Small scale hydropower can provide stream of new jobs to rural regions

Micro-hydro, the generation of electricity from small streams, has begun to take off in rural Wales. The country’s geography makes small-scale hydropower a viable alternative source of energy and, for struggling rural areas, a source of income and jobs.

Wales has long exploited its natural advantages in waterpower, from pre-industrial mills to six large hydropower schemes today. The vast Dinorwig plant alone generates 1,728MW, meeting peak-time electricity demand across the country. A typical micro-hydro installation, by contrast, will produce well under 50kW, although some run as high as 0.5MW.

At present, some 23 micro schemes are in operation, with another 30 or more due to come onstream over the next year or so. The potential for expansion beyond that is significant, with the Welsh government estimating that 1,000MW could be installed by 2020 – a small but not negligible contribution to Wales’ target of generating 22,500MW of renewable energy by 2025.

What makes the technology interesting, however, is not so much its potential to meet renewables targets, important as these are, but as a driver for regeneration in otherwise deprived and excluded areas.

Community ownership

The very nature of the technology involved, with a comparatively low capital investment and dependency on particular geographical features, makes it ideally suited to community ownership. The price of a typical installation varies, depending largely on size, with a typical installation costing £5,000-£8,000 per kW. For anything but truly tiny schemes this will be out of reach of all but wealthy individuals.

However, it is within the grasp of of community ownership. And it is this community ownership that offers the key to unlocking the economic potential of hard-to-reach rural areas.

Wales has a long tradition, relative to the rest of the UK, of collective and co-operative ownership. This ranges from small-scale producers to a shining example of large-scale success in the form of Welsh Water, brought under community ownership after its privatised owners went bankrupt in 2000. And while larger renewables schemes, often commercially run, have attracted local opposition on environmental grounds, smaller-scale hydro has attracted far less.

New research by Cardiff Business School points to a potential economic windfall from micro-hydro. On the basis of existing installations, researchers estimate that every 1MW of community-owned micro-hydro installed generates an additional 10 full-time equivalent jobs in every year of its operation. This, again, is significantly ahead of other generation technologies, including the next-best performer, community-owned solar photovoltaics, generating 3.3 full-time jobs per 1MW installed.

This economic windfall comes from two sources. The first arises because micro-hydro is an embedded technology. Whereas larger schemes, wherever located, rely on significant imports of material and expertise, successful micro-hydro installation requires a close knowledge of local geography and suppliers. It helps generate clusters of activity, sustaining micro-economies of its own. These will be jobs – and incomes – created in communities and areas that otherwise remain beyond the reach of more conventional regeneration initiatives.

The second windfall is payments for every kilowatt hour (kWh) of power generated through the government’s feed-in tariff (FIT) scheme. This provides additional payments to renewable producers, acting as a subsidy to generate additional revenue from production.

What’s stopping hydropower?

With renewable technologies comparatively new, incumbent, high-carbon technologies have a natural cost advantage, enjoying economies of scale. Until renewables are similarly widespread, they cannot overcome that disadvantage. So there is a clear economic rationale for government subsidy.

Two barriers, however, stand in the path of the sector’s growth. The first are the technical difficulties of upgrading existing power transmission lines in rural areas. Originally designed for a centralised model of electricity generation, these lines were installed without thinking they would need to cope with large volumes generated locally.

Upgrades can be phenomenally expensive: one 18kW scheme was presented with an estimate from grid operators of £5.7m to upgrade its transmission lines. Ofgem’s current rules insist that private operators pay for upgrades – a sensible arrangement in the case of commercial generation, but one that hits small-scale generation hard.

The second barrier is recent changes to the FIT payment regime. Payments are now declining rapidly, with the justification that as technologies mature they should become less dependent on subsidies. This process of “degression” is geared towards meeting the presumed needs of technologies such as large-scale solar photovoltaic. The needs of micro-hydro are quite different. As a result, NEF research suggests that a reduction in prices paid under FIT last October, from 21.9p to 19.2p per kWh, resulted in a drop of about 24% in the number of schemes applying for planning permission.

It is possible to run an off-grid (or at least off-national grid) system, and off-grid generation seems to be growing via solar, although the National Grid doesn’t survey it. However, it would mean missing out on FITs, pushing smaller schemes below economic viability - particularly if supply is intermittent, although that applies less to hydro than solar or wind.

There is an opportunity for policymakers to do more to help stimulate micro-hydro production and tap in, over time, to economies of scale being lost with the reductions in subsidies. A slower rate of decline, geared to the requirements of particular technologies, would give the sector time to establish itself thoroughly – and sustain an innovative means to create jobs and incomes in rural areas.