Appalachian Power Co. (Apco) has sold the Reusens hydroelectric dam on the James River near Lynchburg to Eagle Creek Renewable Energy LLC for an undisclosed price, according to press accounts.
Apco started generating electricity at the dam in 1903 and stopped in 2011. “Over the past few years, the five generators and other equipment at Reusens began to show wear and required extensive maintenance or replacement — primarily the result of age,” says Apco spokesman John Shepelwich. The utility reviewed a variety of alternatives, one of which was selling the facility, which “we explored for a few years.”
Eagle Creek plans to re-open the facility, which it expects to generate an estimated 40,000 megawatt hours per year. Why would Eagle Creek want to run the facility when Apco didn’t?
It’s not as if Apco doesn’t have abundant experience operating hydroelectric dams. It has six others, which it is keeping in its electricity-generating portfolio. Given the pressure all utilities are under to increase their commitment to renewable energy, one would think that Apco and its parent company American Electric Power would want to hang on to Reusens. Shepelwich says that the company will “more than offset” the 12.5 megawatt capacity of the Reusens dam with other investments in renewable energy, but in the current political environment, there’s no such thing as too much renewable — especially hydroelectric, which, unlike solar and wind, produces electricity steadily, reliably and predictably.
I tried to contact Eagle Creek but got no response to my email.
But here’s my guess: The decision to sell was influenced by federal tax incentives. According to the U.S. Department of Energy, the federal government offers several tax incentives to stimulate deployment of hydroelectric power.
- In 2014 Congress appropriated funds for Hydroelectric Production Incentives. Eligible facilities may receive up to 1.8 cents per kilowatt hour (indexed for inflation) with maximum payments of $750,000 per year during the incentive period.
- A Renewable Electricity Production Tax Credit provides 1.1 cent per kilowatt hour for electricity production by hydroelectric dams and other renewable energy sources over a 10-year period. Alternatively, project owners can take tax credits worth 30% of the value of the facility up-front.
Shepelwich confirmed for me that no tax incentives were available to Apco for Reusens.
Official statements by Eagle Creek don’t mention incentives one way or another, but here’s what I’m betting happened. Apco ran the numbers and determined how much it would cost to bring the dam back to operating condition. The cost-benefit to ratepayers was not sufficient to win approval by the State Corporation Commission, so Apco couldn’t justify the investment. Access to a 30% up-front tax credit and up to 1.8-cents-per-kilowatt-hour production incentive made the old dam worth a lot more to Eagle Creek. Therefore, it made sense for Apco to sell the facility.
Public policy questions arise. Is this incremental addition to Virginia’s green power mix worth the dual subsidies? How would we say unless we knew how much those subsidies amount to? When the governor of Virginia pays a subsidy from the governor’s opportunity fund to land a corporate investment, agree with it or disagree with it, the expenditure is a matter of public record and included in every press release. If Eagle Creek is receiving subsidies, are they on the public record anywhere? Should anyone know the answer, please contact me.
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