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How much hydropower income would my system provide?

Hydropower income is complicated. There are several components that make up the total value of generated hydro electricity, namely:

  • Export value
  • Offset value for energy used on-site
  • Future changes to export value and import electricity prices

Each of these components is described in more detail here along with information on how they can affect the overall value of the energy generated.

The greatest income can be achieved if the electricity generated is consumed on site rather than being exported to the grid. The greater the proportion of energy consumed, the higher the income. This is because the value of electricity consumed on site (the imported electricity value) is typically 12 p/kWh, which is higher than the maximum value of electricity that can be exported to the national grid which is typically 6.5 p/kWh.

This is further complicated because of the rising cost of electricity. The graph below shows historical price rises for non domestic electricity between 2004 and 2019. The data for this can be found at the UK government department, BEIS here.

Historical UK Non Domestic electricity prices

Historical UK Non Domestic electricity prices, 2004 – 2019

This shows an annual average electricity price rise between 2004 and 2019 of approximately 9% per year.

Future changes to electricity prices may not follow historical price rises and are very hard to predict because they are heavily influenced by fossil-fuel prices and government policy changes in response to market conditions and carbon reduction commitments.

Committee on Climate Change Electricity Price predictions

Committee on Climate Change Electricity Price predictions

The last assessment of Energy Prices and Bills made by the Committee on Climate change was in 2017, and their report is here. Their assessment of the impact of carbon reduction commitments made to 2017 how price rises of approximate 3% per year to 2030 as shown on the right. The UK government has since increased its commitment to carbon reduction which would mean that investment in low carbon energy will inevitably have to increase beyond that shown in this report.

It is very difficult to predict the future cost of energy, it could rise based on historical price rises, but is more likely to rise based on predictions made by authoritative bodies advising the government – so for the purposes of this illustration an annual electricity price rise of 3% is assumed, as opposed to the historical price rise of 9%.

For illustration purposes, the net income (annual effective gain from electricity production, minus typical operational and maintenance costs) for four scenarios are shown below, assuming a 40 year lifespan for the hydropower equipment:

  • 100% on site consumption, annual electricity price rise of 3%
  • 50% on site consumption, annual electricity price rise of 3%
  • 100% on site energy consumption, static electricity price
  • 100% exported to the grid, with export price rising with inflation of 2%

100% on-site consumption, annual electricity price rise of 3%

Illustration 1 – 100% of the generated energy consumed on site, annual electricity price rise of 3%, hydro system generating at a typical UK capacity factor of 0.5, annual income averaged over 40 years. In this scenario the net income could be:

 

Maximum Power Output Annual Energy Production (AEP) Typical Annual Income, Averaged over 40 years
25 kW 110 MWh £26,100
50 kW 219 MWh £54,500
100 kW 438 MWh £99,000
250 kW 1,095 MWh £210,000
500 kW 2,190 MWh £422,500
1 MW 4,380 MWh £991,000
2 MW 8,760 MWh £1,982,000

50% on-site consumption, annual electricity price rise of 3%

Unless the commercial operation is a 24 hour, high energy use operation, or energy storage is added, then it is likely that only a portion of electricity generated by the hydro system can offset on site electricity usage. If only a proportion of electricity that can be consumed in this scenario is complex and depends on electricity consumption and generation patterns over a period of time. Renewables First can assess this demand \ generation relationship as part of the Hydropower Feasibility Study service. For illustrative purposes, we will assume that 50% of electricity generated is consumed on site, and 50% is exported to the grid.

Illustration 2 – 50% of the generated energy consumed on site, annual electricity price rise of 3%, hydro system generating at a typical UK capacity factor of 0.5, annual income averaged over 40 years. In this scenario the net income could be:

 

Maximum Power Output Annual Energy Production (AEP) Typical Annual Income, Averaged over 40 years
25 kW 110 MWh £16,800
50 kW 219 MWh £35,900
100 kW 438 MWh £68,000
250 kW 1,095 MWh £153,200
500 kW 2,190 MWh £308,900
1 MW 4,380 MWh £764,000
2 MW 8,760 MWh £1,527,000

100% on-site consumption, no electricity price rise

For comparison purposes, electricity prices did not rise from the current level, this is illustrated below.

Illustration 3 – 100% of the generated energy consumed on site, no annual electricity price rise, hydro system generating at a typical UK capacity factor of 0.5. In this scenario the net income could be:

 

Maximum Power Output Annual Energy Production (AEP) Typical Annual Income
25 kW 110 MWh £13,000
50 kW 219 MWh £28,000
100 kW 438 MWh £50,000
250 kW 1,095 MWh £106,000
500 kW 2,190 MWh £215,000
1 MW 4,380 MWh £526,000
2 MW 8,760 MWh £1,051,000

100% export to the grid, export price rising with inflation of 2%

Finally, if it is not possible to consume any electricity on site, then 100% of the electricity must be exported to the grid. A typical current export price of 6.5 p/kWh is used for this illustration.

Illustration 4 – 100% of the generated energy exported to the national grid, assumed export price rises with inflation of 2%, hydro system generating at a typical UK capacity factor of 0.5. In this scenario the net income could be:

 

Maximum Power Output Annual Energy Production (AEP) Typical Annual Income, Averaged over 40 years
25 kW 110 MWh £7,400
50 kW 219 MWh £17,300
100 kW 438 MWh £37,000
250 kW 1,095 MWh £96,400
500 kW 2,190 MWh £195,400
1 MW 4,380 MWh £536,700
2 MW 8,760 MWh £1,073,000

Clearly the net income prediction is complex, is very site specific and is dependent on unknown factors within the electricity market, however the most profitable schemes are those than can consume the most amount of generated electricity on site. Site specific income needs to be assessed carefully based on site conditions and assumptions which will be completed as part of an expert site assessment.

Please note it is possible that electricity prices may rise or fall in the future.

Also worthy of mention, many hydropower sites generate a great deal of positive publicity and ‘green credibility’ through association with clean renewable energy generation. Sometimes the value of this is greater than the revenue generated by the system, but because of its non-tangible nature it has been ignored here.

To see how this translates into a return on investment you need to consider what the project will cost and what hydropower systems cost to operate, then the return on investment can be calculated.

Back to Hydro Learning Centre

Are you considering a hydropower project ?

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The first step to develop any hydropower site is to conduct a full feasibility study.

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Once complete, you will understand the site potential and be guided through the next steps to develop your project. You can read more about hydropower in our Hydro Learning Centre.

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