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Hydro Power Best Practices Guide
Renewable Energy Fund Application
Introduction
The following guide contains items that are critical to the success of a Renewable Energy Fund
(REF) application and project. The intent of the guide is to aid particularly rural applicants in the
submission of a comprehensive project proposal, and is meant to add additional details specific
to hydro projects. Smaller and simpler projects may not have to address all of the items below.
Larger systems, more complex, and Combined Heat and Power (CHP) systems will be
expected to have a more thorough analysis of the system.
Since the inception of REF, the Alaska Energy Authority (AEA) has managed dozens of grants
for hydro projects across the state. Over time, a number of common planning issues have been
identified. Recognizing that each project is unique, this best practice guide does not prescribe a
one-size-fits-all approach for project development. Instead the guide poses a series of questions
and prompts to help an applicant and project developer work through the process of developing
a successful application and project. A well planned project is more likely to be a strong
proposal and benefit the community.
The guide does not follow the REF application precisely, but the application provides references
to this document. The power produced from a hydro resource is based on multiple factors: the
quality of the resource, the system’s load profile, how other generation sources can respond
and/or interact with the hydro generation, the effectiveness of secondary loads and energy
storage systems, etc. The guide is organized to address these factors:
(1) Site selection,
(2) Understanding the existing system,
(3) Proposed system design,
(4) Economic analysis & optimization,
(5) Financing and operations planning, and
(6) Common planning risks.
Project design and optimization is not generally a straight line, but an iterative process where
new information will require that plans be reevaluated. An applicant is expected to have
performed the data collection and analysis appropriate for all phase(s) that precede the
proposed phase. The applicant should likewise use this guide to help develop the scope of work
for the proposed phase(s).
Each phase of project development investigates two main questions: “Can the project be built?”
and “Should the project be built?” Answering these questions requires an investigation of the
technical, economic, environmental, and business aspects of the project. Every project has
development risks; a thorough plan will identify these risks as early as possible, investigate
possible ways to mitigate the risks, and ultimately determine if the expected benefits outweigh
the risks. Where possible, the guide provides information on the detail and content for each
phase (reconnaissance to construction).
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1. Reconnaissance studies are a “desktop” study and the analysis should use resource,
economic, and operational data that is readily and/or publicly available. The study should be
sufficient to identify high-level flaws in the use and integration of the resource.
2. Feasibility and Conceptual Design studies should include site specific data collection and
analysis. The conceptual design (also called a 35% design) will not be sufficient to give to a
construction company, but will be of sufficient detail that a thorough economic and feasibility
analysis can be accomplished. Planning for the business and financial aspects of operating
the project will be started.
3. Final Design and Permitting will make the project “shovel-ready”. The conceptual design
will be refined and improved. The specific operational conditions and parameters will be
finalized. All business, operational, and financial plans will be finalized.
4. Construction and commissioning activities are not specifically addressed in this
document.
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Contents
INTRODUCTION ....................................................................................................................... 1
1 SITE SELECTION & ASSESSMENT .................................................................................. 4
1.1 RESOURCE ASSESSMENT ............................................................................................... 4
1.2 SITE CONTROL ............................................................................................................... 5
1.3 ENVIRONMENTAL AND PERMITTING RISKS ....................................................................... 5
2 UNDERSTANDING THE EXISTING SYSTEM ................................................................... 6
2.1 CONFIGURATION OF EXISTING SYSTEM ............................................................................ 6
2.2 OPERATIONS OF EXISTING SYSTEM ................................................................................. 7
3 PROPOSED SYSTEM DESIGN ......................................................................................... 8
3.1 PROPOSED HYDRO SYSTEM ........................................................................................... 9
3.2 PROPOSED OPERATIONS ..............................................................................................12
4 PERFORM ECONOMIC ANALYSIS & OPTIMIZATION ....................................................13
4.1 COSTS FOR THE EXISTING SYSTEM .................................................................................13
4.2 ECONOMIC OPTIMIZATION ..............................................................................................14
4.3 BENEFIT-COST ANALYSIS ..............................................................................................15
5 FINANCIAL AND OPERATIONAL PLANNING .................................................................16
5.1 FINANCIAL MANAGEMENT ..............................................................................................16
5.2 OPERATIONAL MANAGEMENT ........................................................................................16
6 COMMON PLANNING RISKS ...........................................................................................16
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1 Site Selection & Assessment
A hydro project begins with selecting and understanding a site: the available resource, the
potential restrictions in accessing and controlling the site, and any environmental or other
permits that may be needed for project activities.
