Shale development costs hydroelectric jobs
Ninety employees at Voith Hydro Inc. in West Manchester Township will lose their jobs this month, either through layoffs or retirements.
To blame: A long regulatory process for new hydroelectric power, a long time to realize financial benefits and stiff competition from the Marcellus Shale boom, said President and CEO Kevin Frank.
"From a positive standpoint, it's a totally clean energy," Frank said of hydro power. "The carbon footprint is basically zero. And in the long term, it is a very affordable, renewable source of energy.
"Then, cheap gas prices have an impact on our economic model when you look at the short term."
Hydro power in the United States represents about 9 percent of capacity and 7 percent of electric generation, according to a 2013 report prepared for the U.S. Department of Energy. The National Hydropower Association estimated about 300,000 jobs were connected to the industry in 2009, the most recent study available.
Voith employs about 850 people, and its total revenue in 2010, the most recent year available, was $200 million, according to Business Journal records. That was up from $184 million the previous year.
The company's roots in York can be traced to entrepreneur S. Morgan Smith in 1877, who made turbines. The company was acquired by Allis-Chalmers in 1959 and then by Voith, based in Heidenheim, Germany, in 1986.
Over that time, the company has produced more than 12,000 units with capacity of more than 65,000 megawatts, according to its website. That's enough electricity to power 65 million homes.
Projects it has worked on include the Grand Coulee Dam in Washington state, the Conowingo Dam in Maryland and the Holtwood Dam on the Susquehanna River in Pennsylvania.
"Our business remains healthy," Frank said. "We still have a lot of projects all across the country. But new hydro projects are quite limited."
The obstacles facing hydro power are daunting, said Matthew Nocella, assistant manager of strategic communications at industry group National Hydropower Association in Washington, D.C.
Among the biggest is the red tape involved in getting hydro power facilities permitted and repermitted. A lot, including environmental reviews, must be done.
"Hydro takes five years to renew," Nocella said. "It always has to go through federal licensing. Solar and wind only have to if they are on federal land."
Each hydro project is unique, Nocella added.
"Projects are so site specific," he said. "You can't just go to Voith and say, 'I want this turbine.' They have to be built specially for each project."
Despite the regulatory process, business did pick up for Voith in 2010, thanks to President Barack Obama's clean energy manufacturing tax credit in the American Recovery and Reinvestment Act. More than $2.3 billion in tax credits were issued for projects that also included wind and solar.
That led Voith to ramp up production to meet demand, even though there were roughly half as many credits issued for hydro projects as for other renewable energy sources, Frank said.
As those tax credits have expired, improved techniques in hydraulic fracturing — or fracking — have further hacked at hydro's profitability. While the value of natural gas can be realized in a few months, the value of hydroelectric power can take 35 to 50 years to realize, Frank said.
Natural-gas drilling takes much less time. In Pennsylvania, state law requires a permit to be issued within 45 days. It usually takes 30 to 35 days to get a natural-gas well permitted, said state Department of Environmental Protection spokeswoman Lisa Kasianowitz.
Meanwhile, unconventional natural-gas wells in Pennsylvania produced about 3 trillion cubic feet of gas in 2013. That's more than double the production in 2012, Kasianowitz said.
"As new hydro goes, we had some good, large projects," he said "But now we've come to the end of the manufacturing side. We have had to lay off because there are not new hydro projects out there."
There are some bright spots, though.
Nocella said two laws that were signed by the president in August are aimed at making things easier for the hydro-power community.
The first, House Resolution 267, promotes the development of small hydro power projects and aims to shorten the regulatory time of certain low-impact hydro-power projects, such as adding power generation to the nation's existing nonpowered dams.
There are about 80,000 dams in the United States, but only 3 percent are built to generate electricity, Nocella said. A study commissioned by the National Hydropower Association found those unpowered dams represent about 12,000 megawatts of electricity.
"To put that in perspective, there's 100,000 megawatts of power in use in the United States," he said.
The second, House Resolution 678, allows small hydro-power development at the existing Bureau of Reclamation-owned canals, pipelines, aqueducts and other manmade waterways. Such development could provide enough power for 30,000 American homes with no environmental impact, according to the National Hydropower Association.
For energy consumers, an all-of-the-above approach should be considered, said David Holt, president of the Consumer Energy Alliance, which advocates for affordable energy on behalf of businesses and other consumers.
While unfamiliar with the situation at Voith, Holt said that Pennsylvania is at least benefiting in the short term from natural-gas production.
"It's unfortunate there are job reductions or layoffs," he said "I do know that the Marcellus Shale development is creating tens of thousands of jobs in the energy sector and hundreds of thousands across the economy. But as demand continues to go up across the U.S. economy, we'll need all of our resources to meet our needs."