The Nature Conservancy recently released a report entitled The Power of Rivers: A Business Case that demonstrates how developers of new hydro projects can reduce delays and minimize cost overruns and the possibility of lawsuits.
These benefits can be achieved by accounting for environmental, social and economic risks up front, The Nature Conservancy says. More importantly for developers and investors, a system-scale approach to planning and management takes advantage of economies of scale in dam construction.
The report estimates that projects sited using a Hydropower by Design approach (i.e. looking at a river basin and the impacts a dam will have both upstream and downstream) can meet their energy objectives and achieve a higher average internal rate of return for investors while reducing the impact on environmental resources. The Nature Conservancy says this could represent significant value in light of the more than US$2 trillion of investment in hydropower anticipated between now and 2040 (based on forecasts assuming the world meets its climate commitments, which would involve global hydro capacity increasing by at least 50% by 2050, to 2,000 GW).
Further illustrating the economic benefits of this approach, the Executive Summary says that “even a 5 percent improvement in other water management resources in river basins where hydropower plays, or will play, a major role would produce up to US$38 billion per year in benefits, a sum comparable to average annual investment in hydropower.” The summary says that the total economic value of water management services (irrigation, flood control and water supply) within hydropower-influenced basins is $US285 billion to US$770 billion per year.
Hydropower by Design integrates perspectives and models to capture two key sources of financial value: system design optimization and improved risk management to reduce delays and cost overruns due to environmental and social impacts, The Nature Conservancy says. Hydropower by Design can identify portfolios of projects that have superior internal rate of return values that can “pay for” economic, social or environmental objectives.
A case study from Colombia illustrates the benefits, with projects selected under the Hydropower by Design approach meeting energy objectives with 66% less social impact and 5% fewer environmental impacts when compared to a business as usual approach, while also achieving a greater average IRR (22% vs 13%) and a superior net present value ($5.3 billion versus $2.4 billion).
Click here to download the report.