1.1 Resource assessment
1.1.1 Data to collect and analysis
All data collection should be done to industry standards, the specifics of which are beyond the
scope of this guide. While a reconnaissance project may be a “desktop” study using existing
data, a Feasibility and Conceptual Design project is expected to collect robust data. Depending
on the amount of investment needed and the uncertainty associated with the resource, longer
monitoring may be required and be continued into Final Design and Permitting.
(Reconnaissance and feasibility grants should address all of these factors. Design and
construction grants should have already addressed these topics.)
Detailed mapping of all boundaries, features, and topographic data covering river, reservoir,
proposed project and alternate project extents using LIDAR or similar surveying and 1-meter
or better aerial imagery collected within last 3 years, and a reservoir area-volume based on
topographic and bathymetric data.
Understanding of basin hydrological and climate characteristics with a minimum of 3 years
of 15-minute interval or daily average, median, and peak flows reported by qualified
hydrologist or civil engineer along with other pertinent hydrological analysis data
(comparative analysis, flow duration curves and exceedance tables (10% increments) at
dam, powerhouse, and other critical locations.
Geomorphological considerations including Probable Maximum Precipitation, Probable
Maximum Flood, flood hazards, estimated sediment loads, and snow and ice considerations
and impacts.
Geotechnical evaluations as appropriate:
o surficial geology, stratigraphy to competent bedrock and along tunnels and dam
locations,
o slide or rock stability analysis, bedding characteristics and fracture locations,
o tunnel boring, finishing, and rock bolting recommendations,
o packer testing with recommendations for grouting,
o cut and fill recommendations, locally sourced structural fill analysis and
recommendations,
o material testing including analysis and recommendations for strength and use of
local materials for locally batched concrete.
Project parameters – design flow, detailed 3D location and materials description of all
proposed and existing features in maps, drawings, tables, and text, detailed concept
designs for all project features including temporary diversions or coffer dams, construction
extents and work areas, proposed project boundary with legal and all existing land rights
and restrictions, proposed turbine and generator configuration, operational efficiency over
full range of flows, proposed design criteria for all project features, quantities for proposed
features and work.
A draft and final report stamped by an Alaska licensed Professional Civil Engineer
presenting all of the above information, including permitting requirements, and results of
assessment.
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1.2 Site control
The applicant must be able to have legal right to use and access the site(s) for the
hydro infrastructure, transmission, distribution, roads, etc. Applicants should identify
potential issues as soon as possible. Legal and/or financial agreements may be
required to resolve site control issues. Site control must be finalized before
construction funds are committed. Do not underestimate the complexity of land
ownership in Alaska.
The grantee shall be responsible for resolving any land ownership disputes
between state and/or federal entities, local landowners, native corporations,
municipalities, boroughs and community organizations, or other entities.
Proof of valid title to the land and/or written documentation of any private
agreements is required.
The landowner must guarantee that there are no liens or encumbrances on the
property.
Final proof of ownership shall be the certificate to plat.
Site control for transmission or distribution power lines may be established using
easements or utility right-of -ways so long as the period of the agreement meets
or exceeds the intended life of the project.
If the project expects secondary loads to be placed in non-utility facilities,
ownership and access of infrastructure must be agreed to by all parties.
