The hidden risks in hydropower projects
March 25, 2015
Hydropower is increasingly becoming a major source of renewable energy for emerging markets throughout Asia.
Managing the not-so-obvious risks associated with developing and operating hydropower schemes is often a key challenge in securing project finance and gaining or maintaining a social licence to operate.
“Power projects, especially in developing countries, are increasingly scrutinised by international financing organisations when providing project funding” said Dr Eleni Taylor-Wood, Principal Consultant, Environmental and Social Science at specialist power and water consulting firm Entura.
“These entities, such as the Asian Development Bank, the International Finance Corporation and the World Bank, recognise that growth must be both inclusive and environmentally sound to reduce poverty and build shared prosperity for today’s population and future generations.”
Managing risk across all stages of a project can improve the viability of a project and the overall project outcomes.
What are the risks?
It is critical that both governments and hydropower entities understand the opportunities and risks of major projects, not only at the development stage, but also throughout the ongoing operation and management of the scheme.
Typically, some of the key risks to be considered include:
- Is there an identified need, what is the future demand, and is there a market?
- What is the best energy option?
- Could any political or public sector issues affect the project?
- Is there the institutional capacity to advance the project?
- How available is the resource? Will climate change affect availability?
- Is the site appropriate? Are there other options?
- Can you connect into the grid, and where? What systems enhancements might be required?
- Who are the key stakeholders and how can they be engaged?
- What are the possible environmental and social impacts, and how can they be avoided, mitigated, offset or compensated?
- What safety issues are associated with development, construction and operation, and how can they be managed?
- What are the ongoing operational costs?
- What are the ongoing operational requirements, such as compliance requirements, condition assessments, performance monitoring, maintenance strategy and planning, and training to build operator skills?
- How will you manage unforeseen stakeholder, technical, financial, social and environmental issues?
Using international standards and sustainability assessment frameworks to manage risks
International standards and sustainability assessment frameworks can help guide a comprehensive review of risks and, in some cases, identify further opportunities to increase positive outcomes from projects.-
In 2010, the International Hydropower Association launched the Hydropower Sustainability Assessment Protocol, a framework for assessing the sustainability of hydropower projects across the world. This framework can be used to help guide a hydropower project from the early stages of consideration through to operation, identifying issues and gaps for consideration, as well as be used to assess the project’s sustainability performance.
There are only eleven accredited assessors able to officially apply the Protocol worldwide. Entura’s Dr Eleni Taylor-Wood and Dr Helen Locher are among this select group of accredited assessors, having undertaken assessments of hydropower projects in Europe, South Asia, South-east Asia and South America.
One step at a time
“Evaluating the risks in stages means that the cost of evaluation can be minimised should the project be judged unviable at any point. Not all risks can be avoided, but many can be minimised or mitigated,” explained Dr Taylor-Wood.
Early identification of key risks allows companies to manage these risks throughout a project, minimising corporate, technical, environmental and social impacts and their associated costs, including damage to corporate reputation should an unmanaged risk develop into a crisis.
Self-assessment and capacity building
“I believe that for hydropower developments to be sustainable, we need to use the lessons of the past to innovate in the present and protect the future,” said Dr Taylor-Wood.
“This means learning from mistakes and carefully assessing and managing technical, corporate, economic, environmental and social risks right across the project lifecycle, so that developments contribute positively to social, environmental and economic goals.”
Entura uses a unique, tailored self-assessment tool to assist power companies and developers to understand the risks and opportunities facing their projects and to build capacity to assess, monitor and report on those projects.
This tool is based on the assessment criteria identified in guidelines and standards such as the Hydropower Sustainability Assessment Protocol and those used by the International Finance Corporation.
In addition, it can be adapted to include other standards or to assess compliance with criteria relevant to a client’s requirements or obligations (such as internal policies and/or permit or concession conditions).
Benefits include easier access to finance, better ability to anticipate and respond to stakeholder concerns, and avoidance of delays and problems through the project development pipeline.
Entura provides expert advice to help clients:
- develop a better understanding of risk identification, assessment and sustainability, across all project stages
- self-assess a project against recognised guidelines and standards to identify whether key issues, risks and opportunities have been considered and identify potential gaps for further consideration
- meet international financing requirements
- assess viability or conduct a due diligence of a project
- undertake assessments against the Protocol
- address risk issues to improve the overall sustainability performance of projects
- build institutional capacity to develop, operate and/or maintain power schemes.
If you would like to discuss how we can assist you with assessing your project or how you can assess and track your own progress towards improved risk minimisation and sustainability, please contact Dr Eleni Taylor-Wood on +61 3 6245 4582 or Mathieu Chatenet on +856 2022 214 214.
About the author
Dr Eleni Taylor-Wood is Entura’s Principal Consultant, Environmental and Social Science. Eleni has 20 years’ experience successfully managing large-scale, complex projects that run over several years, as well as providing expert advice and independent review for a range of infrastructure and planning projects. She has worked on projects around the world including in Australia, Mozambique, South Africa, Iceland, Colombia, India, Malaysia, Mekong, Solomon Islands, Fiji and Papua New Guinea.Her experience covers a vast gamut of studies including: environmental and social impact assessment and management; strategic management of wetlands and waterway; feasibility and approvals for new hydropower projects, environmental flow determination and assessment, and sustainability assessments. Eleni is currently one of eleven Accredited Assessors under the Hydropower Sustainability Assessment Protocol worldwide.