The 'Big, Beautiful Bill' Is a Key Moment for the U.S. Hydropower Industry

The outlook for the U.S. hydropower industry appeared strong when President Donald Trump took office on January 20 with a new “American Energy Dominance” policy aimed at prioritizing hydropower, biomass and nuclear energy as well as coal, oil and natural gas. But key policy gaps still need to be filled to conserve the nation’s existing hydropower resources and plan for the future.

The unique status of the U.S. hydropower industry

Hydropower holds a unique place in the U.S. energy profile. Though it accounts for just 6 percent of utility-scale electricity generation, it has an outsized footprint in the clean power sector. As of 2024, hydropower accounted for almost 27 percent of U.S. generating capacity from renewable sources.

In addition to continuing its century-long status as a significant source of renewable electricity, hydropower also maintains an extensive role in grid resilience and emergency response. The U.S. Department of Energy estimates that hydropower facilities account for 40 percent of “black start” capability on the grid. “Black start” refers to power plants that recover independently after widespread grid outages. While other power plants can’t re-start until the grid regains power, hydropower facilities rely on water pressure and can re-start their own generators, bringing power back to communities more quickly in the event of a blackout. 

Pumped hydropower storage systems make up another unique contribution to the grid. In these systems, water is pumped to an uphill reservoir when excess electricity is available. When the grid needs more electricity, the water is released to run downhill by gravity to power generators located below.

Pumped storage was introduced to the U.S. back in the 1930s, and it still accounts for an overwhelming 96 percent of the country's grid-scale energy storage. The Energy Department also points out that pumped storage provides the kind of long-duration storage needed to shepherd more wind and solar energy into the grid.

Spotting new opportunities 

During the 20th century, successive waves of hydropower development took place with little or no regard for the impact on river environments. In contrast, the hydropower industry of today has shifted its focus onto more sustainable practices.

“The mindset of building a Hoover Dam in an open river” is a thing of the past, explains Malcolm Woolf, president and CEO of the National Hydropower Association. “We haven’t done it for more than 50 years. Today we use pumped hydro storage or existing infrastructure."

Today the sector is mostly focused on energy-efficiency improvements at existing facilities, Woolf said. Adding generators to non-hydropower dams is another area of opportunity: Less than 3 percent of the more than 90,000 dams in the U.S. are currently equipped for power generation, according to the National Renewable Energy Laboratory.

The industry is also turning attention to closed-loop pumped hydro storage systems that shunt water back and forth between two reservoirs, without interfering with the run of a river. Emerging technologies are also in play. The Texas startup Quidnet Energy, for example, is developing a closed-loop storage system that deploys unused oil and gas infrastructure to store energy underground in the form of pressurized water.

“There were no new pumped storage facilities built in the U.S. for 20 years, but now there are 50 gigawatts of proposals in the pipeline,” Woolf observed. “It shows a level of interest in the market.”

“Hydropower is flexible, clean and firm, and it can balance wind and solar,” he emphasized.

Hydropower and the “One, Big, Beautiful Bill” 

For all the opportunities, though, the U.S. hydropower industry is facing a perfect storm of obstacles, including cuts in the federal workforce that impact permitting and licensing procedures.

Chief among the new challenges is the federal budget bill, also known as the Reconciliation Tax Bill. Even though the president specifically included hydropower in his list of priority energy resources upon taking office, the message appears to have been lost on Congress. On May 22, the Republican majority in the House of Representatives passed its version of the budget bill under the name H.R. 1, the “One Big Beautiful Bill Act,” without any provisions in support of hydropower.

The House bill includes tight deadlines for tax credits that the hydropower industry can’t meet.

Hydropower improvement projects don’t involve building new dams from scratch, but they typically involve the kind of long lead times characteristic of other baseload projects, including nuclear power plants. 

“Baseload” refers to power plants that deliver a set minimum of electricity on a 24/7 basis. Under H.R. 1, baseload power plants are treated liberally. They qualify for tax credits as soon as construction begins. But H.R. 1 does not include hydropower projects in the baseload category, meaning they don’t qualify for tax credits until they begin generating electricity. 

“All of the projects in the queue would cost 30 percent more,” without the tax credits, Woolf said. Higher costs could lead some — if not many — dam operators to allow their 50-year generating licenses to expire rather than invest in the full, unsubsidized cost of upgrades, he said. The dams will remain in place, but the generators will be shut down. 

“Forty percent of the current non-federal fleet are being re-licensed. Decisions have to be made, to keep these projects or not,” Woolf said, noting that the re-licensing process alone takes years.

Without supportive tax credits, smaller plants are especially likely to cease operating rather than incur the expense of re-licensing, which can require substantial new infrastructure improvements.

Even without the new pressures imposed by the budget process, 68 hydropower facilities have surrendered their licenses over the past 12 years, Woolf said. 

What's next? 

The clock has not run out on the domestic hydropower industry quite yet. The U.S. Senate still has to revise the budget bill as it sees fit, vote on it, and send it back to the House. The Senate's first draft includes provisions for hydropower, but whether they make it into the final version remains to be seen. 

The Hydropower Association is urging members of Congress to provide hydropower with the same tax treatment that other baseload projects receive, and it's asking voters to raise the issue with their representatives as well.

Another source of support could be forthcoming from the “Maintaining and Enhancing Hydroelectricity and River Restoration Act (S.1183/H.R.2160). Versions of the bill were introduced in the Senate and House in March in a rare instance of bipartisan agreement. The proposed legislation designates a 30 percent investment tax credit for safety and environmental upgrades at hydropower dams.

While not directly promoting opportunities to increase hydropower generating capacity, the legislation does support the preservation of existing facilities that provide critical black start services in the event of grid emergencies. Against the backdrop of skyrocketing electricity demand and climate-related grid emergencies, that alone is a goal worth supporting.