If project infrastructure is adjacent to or near an airport or runway, the grantee
must research FAA permit requirements, existing or pending leases and
easements, and DOT expansion or relocation plans
Land transfers required for project development shall be recorded with the
appropriate District Recording office and a copy of the recordation provided to
the AEA grant manager
Site control drawing including
o Recorded document list for properties, leases, easements.
o Horizontal and vertical control basis and monuments.
o Complete legal description
o Plat references
1.3 Environmental and Permitting Risks
Permitting, environmental or otherwise, may stop projects or require change in size, location, or
operations. It important that any potential permitting issues are identified early so that the scope
of the project can be changed, mitigation measures are taken, or the project can be ended
before significant funds have been spent.
In addition to understanding which permits are required, and the studies and/or modifications
(either in infrastructure or operations) required for the permits, the amount of time required to do
the necessary work must be included in the project plan.
In addition to understanding which permits are required, and the studies and/or
modifications (either in infrastructure or operations) required for the permits, the amount of
time required to do the necessary work must be included in the project plan.
Environmental and aquatic investigations including spatial and temporal distribution of
resident and anadromous fish by species and life stage, wildlife investigations as required,
recreational and socioeconomic descriptions, analysis including visual impact studies, and
opportunities for enhancement.
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Preliminary permitting analysis, consultations including agency and public reviews and
meetings, permit applications and processes started including completion of a license
application for FERC as required.
Document communications and approval from US Fish & Wildlife Service, FAA, Army Corp
of Engineers, DNR, local government and any other appropriate agencies.
o Contaminated sites database
o Threatened or endangered species
o Habitat issues
o Wetlands and other protected areas
o Archaeological and historical resources
o Land development constraints
o Telecommunications interference
o Aviation considerations
o Visual, aesthetics impacts
o Identify and describe other potential barriers
Fire Marshal Plan Review
National Electric Code
National Electrical Safety Code
Local construction permit
Electric utility interconnection permit
2 Understanding the existing system
Having a detailed understanding of the existing system (also called the base case) is key to
knowing if the proposed system will be beneficial. The base case will be used both to
understand the economics and the feasibility of integrating the hydro system.
The level and type of detail required will be based on the proposed phase and the proposed
system’s complexity. If secondary loads and energy storage systems (ESS) are proposed,
additional information is needed to do the integration and economic analysis.
This section is also a good time for the applicant to see if fixing or upgrading the current
infrastructure is the best option for the community. This is not required for the REF process, but
is a good idea nonetheless.
The following sections are divided into configuration and operation. The configuration is the
infrastructure that is currently in place. The operation is how that infrastructure is used.
2.1 Configuration of existing system
2.1.1 Power—Info & data
Current configuration and condition of power generation system (gensets, switchgear,
controls, heat recovery)
o What is the make, model, kW rating and hours of each diesel genset?
o What are the fuel curves for each unit?
o What type of mechanical or electronic throttle controls exist?
o What are the actual reported kWhs per gallon of fuel for this facility?
o What kind of switchgear and/or other controls exist – make, model,
manual/automatic? Can the existing system be expanded for the proposed
renewable energy system and secondary loads?
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o What kind of SCADA currently exists?
o Are upgrades or replacements planned for any key system components?
Transmission and distribution
o What is the condition of the distribution lines, transformers and poles?
o Provide a map showing single versus three-phase power lines and varying voltage
levels
o How are the phases balanced through the grid?
o How are the transformers in the community loaded or overloaded? Where is there
transformer capacity to add additional loads?
o Where are the major electrical loads located in the community from a geospatial
perspective?
2.1.2 Heat—Info & data
The type, design and components of the existing heating system(s) is clearly described
including the operating temperature range in every proposed building/system.
What is the design load (the maximum Btu/hr of heat needed) of building(s)
and/or facility?
Will the existing heating system(s) be removed or maintained for backup or peaking?
Describe the existing control system(s) and if it will be useful for the proposed
system
Is the existing heating system at or near the end of its design life?
Is there a heat recovery system on the diesel engines? What loads does it feed?
o What is the heat recovery percentage of each diesel genset? How much heat is lost
in the system? What additional capacity is available?
Where are the major heat loads located in the community? Which could connect to an
existing or planned heat recovery loop if excess hydro generation could be available? Which
could be clustered together for a remote electric boiler?
