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How to Invest in Hydroelectric Power: Types of Systems & Limitations

Hydropower facilities are dependent on being located near sources of water, but there’s potential for further construction both inland and in coastal waters.
Photo of a hydroelectric power generating facility with text overlay that reads "How to Invest in Hydroelectric Power"

Hydropower accounts for 16% of total electricity production globally.

What Is Hydroelectric Power?

Hydroelectric power, or hydropower, is electricity generated by the flow of water. In simple terms, hydroelectric power is generated when moving water passes through a turbine, which spins to produce electricity.

According to the Energy Information Administration, hydroelectricity accounted for about 6.3% of total U.S. utility-scale (at least 1,000 kilowatts of capacity) electricity generation and 31.5% of total utility-scale renewable electricity generation. In 2021, utility-scale electricity generation amounted to 4,108 billion kilowatt hours (kWh).

Hydropower’s share of total electricity production has fallen over the years due to the increased use of other types of power production such as solar and wind, but its contribution to the renewable energy mix remains significant. Globally, hydropower accounts for 16% of total electricity production, according to the International Finance Corporation.

How Does Water Produce Electricity?

Hydroelectric power traces its roots to hundreds of years ago when flowing water was used to turn a wheel that ground wheat into flour. Water was also used to turn leather belts that moved saws for processing lumber. Nowadays, there are various systems designed to divert the flow of water through hydro turbines that spin to generate electricity. That power can then be captured and stored in batteries for future use as electricity.

River and Storage Systems

Conventional hydroelectric facilities include a run-of-the-river system, in which a river's current flows through a turbine, and a storage system, in which water from a reservoir is released, but controlled, into turbines.

A pumped-storage hydropower facility involves pumping water into a reservoir, usually at an elevation higher than the water’s source, and then releasing the water in a controlled manner such that it flows into a turbine. However, pumped storage systems tend to use more power than they produce, resulting in net negative electricity generation.

Most hydropower facilities in the U.S. have dams and storage reservoirs, but dams built decades ago weren’t designed for electricity generation—with a small fraction now able to do so.

Wave Energy

Wave energy is a method of producing electricity by capturing the kinetic energy of waves to turn a turbine. This process is mainly used offshore in open water. Wave energy facilities aren’t very widespread compared to river hydropower systems, but the EIA estimates that the annual energy potential of waves off American coasts could amount to as much as 2.64 trillion kWh annually.

Which Areas in the U.S. Are Ideal for Hydroelectricity?

Hydropower relies on facilities being near a source of water. Some areas of the U.S. are ideal because of plentiful rainfall or snowfall. The Pacific Northwest, for example, has more rainfall than most other parts of the continental U.S. Snow collects in mountains during wintertime, and in spring, that snowmelt feeds into rivers and tributaries, where hydropower plants can be built to take advantage of the flow or storage of water to turn turbines.

Almost all of the hydropower in the U.S. comes from land-based facilities, with very little offshore production. In 2021, just five states accounted for more than half of the total hydroelectric power production across the U.S.: Washington (27%), Oregon (11%), New York (11%), California (6%), and Tennessee (5%).

Pie graph showing the distribution of hydropower production by state overlaid on a photo showing a facility

Many states have the potential to develop hydropower, despite hydroelectricity generation currently being concentrated in just a few states.

Almost all of the hydroelectric power generation in New York comes from the Niagara River, which feeds into Niagara Falls. The state-controlled utility’s power plants at Niagara Falls produce 28.7 billion kWh of electricity each year, which is enough to power 287 billion 100-watt light bulbs.

How to Invest in Hydroelectric Power

There are not many publicly traded companies that focus solely on hydroelectric power, and dedicated indexes and exchange-traded funds are hard to come by. That may mean focusing on indexes and ETFs for alternative renewable energy. Stocks are typically utilities that can build large-scale electricity-generation facilities. Additionally, there are few listed companies available for trading since many utilities that engage in hydropower are state-controlled.

Hydroelectric Stocks to Consider

  • Brookfield Renewable Partners LP (NYSE: BEP) focuses on renewable energy and operates in more than 30 countries in North America, South America, Europe, and Asia. Hydroelectric power accounted for about 75 percent of its total revenue in 2022.
  • IDACORP (NYSE: IDA) controls Idaho Power Company, a regulated electric utility that operates 17 hydropower plants that draw water from a river and its tributaries in the state. Its renewable energy mix also includes geothermal generation.
  • Ocean Power Technologies Inc. (NYSE: OPTT) develops systems that generate electricity by harnessing the renewable energy of ocean waves.
  • Portland General Electric Company (NYSE: POR) is expanding its use of renewable energy, shifting away from coal and other fossil fuels. Because the focus is on Oregon and there are few rivers and tributaries on which to build, potential construction of additional hydropower facilities within the state is finite.

Are There Limits to Increasing Hydroelectric Power Production?

Environmentalists oppose the development of water resources in certain areas due to concern over the impact power-generating facilities can have on fish, wildlife, and plant life. That opposition may be a barrier to the construction of new facilities unless legislation or court rulings allow for such development.

Since hydroelectric power plants depend on water, drought or low rainfall or snow can have a major impact on hydropower. With no water available, turbines are idle.

Water sources and the force of the flow of water in rivers also can limit the potential doe the construction of new facilities. The Midwest provides little potential for hydropower construction, but eastern and western states, with their proximity to mountains, provide more potential.