Propelled by the 2016 Paris Agreement there is global impetus towards clean renewable energy. The need now is to invest in ‘paradigm shifting technology’ to fuel clean development,and with the help of think tank reports and energy expert analysis we have clearer understanding of what the harbingers of this endeavour are: biomass, geothermal, wind power, solar, ocean energy, biofuel, and hydro*. 

An asterisk (or parentheses) after hydropower alerts one about the numerous caveats surrounding this technology. Hydropower (other than small hydro) is not considered new or paradigm shifting. Indeed, the parentheses for small hydro being the lack of consensus of what it means; reports define it to be anywhere from  <10 to <50 MW. Yet, it is this caveat that determines the future of investments into hydropower -- and the future of the countries who rely on them--in our climate conscious world.

The investments into hydropower, especially in climate vulnerable developing countries, are complicated because they interlace with the Right to Development and the principle of climate justice. Radical arguments for starving investments from hydropower without consideration of historical and political complexity is a disservice against the fight to eradicate poverty and manage climate change.

Global Investments

In early April, a letter, addressed to the Board of Directors of the Global Climate Fund, and signed by 272 environmental organisations asked that no investments to be made on “large” hydropower. The letter highlighted three projects that were at in the GCF pipelines: Qairokkum Hydropower Rehabilitation (126 MW), Tajikistan; Tina River Hydro Project (20 MW), Solomon Islands; and Upper Trishuli-1 (216 MW), Nepal. The last of which was not up for the April review.

They argued that technology used in large hydros – regardless of whether its reservoir or run-off-the-river, as in the case of Upper Trishuli 1 – was not paradigm-shifting and its climate resilient reputation was doubtful.

GCF is the financial mechanism under the UNFCCC, which helps finance investment in climate-resilient development. The fund “helps developing countries limit or reduce their greenhouse gas (GHG) emissions and adapt to climate change. It seeks to promote a paradigm shift to low-emission…taking into account the needs of nations that are particularly vulnerable to climate change impacts.”

The question of whether hydro ought to be considered clean or not – or will continue to be considered clean – is an important one for investment starved countries like Nepal, Tajiskistan, Kyrgyzstan, and Solomon Islands (all countries either low or medium in human development). In countries with immense hydro potential, it is this sector that continues to be the most attractive for Foreign Direct Investment (FDI). The competition for access to infrastructure investment is already high. According to the Asian Development Bank (ADB), Asia needs to invest USD 26 trillion by 2030 to resolve a serious infrastructure shortage, to maintain growth and address climate change, i.e. an estimated demand of USD 1.7 trillion per year to meet its infrastructure gap. The gap is particularly wide in the power sector. Only a fraction of which is currently met, whether through international financial mechanism, through public-private investments or institutional investors. As demand for clean infrastructure increases and the supply of capital remains limited, the priority given to infrastructure investments – especially by international financial institutions — will change.

Hydropower plants, with huge political and environmental risks will be a financially treacherous.

The GCF board has given the go-ahead to Qairokkum Hydropower Rehabilitation, and Tina River Hydro Project. But the concerns about hydro are unlikely to die down. Protest against hydropower rage from Brazil to Kenya. Increasingly Green Chip investors in the developed markets are weary about the future of hydro. The climate and political risk continue to put them off as they find new and less capital intensive renewables in which to to invest. For instance, while investments in wind and solar have been rising, investments in small hydro --defined as <50 MW -- has continued to decline since the 2010. It stands at USD 3.5 billion compared to USD 113.7 billion for solar and USD 112.5 billion for wind. The 48 percent decline in hydropower investment between 2015 and 2016 reflect the trend of shrinking interest. 

Development Banks, a major backer of hydro, are cautious of adding large hydro to their portfolio. Compelling projects and governments to be more creative with capital generation in order to stay attractive to new classes to investors. Improved investments require a stable and conducive policy and an environment which ensures payment security. None of which is facilitated by environmental fear mongering over hydropower, making the task of these countries more difficult.