Are there additional potential heat loads in the community that are not currently being met?
Are any new heat loads being planned? Where are they located relative to the powerhouse?
2.2 Operations of existing system
2.2.1 Power—Data
Load analysis and growth projections
o Load profile by month (peak, minimum, average) and/or 15-minute interval load
profile for one year
o What generation is used by the community to meet the current load?
o Is there sufficient existing generation to meet the future needs of the community? Or
if the load is declining, can the existing generation run efficiently at lower loads?
o How much spinning reserve is needed and how is it met?
o What are the parasitic and other system losses?
o Are there additional potential electrical loads in the community that are not currently
being met? Are any new electrical loads being planned?
Power quality
o Have there been issues with
Outages,
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High/low voltage incidents,
Phase imbalances,
Power factor, or
Frequency deviations
Operational
o Describe the controls strategy with existing electrical system
o Are there existing diversion electrical loads in the community? Are there electrical
loads that could be converted to interruptible loads if needed?
o If you participate in the PCE program, how much line loss does the utility
experience? Has there been an investigation of if the line loss is from physical losses
or metering and accounting issues?
2.2.2 Heat—Data
Monthly heating data is available for each proposed building (Indicate if these are
actual or modeled data)
o Pull heating fuel consumption/purchase records (minimum one year) for the buildings
being considered and provide annual estimates (high/low) for each.
What is the operational thermal efficiency (tested, manufacturer, or estimate) of
the existing system?
Describe how the heating control system(s) is used for the existing system
If there is a heat recovery system, how are those heat loads
monitored/quantified? What is the annual heating fuel purchased for each of
those loads?
Energy Efficiency improvements have been completed on the proposed
buildings.
o Air infiltration: Caulk doors & windows, rim joist, weatherstrip doors &
windows, use foam gaskets on outlets and switches.
o Insulation: Attic, floor, basement, walls
o Upgrade windows
o Install a heat recovery ventilation system
3 Proposed System Design
Designs should take into account the site-specific requirements of the energy resource, the
physical environment, and the system into which it will be integrated. The design should aim to
reduce costs to customers, while maintaining or improving service to customers. Care should be
taken that the hydro project does not adversely impact the operations of the utility or customer
service.
The level of design required is based on the phase. A Reconnaissance project may end with a
design based on publicly available flow and precipitation, while a Feasibility & Conceptual
Design will have a design based on measured stream flows, and a Final Design project will end
with plans sufficient to give to a construction firm to build the project.
The proposed system design should include a description of any civil infrastructure (dams,
roads, etc.) that will be built or changed, the power system, and/or heating system as
appropriate for the application. In all cases, designs should meet or exceed state and federal
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standards and regulations and be performed by people with proper credentials (such as a
licensed Professional Engineer) for the design.
All appropriate building permits must be received prior to construction. What follows are a
selection of common considerations that will need to be incorporated into the final design of the
project prior to construction.
3.1 Proposed Hydro System
3.1.1 Proposed Power Generation System
The proposed electrical system must be described in sufficient detail consistent with the phase
of development. The configuration of the proposed system are the specific components that will
be built or installed for the project; the operations will explain how all of the components will be
designed to work together in the system.
Some of the important questions and ideas to consider while evaluating and designing the
power generation system include:
Physical location(s)
Total economically optimal installed kW based on current and reasonable future load
estimates and the evaluation of the available resource. Include model as appropriate.
Make, model, capacity of each proposed unit.
Explain why chosen turbines systems, including power curves, were selected based on the
system’s expected load and environmental conditions, and the applicant’s operational and
financial capabilities.
Upgrades needed before RE project
o Transmission/distribution—phase balance, transformers, wires, etc.
o Supervisory controls for RE to interface with diesel powerhouse
o Controls for diesel engines
o What metering will be included to track performance for the utility and reporting to
AEA?
Controls on renewable energy system for each generator and between generators (fossil
fuel and hydro)
3.1.2 Proposed Secondary Load and/or Energy Storage
The proposed heating system must be described in sufficient detail consistent with the phase of
development. The configuration of the proposed system are the specific components that will be
built or installed for the project; the operations will explain how all of the components will be
designed to work together in the system.
