With all the recent publicity surrounding renewable energy, little focus has been given to the significance of hydroelectric power in Canada and yet, it provides more than half the country’s electricity and creates not only environmental benefits but also, opportunities for insurers.

Large hydro provides about 59% of Canada’s electricity, according to Natural Resources Canada—and accounts for a stable commercial client case for brokers. Unfortunately, for those underwriters and brokers, there is longer development potential for large hydro plants in Canada. There is, however, potential development growth for small hydro.

What this type of energy can really do
While the definition of small hydro varies globally, in Canada we consider small hydro to be 50 megawatts (MW) or less. To put this into context, a 1 MW hydro plant can provide electricity to 750 households.

According to National Resources Canada, there are more than 360 small hydro plant facilities in Canada. Combined they produce more than 3,000 MW of electricity—enough to supply electricity for roughly 2.25 million households.

While small hydro generates power to the power grid, that can be used by everyone, small hydro also has the advantage of being able to power remote industries or communities.

More than 5,500 potential sites across the country
For that reason, Canada is considered an ideal user of small hydro. As an emerging energy superpower our nation has a substantial potential for small hydro expansion. According to Canmet ENERGY, a sector of Natural Resources Canada has identified more than 5,500 potential small hydro development sites across Canada.

With significant room for growth in the small hydro industry there are opportunities for insurers who have the capabilities to insure this area of business.

But Canada’s SHP is not just about the energy facilities. The industry includes more than 20 equipment manufacturers and about 70 engineering firms, employing approximately 2,000 people.

Each year, the SHP industry contributes roughly $150 million to the Canadian economy in manufacturing and services and added about 100 MW to 150 MW to Canada’s power supply.

Market Research shows potential of $26 million in premiums
Based on market research conducted by RSA, small hydro market potential in Canada is estimated to reach about $26 million in premiums; worldwide the industry is predicted to hit $700 million in premiums.

With this growth potential comes opportunity. However, entry into the small hydro market is not without its challenges.

For example, many plants are located in remote, often catastrophe-prone areas.  Events such as mudslides, earthquakes and floods in these locations are a real threat. And getting to these sites can also pose quite a challenge so it’s necessary to have a good cargo underwriter to determine the risks of transporting materials to the site. Also, parts and supplies entering from foreign markets, such as China, require insurers to ensure that global supply chains are insured (and ensured).

Room to grow with new energy source
Worldwide, small hydro power is already a major contributor to providing electricity to developing countries with more than 50 million household and 60,000 enterprises served by small hydro at the village level worldwide.

The success of small hydro depends upon the availability of suitable water flow—a resource that is abundant in Canada. The power of flowing water can be converted into small hydro energy in the following ways:

• Run-of-the river—the natural flow and elevation drop of a river is used to generate electricity. These power stations are built on rivers with consistent and steady flows.
• Diversion— water is taken from a dammed river or lake to a remote powerhouse containing a turbine or generator. A canal or tunnel transports the water to this end point and then back to the river to continue its course.
• Impoundment—river water is stored in a reservoir behind an impounding structure, typically a dam or a weir. The water is released as needed to meet energy requirements.
• Pumped storage—water is pumped from a lower reservoir to an upper reservoir when demand for electricity is low. During periods of high electricity demand, the water from the upper reservoir is released back to the lower reservoir to generate power.

As a result, Natural Resources Canada sees room for significant growth in small hydro plants (SHP) in Canada—stating that only 21% of small hydro’s potential is being used across the country.

Fed money boosts energy business
And small hydro is a proven technology. According to the Ontario Sustainable Energy Association its facilities don’t generate greenhouse gases, the fuel is free and the process to generate electricity doesn’t produce waste—it’s also economically feasible as the facilities have low development, operating and maintenance costs compared to other renewable energy facilities and technologies.

Efforts to grow the SHP industry will be boosted by the federal government’s ecoENERGY for Renewable Power program that will invest $1.48 billion (CDN) over the next four years to increase Canada’s supply of clean electricity from renewable sources. The ecoENERGY program also provides cash incentives for low-impact, renewable electricity projects constructed over the next four years.

The anticipated growth of SHP generates significant opportunities for brokers and insurers. But to take advantage of these opportunities, it is vital to first understand small hydro and the risks involved in writing this type of business.

Like other renewable energy sources, small hydro is energy generated from natural resources that, theoretically, can be replenished. Hydroelectric power works by capturing the energy of the water and transforming this energy into useful electricity. Small hydro also has less of an impact on the environment than large hydro because it generally uses the natural flow of the water rather than more invasive techniques such as large dams that impound water and can create environmental damage.

Dan Johns is the national leader of construction, contracting and renewable energy at RSA; RSA has been insuring renewable energy risks, including hydro projects and hydro facilities, around the world for more than 30 years and has a global Small Hydro Centre of Excellence located in Canada.