The actual costs of hydropower megaproject development

By | 2018-01-12T09:17:59+00:00 March 31st, 2014|Energy, Finance, Hydropower|0 Comments

My name is Catherine, I have many years experience in the financial sector and I have always cared about and been engaged with the environment and conservation.

Over the past few months, I have been working with Synchronicity Earth on a voluntary basis, exploring how we can get more information on the environmental impacts of large- scale dams considered more widely. Most importantly, I have been thinking about why and how investors and financers might wish to receive and understand more information about large-scale dams to ensure they are better equipped to make good decisions for business and finance, as well as for the environment and society. The hope is that this will make large-scale dams less damaging and less risky or, even, just less likely to get built.

Many countries need to produce more electricity to support socio-economic development. There has been an increasing trend over recent years to do this by building large hydro-generation schemes that require construction of large dams.

The reservoirs behind these dams flood vast areas, producing significant quantities of methane as vegetation decomposes. There is a large body of evidence that shows there are severe long-term changes in river systems once a large dam has been constructed. These systems are complex. They have distinctive seasonal flood regimes supporting species that are highly adapted to local conditions.

The communities that live along these river catchments have learnt how to adapt to river dynamics. Agricultural systems often depend on seasonal flows and temporary water bodies can provide essential spawning and breeding grounds for the fish that people rely on for food and livelihoods, and that hold together ecosystems. Dams not only change the seasonality and flow rates of rivers, they also alter sediment levels, temperature, light and block migratory fish routes.

There are a number of large dams along the Zambezi River, including the Cahora Bassa and Kariba dams. Research has shown that the change in river flows has had consequences as far downstream as the coastal fisheries just beyond the river delta. A vibrant fishing industry has been hit as shellfish populations have dwindled. Even harder to quantify is the economic impact from the loss of animals and plants. We know that fish populations drop significantly with species often disappearing as conditions in the river change. Evidence suggests that it takes longer for an area to recover from drought, as changes in extent of floods also impacts the water table and water levels in underground aquifers.

Cahora Bassa Dam on the Zambezi river

Having looked at how the economics of these environmental and social impacts are being accounted for, it was interesting to read a report published in March this year by a team from Oxford University’s Said Business School. The study by Ansar et al. compared construction costs against the generated revenue of 245 large dams and concluded that the cost (including schedule overruns), when combined with the failure to achieve projected electricity generation targets, meant that few projects were profitable. They identified key factors contributing to this outcome: currency fluctuations, inflation, a deficit of the necessary skills to build and run projects, as well as the impact of variable weather conditions. This makes many large dams unprofitable even before taking into account the costs of mitigating social and environmental impacts, or the increasingly erratic nature of the world’s climate.

My question then is – will these research findings contribute to changes in policy? Hopefully they will be a significant addition to a more balanced approach to future energy strategies.