Integrating complex secondary loads and/or energy storage into a system is not trivial. The
upfront capital costs and ongoing operational costs can be significant, and the complexity
increases risk to the system. More training, employees, and expenses should be expected, all
which should be accounted for in the appropriate areas of the REF application.
Some of the important questions and ideas to consider while evaluating and designing the
secondary load and/or energy storage system include:
What is the optimally sized secondary load and/or energy storage system,
including thermal storage, needed to meet the design load of the system most
economically?
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o What are the trade-offs between a few large electric boilers versus many small
heaters throughout the community?
o Are heat loads better served by connecting an electric boiler to the existing heat
recovery loop or placing electric boilers in other community buildings?
o Make/model, size (Btu/hr)
How is the system sized relative to average and peak loads? Would a hybrid
system improve the project economics?
The mechanical room has ample room to access the boiler components for
operations and maintenance.
If piping is necessary—what type, where will it be routed, how will it be
protected?
Fire suppression (if needed)
BTU meters are required for heat sales agreements and for performance
reporting of total heat produced by the system.
3.1.3 Perform Stability Analysis of Options
To ensure that the proposed design will not adversely impact customers’ service, it is important
that the stability of the proposed system is analyzed. With both relatively simple and complex
projects, it is important that at a minimum the proposed project is evaluated for:
Ramp rates
Voltage rise/drops across lines
Frequency excursions
3.1.4 Proposed Electrical System Design
The applicant should include a description of the electrical infrastructure that will be built in
support of the project. The infrastructure must be built to perform as expected for the life of the
project in the particular environment of the preferred site and within the context of the existing
generation system.
Proposed electrical system line drawings showing hydro powerhouse, transmission lines,
distribution system and powerhouse. Label voltage and phase of lines, plus conductor type,
size and resistance factor at 0 deg Celsius.
Proposed and existing SCADA system drawing and description.
One line electrical and communication drawing.
Proposed and existing diversion load drawing and description.
3.1.5 Proposed Civil Infrastructure
The applicant should include a description of the civil infrastructure that will be built in support of
the project. The infrastructure must be built to perform as expected for the life of the project in
the particular environment of the preferred site. If the application is for a construction project, the
applicant’s schedule should reflect the seasonal and logistical constraints.
3.1.5.1 Designs for new or changes to existing dams, roads, buildings, etc.
Design best practices include preparing logical, readable, and professional drawings and
specifications and other documents for construction and operation and maintenance phases of
the project. General goals of the design are as follows.
That the project is designed and constructed in a safe manner that minimizes the danger to
human life and harm to the environment.
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The design results in a low project cost while serving the project purpose and need for its
useful life.
The design is sufficiently detailed and adequate to minimize change orders, cost deviation,
and reasonably minimizes risk of major repairs or modifications following construction.
The design appropriately balances cost of construction with lowered operation and
maintenance costs and the potential for expansion is considered.
The design incorporates energy efficiency and arctic design best practices.
At a minimum, prior to construction the applicant should expect to have the following things:
Project overview map(s) and general information
o At least one map showing full project extents and a vicinity map
o A sheet index for all drawings
Design Criteria and information
o Design codes and standards used along with a code analysis
o Design loadings
Structural loads
Foundation(s)
o Geotechnical investigations and reports to design for:
Permafrost and other geotechnical concerns
Earthquake
o Design analysis, calculations/report
o Future maintenance and expansion
Drawings showing horizontal and vertical design sufficient for layout and construction of
infrastructure. Typical methods include plan and profile drawings with stationing for
alignments, standard road cross sections, limits of grading, grades or slopes, and general
topography, drawing scale bars and north arrows, point or dimensional data, structural
sections showing embedments, equipment layout drawings, electrical and mechanical
schematics, and equipment lists, size, and locations
Submittal requirements including drawings and basic design data for contractor design build
items, fabrications, and procured equipment with requirement for submittal and review of the
electrical switchgear engineered and shop drawings.
