TMP Systems and International Rivers have collaborated to create a geospatial assessment tool for hydropower projects called Riverscope.
It is a comprehensive tool to assess often-overlooked environmental and social risks and connect them on a quantitative level to the commercial performance of hydropower projects.
Dams have a significant and irreversible impact on ecosystems and society which expose them to operational and reputation challenges. But, at the moment, the way potential hydropower projects are assessed underestimates the environmental social and governance (ESG) risks.
Riverscope is said to quantify these financial risks in order to improve energy planning and investment.
Says Maureen Harris, International Rivers programme director: “In our work, we have frequently seen how unresolved environmental and social impacts cause project delays that inevitably result in cost overruns and severe or irreversible damage to communities, critically endangered species, and rivers.”
Riverscope has been applied to five pilot projects in Africa and Southeast Asia, including three dams planned on the Mekong River. The assessments found that large hydropower projects are often associated with ESG risks that are difficult to manage effectively or at a reasonable cost. This inevitably leads to long delays and budget overruns.
This in turn reduces the commercial value of the projects and increases the end cost of electricity when the power does start flowing. All of this makes large hydropower projects uncompetitive when compared to alternative technologies such as wind and solar by the time the power eventually comes to market.
Risk assessment in hydropower projects don’t always integrate ESG
Ben Bowie, director of TMP Systems said the Riverscope projects strong suggest that assessment processes for hydropower projects are in urgent need of an overhaul as the current assessment of large projects fails to recognise between ESK risks and commercial risks. This failure contributes to poor decision-making.
“Solar and wind turn out cheaper than hydropower in all five pilots – the business case for many large dams is suspect. Most energy planners could certainly do more to exhaust competitive alternative energy options before committing to risky hydropower projects,” said Bowie.
Riverscope combines geospatial analysis, financial modelling and in-depth qualitative investment to:
- Identify, mitigate and avoid the most serious commercial risks;
- Translate social and environmental risks into financial terms; and
- Evaluate competitive alternatives to hydropower that have a better impact.
This particular approach is grounded in a statistical project that has been tried and tested through TMP’s experience with Landscope, a system for measuring tenure risk. The analysis is based on the past performance of 281 dams used to identify quantitative and statistically significant indicators of financial risk in hydropower development. Common and comparable financial metrics are then used to demonstrate the impact of the risks on the project’s financial viability.
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ESG integration aids in investment analysis and decisions
Findings from applying Riverscope to pilot projects
- Large dams regularly face long delays of between 4 to 10 years. Riverscope’s methodology can use a dam’s location to estimate how long delays might be.
- Riverscope found that social and environmental challenges would reduce average Net Present Value (NPV) to negative 40%. The business case for these investments is very weak once a proper assessment has been made.
- Large hydropower is typically expensive and the idea of it as a cheap energy source is increasingly inaccurate. Electricity from the five pilot dams is on average likely to be 49% more expensive than locally available solar options per kWh. As time passes, hydropower becomes more expensive as alternatives become cheaper.
- Most large dams have severe ESG impacts that should put concessional finance out of reach, although this capital is still key in almost every hydropower deal. Among pilot projects assessed, Riverscope found that an average of 52,755 people were put at immediate risk of physical or economic displacement, with millions more substantially affected in areas like the Mekong River in Southeast Asia.
The Riverscope findings claim to demonstrate the urgent need for better planning in the sector to avoid ESG as well as financial risks, which should result in better outcomes for all.