Who Gets Billion Dollar Funding for Hydropower, Pumped Storage?

By: Stephen J. Odell
Dec 09, 2021

The recently enacted Infrastructure Investment and Jobs Act (“IIJA” or “the Act”)[i] authorizes nearly a billion dollars in funding for hydropower projects over the next five years, committing the federal government to supporting hydropower as part of a broader policy transition to achieving greater reliance on cleaner energy. The Act comprehensively supports improvements to existing hydropower facilities and research into new forms of hydro sources, and gives a significant push to pumped storage hydropower.

Although guidance exists on how to apply for existing hydropower incentive programs for which IIJA has simply authorized additional funding,[ii] it will undoubtedly take the Department of Energy some time to issue guidance and begin to roll out the new funding programs the Act authorizes. In the meantime, the Department’s Office of Energy Efficiency and Renewable Energy maintains an exchange providing a comprehensive list of available funding opportunities on its website,[iii] which can serve as a key source of information on how hydropower project owners, operators, and proponents may take advantage of the new opportunities arising from the IIJA as the department brings online the substantial additional funding the Act authorizes.

The IIJA first makes several amendments to the Energy Policy Act of 2005 (“EPAct-2005”) that collectively authorize $200 million to support incentive programs originally established under that act. One authorizes $125 million for incentive payments to add electrical generation equipment to existing non-federal dams or conduits,[iv], and increases the maximum amount of such payments to $1 million a year.[v] The 2020 Energy Act previously amended EPACT-2005 to expand eligibility for receiving payments pursuant to that statute to include smaller facilities in areas “in which there is inadequate electric service," turning on factors such as access to the electric grid, frequency of electric outages, or electricity affordability.[vi] The IIJA also authorizes appropriations of $75 million to fund payments to owners or operators of existing hydropower facilities who make capital improvements to improve their efficiency by at least three percent, and increases the maximum amount of such payments to $5 million.[vii]

The IIJA also authorizes more than $550 million for a series of new hydropower incentive payments. These monies are designated to fund capital improvements to existing projects that: (1) improve grid resiliency; (2) improve dam safety; or (3) provide for various forms of environmental improvements.[viii] Each of these purposes is defined quite broadly under the Act. For example, “grid resiliency” improvements include, among other things, “adapting more quickly to changing grid conditions” and “integrating other variable sources of electricity generation.”[ix] The most expansive definition is of environmental improvements that qualify for incentive payments, which include (A) adding or improving safe and effective fish passage at a project; (B) improving water quality; (C) promoting downstream sediment transport processes and habitat maintenance; and (D) improving recreational access to the vicinity of the project.[x]

The IIJA also contains several provisions authorizing federal funds to carry out various programs under previous energy-related legislation. More specifically, the Act provides $355 million over four years to support energy storage demonstration projects pursuant to a program established in the Energy Act of 2020.[xi] That program expressly encompasses pumped hydroelectric energy storage systems that are designed to advance adoption of cutting-edge technologies and reductions of civil works costs and construction times for hydropower and pumped storage systems.[xii] It authorizes an additional $150 million over the same period in part for an initiative also set forth in the Energy Act of 2020 for the purpose of funding demonstration projects focused on development of long-duration energy storage technologies.[xiii]

There is an additional nearly $150 million provided in the IIJA to carry out activities under programs that originated in the Energy Independence and Security Act of 2007 (“EISA”).[xiv] In this context, the IIJA authorizes $36 million for grants to institutions of higher education to establish National Marine Renewable Energy Research, Development, and Demonstration Centers.[xv] One such awardee is the Pacific Marine Energy Center, a consortium of Oregon State University, University of Washington, and the University of Alaska-Fairbanks dedicated to accelerating the responsible development of wave, tidal, in-river, and offshore wind energy technologies.[xvi]

Relatedly, the Act authorizes another $70-plus million to support these centers’ compliance with federal and state environmental laws as they pursue development of innovative technologies in this space.[xvii] Finally, the IIJA authorizes $40 million for the Energy Department to carry out the general purposes of the Marine and Hydrokinetic Renewable Energy Technologies subtitle of the EISA over the next four years.[xviii] Those funds will support research and development in finding cost-effective ways to generate electrical energy from (1) waves, tides, and currents in oceans, estuaries, and tidal areas; (2) free-flowing water in rivers, lakes, and streams; (3) free-flowing water in man-made channels; and (4) ocean thermal energy conversion.[xix]