Technical specifications for materials and methods
Engineers cost estimate, updated feasibility report, owner’s business development and
operational plan, and schedule.
3.1.5.2 Construction requirements
Applicants should start planning for construction in the Feasibility phase—only by understanding
and preparing for site specific risks and logistics can accurate costs be determined. Final
Design and Permitting will end with all of the following logistics and plans must be worked out to
make sure the construction is safe, cost effective, and done properly. Earlier stages of
development can address the points below generally—that is identifying that a road may need
to be designed to handle the load of a crane, but not specifically how the road will be built.
Safety plan for construction activities
Logistics for getting materials, supplies, machinery, etc. on-site
o Getting it in place—are new roads or trails needed?
Are there seasonal limitations on when materials can be delivered to the community and/or
delivered to the site?
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General specifications governing execution of work
When is labor available? Are there sufficient trained workers in the community, or will there
need to be contractors brought in from other places?
3.2 Proposed Operations
Planning for operations and understanding the expected outcomes should start early.
3.2.1 Operations of Proposed Power Generation System
Controls strategy
o Describe control strategy for the multiple components within the system (Diesel,
hydro, load regulator(s), energy storage, secondary loads)
A robust and reproducible model should be used to understand the system. The applicant
should provide the model’s results of the proposed system with hydro resource, load, and
control strategy and be prepared to provide the model at request.
o Generation by 15-minute increments
Are there conditions that create instability?
Generation to primary load vs. secondary loads vs. voltage regulator vs.
storage
o Expected percentage and conditions for curtailment
o Parasitic power
o What amount of spinning reserves will be required? How will these spinning reserves
impact the expected fuel savings?
o Continued fuel consumption in existing generation infrastructure
o Summary
Anticipated annual generation
Include any excess generation that would be not be usefully
consumed
% available
Capacity factor
Post-project fuel consumption estimate—both fossil and RE fuels
3.2.2 Operations of Proposed Secondary Load System
Model proposed system with local hydro resource, load, and control strategy
o Does the system model verify that the secondary boiler is not oversized?
o Can the backup boiler system handle peaking requirements?
o Parasitic power (pumps, etc.)
o % available
o Expected thermal efficiency in the operating environment
o Continued fuel consumption in existing generation infrastructure
Are there conditions—either economic, environmental, or technical—where the project will
not be feasible to operate?
Summary
o Anticipated annual generation
o Capacity factor
o Post-project fuel consumption estimate—both fossil and RE fuels
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4 Perform Economic Analysis & Optimization
Planning and designing a hydro project should be an iterative process, as new information is
learned the design is refined and improved, progressively more tailored to the site and system.
A project that receives REF funding must be both technically possible and economically viable.
A proposed system may be technically possible, but cost prohibitive—it will increase costs to
customers or the costs outweigh the benefits.
AEA will perform an economic analysis for all applications. In all cases, AEA compares the
proposed system against the base case (the current system configuration and operation). The
proposed costs must be outweighed by the expected savings. For hydro projects, most of the
economic savings is in displaced fossil fuels, but it can also see savings in the Operations and
Maintenance (O&M) of the diesel system if the diesels can be turned off for long periods.
Communities may have additional values that are important—increased local employment,
decreased imported diesel, or reduced greenhouse gases.
Ideally an applicant will investigate multiple options, including improving the base case.
The economic evaluation assesses the economic viability of a project. The entire project
proposal is assessed, not each individual component. If the costs for the project are greater
than the expected benefits, then the project would not be economically viable. If the total
benefits to all parties outweigh the costs incurred by all parties, then the project is considered to
be economically viable. The economic analysis is indifferent to who receives benefits and who
pays costs.
Benefits: Savings to utility customers, non-utility customers, Power Cost Equalization,
and others
Costs: Expenses paid for by utility customers, grants from state, federal, and regional
governments; non-profits, non-utility
AEA uses an Excel-based economic model to provide the underlying assumptions (such as
expected fuel costs), calculations and analysis. The model is available to all applicants. While
AEA encourages applicants to perform and submit an economic analysis, AEA’s analysis is
used in the scoring process. Ideally, applicants would use the model to maximize the project’s
benefits and minimize the costs.
