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

What Is Hydroelectric Power?Hydroelectric power, or hydropower, is electricity generated by the flow of water. In simple terms, hydroelectric power is…



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Hydropower accounts for 16 percent 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 and spins a turbine to produce electricity.

According to the Energy Information Administration, hydroelectricity accounted for about 6.3 percent of total U.S. utility-scale (at least 1,000 kilowatts of capacity) electricity generation and 31.5 percent 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 percent 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 making lumber. Nowadays, there are various systems designed to capture the flow of water into hydro turbines that generate electricity, and locking in that power into storage batteries is a viable option.

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 the controlled release of water flows into a turbine. However, pumped storage systems tend to use more power than they produce, resulting in net negative electricity generation balances.

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 type of energy that can produce electricity by capturing the kinetic energy of waves to turn a turbine. Its use is mainly 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 generate 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 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 off-shore 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%).

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

Energy Information Administration

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.


  • 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 development of water resources in certain areas amid concern over the impact of power-generating facilities on fish, wildlife, and plantlife. That opposition may be a barrier for construction of new facilities unless legislation or court rulings allows for such development.

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

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

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