With the California energy crisis raising awareness of the acute need for new power generation, policymakers are considering everything under the sun. Literally.

On the Wings of Power

Early Positions in Fuel-Cell Makers May Be Cheap, but Risky

The Wind -- and Water -- Beneath Power's Wings

Fuel Cells' Technology, Economics Shape Coming Market

Rushing to Get Off the Grid -- and Make Some Money

Natural gas leads the parade of fuels powering the boom in generation, but new and emerging sources of power also will play a role. In addition to the potential of fuel cells -- my colleague Jim Seymour has done an exceptional job outlining the promise of the new technology -- many utilities also are focused on renewable energy, using what is "under the sun" to generate power.

Solar, wind, water, biomass and geothermal provide a buffet of possibilities for generators to explore. Yet, while these power sources have existed since the beginning of time, only recently have we begun to harness their potential.

Solar power has interesting residential and small commercial applications, but the size of the solar fields required to generate utility-sized power is prohibitive. Both biomass and geothermal hold significant promise and are used in many co-generation projects today. Yet, with the exception of turning organic waste into power, large-scale utility applications have, so far, been limited.

That leaves water and wind, two sources that have found their way into the power grid -- one since the early days of America's electric utilities and the other more recently.

A River Runs Through It

More than 10% of America's power is generated from hydroelectric plants. Those plants also represent more than 98% of all renewable energy generation in the U.S. (Coal remains the leading generation fuel, accounting for more than 56% of electricity production.)

But, for investors, environmental pressure has limited the opportunities to profit when it comes to hydroelectric power.

Hydropower dates back nearly 2000 years, when the Greeks used water to turn wheat into flour. The first application of U.S. commercial hydropower was in 1880 at the Wolverine Chair Factory in Grand Rapids, Mich., followed in 1881 when Niagara Falls was employed to light street lamps. By 1920, nearly 25% of all power generation in the U.S. was hydroproduced. Today, more than 80,000 megawatts are produced from utility-owned hydroelectric projects.

The most common hydropower plant uses a dam on a river to store water in a reservoir. Water released from the reservoir flows through a turbine, spinning it, activating a generator to produce electricity. Smaller hydropower projects simply channel water through a canal and over a turbine to get similar results.

Hydrogeneration is clean, easy and plentiful. But two barriers stand in the way of additional development: environmental impacts and reliability.

Swimming Upstream?

The lack of recent hydropower development in the U.S. can be attributed to environmental concerns. In fact, all recent federal legislation that has encouraged renewable energy development has excluded hydropower. There is even pressure to remove hydropower dams in the Northeast and Northwest to protect certain species of fish, especially salmon.

While the environmental impacts of hydropower are real, it is possible to mitigate the damage. "The installation of a hydroelectric facility disrupts the flow of a river and forms an obstacle to the free circulation of aquatic fauna, particularly to salmon, which periodically come to spawn in the upper reaches of rivers," noted Christopher Gronbeck of the Center for Renewable Energy and Sustainable Technology in recent research. "The solution is creating fish ladders and maintaining a permanent reserve flow between the intake and the tailrace."

There are pluses, however. "On the other hand, hydroelectric plants can have a positive effect on the environment in that they produce a body of water which can benefit some still-water fish and waterfowl," he noted.

Reliability is also an issue: You simply can't fight Mother Nature. Rivers don't always flow at a rate that can produce power. With sparse rainfall in the Northwest last summer, hydropower has been in short supply, contributing to problems in California as well as soaring power prices in Washington and Oregon. Snowmelt from the Rockies and Sierra-Nevadas provide an abundance of runoff for spring and early summer power but, without adequate rainfall, may not provide consistent power at the peak of summer.

Yet, the nimble nature of hydroelectric generation can make it an important part of a utility's arsenal. Unlike fossil-fuel plants that must use significant fuel even when they aren't generating power, hydro needs little water to keep turbines spinning at idle levels. "Hydropower's operational speed and flexibility make it an unusually valuable player in the orchestration of a reliable electric grid," according to the National Hydropower Association.

Making Water Dance

Hydro can be an important part of our energy mix. Clearly, the government recognized the importance of hydro early in the power game, because the feds are the largest hydro producers, through two federal utilities: the Tennessee Valley Authority and Bonneville Power Administration.

A number of investor-owned utilities also hold significant hydroelectric generation assets. One leader in hydroelectric generation is Avista (AVA:NYSE - news - boards), the former Washington Water Power, with about 850 MW of hydrocapacity.

Other utilities with significant hydrocapacity, according to the National Hydropower Association, are Idaho Power (IDA:NYSE - news - boards), PG&E Corp. (PCG:NYSE - news - boards), Alabama Power, a unit of Southern Company (SO:NYSE - news - boards), PacifiCorp, owned by Scottish Power, and Exelon (EXC:NYSE - news - boards), formerly PECO and Duke Energy (DUK:NYSE - news - boards).

Two independent power producers, or IPPs -- AES (AES:NYSE - news - boards) and Orion Power (ORN:NYSE - news - boards) -- also have hydroexposure, AES internationally and Orion from its recent purchase of Niagara Mohawk's (NMK:NYSE - news - boards) generation portfolio.