4.1 Costs for the existing system
Before analyzing the benefits of the proposed project, it is important to understand the existing
system (the base case). Any savings that can be realized by the project will come from
displacing costs from the base case. Keep in mind, there may be a number of costs that will not
be displaced, even with the best hydro project.
4.1.1 Power
Capital costs: any current depreciation and/or loans?
Operational costs
o Efficiencies of the existing energy (electricity and heating, as appropriate) systems
o Cost of diesel at the utility
AEA has forecasts for the price of diesel in most communities
o Annual O&M
o Expected Repair and Replacement (R&R) and/or amortized R&R
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4.1.2 Heat
Capital costs (current depreciation/loans?)
Operational costs
o Efficiencies of the existing heating systems
o Cost of heating oil at the proposed secondary load customers
o O&M
o R&R
4.2 Economic optimization
Even if an applicant expects to receive grant funds for their project, the proposed project should
be designed to get the best economic return on the investment. By maximizing the savings from
the projects and keeping the cost as low as practical, the applicant will be more likely to get an
REF grant. This may mean that a proposed project may not end up displacing the maximum
amount of diesel or heating oil, because the extra cost might not be worth it.
4.2.1 Develop options based on generic assumptions
It is encouraged that applicants use industry-standard modeling programs, such as HOMER.
Just note that AEA’s economic assumption may be different from the models, and the economic
results may be different. AEA does not require applicants to provide an analysis of all options
that were analyzed, but the applicant will need to be able to justify why the preferred alternative
was chosen.
Using generic turbines and high-level modeling programs are sufficient for early phase
development, but it is likely that more robust modeling with be needed for Final Design.
HOMER model with accurate hydro resource, electrical load, thermal load, wind turbine
power curves, turbine availability, diesel power curves and diversion loads. Pay special
attention to the excess power in the system and how that can be put to value-added use.
(Include the electronic HOMER file in your submission, but limit the printed report to HOMER
output from the proposed system.)
If excess electricity is being proposed to be sold for heat, model (through HOMER or some
other model) excess hydro energy throughout the year to the heat load profile(s). Expect
that not all excess energy will be usable by customers, especially excess energy produced
during the summer.
Annual modeling including variables of demand and fuel price, financing and O&M
projections, and climate projections for both the existing/alternate and proposed generation
system. Note that these assumptions may differ from AEA’s assumptions. Please check
AEA’s economic model for additional guidance.
4.2.2 Costs for the preferred alternative
Any savings that can be realized by the project will come from displacing costs from the base
case. Savings are expected to be found in displacing fuel and the potential of reduced O&M if
diesels can be turned off. Expect that the hydro project will increase some costs, while reducing
others.
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4.2.3 Power
Capital costs:
o Estimates based on phase-appropriate cost estimates for hydro infrastructure,
integration, controls for hydro and/or diesel generation,
batteries/flywheels/capacitors, etc.
Operational costs
o Annual O&M
o Expected R&R and/or amortized R&R
4.2.4 Heat
Capital costs (current depreciation/loans?)
o Estimates based on phase-appropriate cost estimates for boilers, heaters, heating
control systems, new metering, etc.
Operational costs
o Annual O&M
o New account management and billing
o Expected (Repair & Replacement) R&R and/or amortized R&R
o Include positive or negative impacts, if any, on an existing heat recovery system
4.3 Benefit-Cost Analysis
The Renewable Energy Fund evaluation process uses the benefit-cost ratio as its primary
metric for economic viability. The benefit-cost ratio (B/C ratio) summarizes the all of the
project’s benefits and costs into a single number.
The total benefits of the project are found by taking the present value of all of the annual cost
savings. The cost is the present value of the project’s capital costs.
B/C ratio=Project Benefits
Capital Costs
Understanding the B/C ratio
B/C ratios communicate the economic viability of a project as a single number making it ideal for
communicating the benefits and costs concisely.
