Directions in Hydropower

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1 Directions in Hydropower World Bank Water Week 2009 Tackling Global Challenges February 17, 2009 Daryl Fields Senior Water Resources Specialist The World Bank

2 A long, elegant but complex legacy No statistics are needed to support the proposition that sustainable development in Africa will remain an illusion without electricity African Ministerial Conference on Hydropower (March 2006)

3 Directions in Hydropower: Outline of Presentation 1. Where are we at? 2. What are priorities going forward? 3. What challenges persist?

4 World Bank Group Lending for Hydropower World Bank Group: Hydropower Components by Approval Year (FY) (Value of WBG Contribution to Multipurpose Hydropower Components) US$ millions Steep decline in lending, reflective of Bank and bilateral ODA trend in infrastructure Smaller projects, with introduction of carbon financing; China dominates generation projects Average : <$250 million/year Average : $500 million/year FY2008 > $1 billion

5 Run of River, 48% Active Projects Breakdow n by Value Rehabilitation, 24% A Diverse Portfolio Storage, 28% Europe & Central Asia 17% World Bank Group: Hydropower Components by Region for FY Latin America 2% Middle East & North Africa 2% Africa 32% South Asia 22% East Asia & Pacific 25%

6 Four Drivers of Value Ø Ø Ø Ø Greater focus on energy security in an increasingly complex sector More mature understanding of the cost of hydrologic variability and the concept of water security Development programs and natural resource management based on regional coordination Shaped by the imperative of mitigating and adapting to climate change Energy Security Regional Coordination Water Security Climate change è The strategic value of hydropower is expanding

7 Opportunities Economically Feasible Hydro Potential & Producation (by World Bank Region) 2,000,000 1,800,000 Economically feasible* hydropower potential Production by hydro plants in 2004/05 (or (average 1,600,000 1,400,000 G W h / y e a r 1,200,000 1,000, , , , ,000 0 EAP (wo China ECA Hi Non LAC MENA OECD SA SSA China) OECD Source: Based on International Journal on Hydrpower and Dams, World Atlas 2006 and various national statistics Scaling up is not limited by technical potential. Opportunities for broader sustainability benefits are possible, with a new perspective

8 Risks and Challenges Financing Gap Difficult environment for private sector (stability, clarity and corruption) Limited funds and poor allocation of risk for project preparation Hollow Pipeline Lack of planning, project priorization for new drivers Lost tradition of pre feasibility studies Capacity Gap Limited availability of quality service firms Under developed institutions and expertise in client countries Lost internal expertise Environmental/Social Risks Limited experience implementing new standards/opportunities Need to integrate with engineering design and implementation Limited hydrological analysis Lack of data Need to introduce climate change implications

9 Directions in Hydropower: Outline of Presentation 1. Where are we at? Hydropower and hydro infrastructure are back on the agenda driven by its increasingly strategic role in development But it will remain a challenging sector 2. What are priorities going forward? 3. What challenges persist?

10 Looking Forward: World Bank Priorities Help clients understand and capture the strategic value of hydropower resources adopting a triple bottom line approach

11 Two Tracks TRACK 1: Investment Lending Range of project types; Executed in a timely manner; Leveraging WBG partnerships Lower costs Increased private sector Greater development impact Environmental and social benefits TRACK 2: Strengthen Foundations Promote sustainable practices, Leverage regional development, Strengthen planning, Scale up financing, Build partnerships

12 Track 1: Investment Lending Goal: Help clients capture the strategic value of hydropower resources Promising pipeline projects totaling more than US$2 billion Sustained lending is considered reasonable but requires a strong focus on energy and water planning. Need to pursue significant opportunities for: collaborations across WBG businesses broadening activities across sectors, and partnering with private and emerging financiers. Regions vary considerably in projections Regional distribution of potential hydropower projects (US$ millions approximated from IBRD/IDA pipeline) SAR $800 (35%) LCR $60 (3%) ECA $30 (1%) EAP $540 (24%) AFR $860 (37%) Source: World Bank: Business Warehouse; Project Staff Appraisal Reports; Project Appraisal Documents; Implementation Completion Reports, World Bank Carbon Finance Unit, and IFC Infrastructure Department.

13 Track 2: Strengthen Foundations Goal: Help clients capture the strategic value of hydropower resources Strengthen Planning Promote good practice Scale Up Financing Leverage regional development Build partnerships

14 Strengthen Planning Integrate resource planning Blend water and energy planning Upstream environmental and social issues Optimize multi purpose designs Optimize hydropower across energy sources Climate change Refresh pipeline of projects Pre feasibility studies IFC InfraVentures Fund Beyond World Bank Group Integrate with adapatation strategies and national low carbon futures Integrate reservoir emissions into EIAs Strengthen hydrological analysis Build flexibility into infrastructure design, assessment and operations

15 Directions in Hydropower 1. Where are we at? Hydropower and hydro infrastructure are back on the agenda driven by its increasingly strategic role in development But it will remain a challenging sector 2. What are priorities going forward? A two track track approach is needed to realize energy and water management benefits through investment lending; and improve the capacity and strength of the sector through policy advisory and technical assistance In particular, planning needs to be strengthened to build a pipeline of projects that adopt a water/energy perspective 3. What challenges persist?

16 Challenges to Ponder How do we blend public and private resources to allocate risk appropriately and mamize advantages of multi purpose investments? What are the most effective mechanisms for capacity building for sustainability? How should hydropower be integrated into the climate change agenda? What is needed to ensure adaptability in the face of ever changing hydrology, societal priorities, and market opportunities?

17 Thank you