Case against hydro

To be certain, the case against certain hydropower projects, especially the reservoir type, is unflattering. Studies show that reservoirs emit methane, which the Intergovernmental Panel on Climate Change (IPPC) estimates has a  Global Warming Potential (GWP) of 34 – it has 34 times the impact of carbon dioxide on the atmosphere over a 100-year period. The GWP for a 20 year period is estimated to be more devastating at 84, before it decays into CO2. Further, hydro projects endanger fish from migrating, alter ecosystems, and destroy carbon sinks. Additionally, there is the problem that climate change itself is altering river flows and making it harder to sustain hydro projects. A 2012 study, in the journal Nature Climate Change, concluded that emissions from hydropower, especially in tropical regions, were often underestimated and could exceed those of fossil fuel for decades. The study also makes the case that Clean Development Mechanism should stop helping fund large dams without considering their carbon footprints.

Even notwithstanding the debate about the exactitude of climate changes impact on hydropower generation (or hydropower generation’s impact on climate change)  consider a list of other climate findings: Nepal’s contribution, for instance, to global climate change is negligible, its CO2 emissions (metric tons per capita) are at mere 0.2 versus 11.7 of Norway, 37.8 for Qatar, and 16.4 for the USA. IEA reports suggest Nepal’s per capita electricity consumption is at 128 kwh/capita versus the Asian average of 918. Yet it suffers tremendously from climate change – a problem for which it has no historic blame. The stats are similar for countries like Tajikistan with a CO2 emissions (metric tons per capita) 0.44,  and Kyrgyzstan is at 1.72 metric tons.

 Methane as reported in CO2 equivalent over 100 years conversion period is at 5,408 for Tajikistan, and 1,449 for Solomon Island  versus 499,809 for the US, and 106,847 for Canada. Then there is a question of atmospheric trade offs. Studies of life cycle assessments show that majority of life cycle greenhouse gas (GHG) emission estimates for hydropower - run off the river- cluster between about 4 and 14 g CO2eq/kWh, whereas the figures for coal, across all technologies, was at 979 g CO2e/kWh. Natural gas weighed in at  450g CO2e/kWh. The figures of coal and natural gas are important. In the lack of stable renewable sources much electricity being produced or imported into these growing economies comes from these energy sources.

For instance,  Nepal is economically burdened by the import of petroleum and LPG, choked by the haze of black carbon, and reduced to buying coal-fuelled electricity from India. This despite having the potential to produce and export enough hydroelectricity for its own needs and then some for a growing economy like India. Lack of institutional investments and continued obstructionism intensely harms economic and environmental health of this climate vulnerable country. How environmentalists can recommend obstructing international investments to develop hydropower in Nepal seems incomprehensible. As historian and environmentalist Martin W Lewis writes, “Environmental opposition to such plans and projects is understandable, as they all come at a big cost to nature. But the huge atmospheric trade offs must also be acknowledged.” 

If the argument of right to develop, climate justice and the principle of common but differentiated responsibility are to have any validity then rants against investing in  countries in need of capital must stop. This is not to argue that countries that have been historic non-polluters should have a pass to develop irresponsibly. Reform in the hydropower sector, and investing criterion calls for intense environmental and social impact assessments into project feasibility. And governments and international institution that stand as guarantees are increasingly responsive and open to such consideration. Risk screening for project financing include an increased emphasis on climate change impacts and natural disaster risk, with both the World bank and IFC working to make projects climate smart and resilient. 

Then there is the issues of human rights. Land, often belonging to indigenous people is allocated and flooded with little consultation or just compensation. And even when there is stakeholder engagement it is often limited, not particularly inclusive and alienating. The issue of resettlement is an important one, and is of intense consideration during project impact studies. Hydro sector has come a long way to acknowledge and systematically address many complex issues. Stakeholder engagement, consultation, impact assessment and resettlement programs are legally mandatory. Any project that damages human settlement without stakeholder consultation, timely and just compensation or grievance redress mechanisms is a non-starter. Could project developers, funders and governments do more when these protocols are violated? Of course. But to suggest that they haven’t tried or regardless of attempts to move towards implementing ever rigorous standards hydro is inherently as condemnable as fossil fuels is disingenuous.

Any argument that seeks to limit access to finance for hydro in countries with untapped potential must be accompanied by an argument for transfer of technology, increased finance for improved grid connectivity, and other renewables. For now other forms of renewables cannot meet the growing demand -- regardless of how carefully the demand side is managed. Without any acknowledgment of trade-offs or the potential of these investments to lift millions out of poverty, limiting access to finance in hydropower rich but energy poor countries is fighting the wrong fight.

Slok Gyawali is a Senior Analyst (Environment and Energy) at the Kathmandu-based Global Institute of Policy Studies (GIPS).

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