A B/C ratio greater than 1 means that the benefits are greater than the capital costs.
Even without grant funds, the project should be cost effective and save the utility and
customers money.
A B/C ratio of 1 means that the benefits equal the Capital costs—the project just breaks
even.
A B/C ratio less than 1 means that the costs are greater than the benefits—economically
things would be worse than before the project was built. Without grant funds, the project
would not be cost effective and the utility and/or customers would lose money.
Since many projects will lead to savings for utilities and customers, even projects with B/C ratios
below 1, it can be confusing why AEA would use the benefit-cost ratio to rate projects. The state
wants to maximize its return on investment, its “bang for the buck”, and wants to promote cost
effective designs.
Hydro Power Best Practices Guide Page 16 of 17
5 Financial and Operational Planning
Planning for the eventual operation of the hydro project is too frequently overlooked. The
training and skills needed to successfully operate and maintain the hydro infrastructure and the
complex control systems are different than what is needed for a diesel power house. The
additional need to track and pay for the parts, maintenance, and other necessary things can
stress an owner if adequate preparation is not made. With proper planning, training, and
management, a hydro project can be a long-term benefit to a community.
Below are selected aspects of a business plan that should be included in the REF application.
Please see the phase appropriate business plan template for a complete version of what should
be included.
5.1 Financial Management
Since grant funds cannot be used to operate the hydro project, an applicant must know how the
maintenance and operations of the infrastructure is going to be paid for over its useful life.
Hydro projects face failure without a plan for paying for needed training, personnel, contractors,
materials, and supplies.
Additionally, most hydro power developers are also utilities. The utility must be able to have a
financially viable project that shares expenses fairly across all rate classes. A utility should not
build a project that will require some customers to pay more so that other customers may
benefit. At the very least, a utility should understand how the costs for hydro power—both for
electricity and for heat—should be fairly divided between customers. For a more thorough
explanation, please see AEA’s white paper on the economic and financial analysis of excess
renewable energy sold for heat. It is available through AEA’s website. What follows is a short list
of aspects that the applicant should address.
How will the applicant pay costs including expected capital costs and operations
and maintenance
o What are the expected rates ($/kWh) for each rate class, including
electricity sold specifically for heat?
Explain how O&M activities will be tracked for required performance reporting to
AEA
Heat sales agreement(s), if applicable – required for construction
Accounting system to track revenue and expenses
5.2 Operational Management
The business plan should identify who will have overall responsibility for all
components.
Inspections & Maintenance—include checklists for responsible personnel,
estimated time to completion, parts and supplies to keep in inventory, etc.
Employees—including a back-up operator, training
6 Common Planning Risks
Not having a plan should costs exceed estimates
Not engaging agency stakeholders early-on and throughout project development
Making major changes without consulting agency stakeholders
Assuming project will not have flow reservations without consulting agency stakeholders
Hydro Power Best Practices Guide Page 17 of 17
Not receiving support and authorization from land owners prior to project development
Not including all infrastructure required during economic analysis
Ignoring the excess kilowatt-hours reported by HOMER (or other modeling program) – This
number must be subtracted from your total kilowatt-hours to accurately estimate diesel fuel
savings. Proposed projects should find an interruptible load that can use this excess energy.
Bear in mind that the economic benefit of offsetting a heat load is less than offsetting diesel
electric generation.
Oversized diesel generators may negate some assumed benefits from hydro power, unless
the diesels can be turned off for long periods. Hydro-diesel systems may require small,
medium and large gensets so that as hydro power comes online, smaller diesel generators
can be selected based on which generator is currently in the optimum part of the fuel
efficiency curve for the net system load, just so as to maintain sufficient spinning reserves.
Proposing unproven storage or controls technology to REF – New technology falls outside
of the scope of the REF.
Building a hydro-diesel project without a remote SCADA system that allows for performance
data collection and offsite troubleshooting.
Oversizing the proposed hydro system
Assuming that all “excess” power can be sold for heat at a rate that will cover all utility costs
to produce the power.