Directions in Hydropower The World Bank Group Dubrovnik October 2009
Directions in Hydropower: Outline of Presentation 1. Where are we at? 2. What are priorities going forward?
World Bank Group Lending for Hydropower 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 2002-2004: <$250 million/year Average 2005-2007: $500 million/year FY2008 > $1 billion
Four Drivers of Value 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 Climate change Water Security The strategic value of hydropower is expanding
BUT Risks Remain High capital costs and traditionally long payback period Cross-sectoral, multi-disciplinary and complex Environment, social and governance concerns and uncertainties Complex water allocation across users and jurisdictions Contentious and political, esp. for transboundary rivers Late or limited WBG participation Scaling up requires sound risk management tools and decision frameworks
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 Dimension 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
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?
Looking Forward: World Bank Priorities Help clients understand and capture the strategic value of hydropower resources adopting a triple bottom line approach
Two Tracks Lower costs Increased private sector Greater development impact Environmental and social benefits
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 collaborations inside and outside the Bank broadening activities across sectors, partnering with private and emerging financiers. Source: World Bank: Business Warehouse; Project Staff Appraisal Reports; Project Appraisal Documents; Implementation Completion Reports, World Bank Carbon Finance Unit, and IFC Infrastructure Department.
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
Strengthen Planning Integrate resource planning Blend water and energy planning Take environmental and social issues into account earlier Optimize multi-purpose designs Optimize hydropower across energy sources Recognize cumulative impacts 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
Hydropower s s Dual Role in Climate Change MITIGATION Hydropower: accounts for 88% of renewable energy is a mature technology has ancillary benefits, such as system stability, peaking capability supports less certain renewable sources helps increase thermal efficiencies can store energy However: our understanding of emissions from reservoirs remains incomplete ADAPTATION Multi-purpose Hydropower: contributes to a minimum platform of infrastructure for water security helps manage the temporal and spatial allocations of scarce water resources can mitigate catastrophic events (droughts and floods) However we need: better hydrological data and analysis more attention to adaptive management and flexible design
Environmental and Social Protection: The Hydropower Kuznets Curve High Public Participation Instream flows Reservoir management Good governance Environmental & Social Costs Project design Low Low Income Income High
The Hydropower Kuznets Curve with Adaptive Management High Monitoring Experiments Flexible design Environmental & Social Costs Rehabilitation Low Low Income Income High
Expand Mechanisms for Sharing Benefits Locally, Nationally, Regionally PROJECT DESIGN e.g., multi-purpose operations SUPPLEMENTARY ELEMENTS e.g., rural electrification FINANCIAL ALLOCATIONS e.g., community development fund; taxes/royalties INSTITUTIONAL DEVELOP T e.g., infrastructure ownership POLICIES e.g., water rights Broader view of objectives More opportunities for: Building capacity Alleviating poverty Increased complexity Expectations
The challenge of combining consultation and analysis Stakeholder Engagement Affect/Emotion Values/Preferences Risk perceptions Negotiations/DResolution Modeling & Analysis Facts/Science Economic pricing Technical risk Cost/benefit/EIA
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 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
Thank you Daryl Fields Senior Water /Energy Specialist World Bank www.worldbank.org/energy