factors such as Mexico’s international standing and energy security should also be considered,” he says. Mekler believes hydroelectric projects are not playing on a level field with the other technologies under the long-term electricity auction scheme. “For instance, a hydroelectric project takes between three to four years to be built. Long-term electricity auctions call for two to two-and-a-half years of construction,” he says.
Failing to differentiate hydroelectric’s virtues in a long-term electricity auction environment makes competition virtually impossible against cheaper technologies watt per watt, says Mekler. “The design of the long-term electricity auction lacks the possibility of additional income from ancillary services to inject competitiveness into hydroelectric power,” he says. As per the auction bases, when projecting nodal marginal prices, no differentiation is made between base, peak and average rates. Peak rates in the market are 250 percent higher than base rates. In the long-term electricity auctions this difference falls to 18 percent. “These auctions do not value controllable energy provided by hydroelectric power as the development price of this technology is no longer justified,” Mekler adds.
To adapt to these challenging circumstances, COMEXHIDRO wants to diversify and conquer. “We diversified from hydroelectric projects to develop utility-scale combined cycle, wind power and PV projects,” says Mekler. Through a consortium scheme with Invenergy, the company won a combined-cycle plant project with an installed capacity of 500MW in the third long-term electricity auction. He expects construction to start before the end of 2018.