The final three sections of the Hydropower subtitle of the IIJA address pumped storage hydropower (“PSH”), a form of energy storage that currently accounts for more than 90 percent of all utility-scale energy storage capacity in the United States.[xx] PSH works by appropriately designing and configuring two water reservoirs at different elevations that generate power by passing water through a turbine as it travels from the higher to the lower reservoir (referred to as “discharge”) and then in turn utilizes an independent source of power to pump the water back up into the upper reservoir (referred to as “recharge”).[xxi] In this way, PSH acts similarly to a giant “battery” because it stores up potential power capacity in the upper reservoir and then releases it for discharge and power generation when needed.[xxii]

The first section in the IIJA related to Pumped Storage Hydropower establishes a new PSH Wind and Solar Integration and System Reliability Initiative.[xxiii] This initiative authorizes financial assistance of $10 million over the next five fiscal years for the development of a pumped storage hydropower demonstration project that is to be designed to facilitate long-term storage of intermittent renewable electricity from wind and solar energy sources.

The IIJA also seeks to bolster PSH by amending the Reclamation Project Act of 1939 to expressly confer additional authority on the Secretary of the Interior to develop pumped storage hydropower that exclusively makes use of reservoirs operated by the Bureau of Reclamation.[xxiv] This is an echo of EPAct-2005, which explicitly conferred authority for renewable energy leases on the Outer Continental Shelf where such clarity could jump-start energy development.[xxv]

The final PSH-related section of the IIJA both facilitates and sets forth specific direction for the largest proposed PSH project in the nation, the 2550-megawatt, $4.9 billion Halverson Canyon facility that would work in conjunction with the current Lake Roosevelt reservoir approximately 35 miles upstream of Grand Coulee Dam.[xxvi] FERC issued a preliminary permit for the project in June 2021.[xxvii] The IIJA provides that the Secretary of the Interior may not issue the necessary lease of power privilege to authorize this project, however, unless the proponent and affected Tribes in the vicinity, the Confederated Tribes of the Colville Reservation and the Spokane Tribe of Indians, have volitionally entered into a study plan agreement among themselves, or the Interior Department has made its own independent determination as to what such an agreement should entail or approved the ultimate study plan itself.[xxviii]

[i] Pub L. No. 117-58 (2021).

[ii] For example, the Department has issued detailed instructions on how to apply for incentive payments to owners of existing hydro facilities that add electrical generation equipment under Section 242 of EPACT-05 at https://www.energy.gov/sites/default/files/2020/05/f74/hydro-guidelines-CY19-may-2020.pdf.

[iii] The exchange is available at: https://eere-exchange.energy.gov/.

[iv] 42 U.S.C. § 15881.

[v] IIJA § 40331.

[vi] Pub. L. No. 116-260, § 3005(a)(1). Information on the Hydroelectric Production Incentive Program is available at https://www.energy.gov/eere/water/epact-2005-section-242-hydroelectric-production-incentive-program#:~:text=The%20Hydroelectric%20Production%20Incentive%20Program,dams%20throughout%20the%20United%20States.

[vii] IIJA § 40332.

[viii] IIJA § 40333.

[ix] Id.

[x] Id. The federal payments under these new incentive programs are capped at 30 percent of the costs of the qualifying capital improvements, but can be up to $5 million each fiscal year. Id.

[xi] IIJA § 41001(a).

[xii] Sec. 3201(c), Energy Act of 2020 (Pub. L. No. 116-260).

[xiii] IIJA § 41001(b).

[xiv] IIJA § 41006; EISA, Pub L. No. 110-140 (2007). In making this amendment, the section retains the authority of the Secretary also develop small-conduit hydropower via Bureau of Reclamation facilities that was added by the Bureau of Reclamation Small Conduit Hydropower Development and Rural Jobs Act, Pub. L. No. 113-24 (2013).

[xv] IIJA § 41006(a).

[xvi] www.pmec.us.

[xvii] IIJA § 41006(a)(2) (funding activities carried out under Section 635 of EISA).

[xviii] IIJA § 41006(b).

[xix] EISA, §§ 631–36.

[xx] Water Power Technologies Ofc., U.S. Dept. of Energy, U.S. Hydropower Mkt. Rpt. 3 (Jan. 2021) (available at https://www.energy.gov/sites/default/files/2021/01/f82/us-hydropower-market-report-full-2021.pdf).

[xxi] Seehttps://www.energy.gov/eere/wa...;

[xxii] Id.

[xxiii] IIJA § 40334

[xxiv] IIJA § 40335.

[xxv] See 43 U.S.C. § 1337(p).

[xxvi] IIJA § 40336.

[xxvii] Daybreak Power, Inc., 175 FERC ¶ 62,201 (June 28, 2021).

[xxviii] IIJA § 40336(b). It is also worth noting that each of the Department’s decisions made pursuant to this section of the IIJA is subject to judicial review. Id. at § 40336(g).

Scroll to top