Viewpoint: It’s a New World!

I recently heard an official from the World Bank make the above declaration. The statement was made with special reference to the comparative ease of obtaining financing for hydroelectric projects today, a circumstance that starkly contrasts with the situation that prevailed a few years ago. A prime example is that the World Bank’s board of directors recently approved backing for Uganda’s 250-MW Bujagali hydropower project. After many years of failing to get needed support, Bujagali’s previous developer, in the face of strong anti-project activism, gave up and withdrew. The World Bank official surmised that, if the project’s financing proposal been put forth several years ago, “There would have been demonstrations in the streets” outside the Bank’s Washington, D.C., headquarters. Yet, the 2007 approval took place with little notice.

Among the things that have changed in recent years are that 1) the World Bank has affirmed a policy of resuming its backing of hydroelectric projects, and 2) many additional sources of project funding have become available. Financing for all types of hydro projects continues to demand considerable creativity in putting together financing packages. Yet, worldwide, ample resources of investment capital are available, and at reasonable costs. While the World Bank plays a vital role, in the overall scheme of international hydropower project financing, the Bank is sponsoring a far smaller percentage of projects and megawatts than it did years ago.

The financing that’s available from all sources is making a critical contribution to the current boom in developing new hydro projects, and in refurbishing and expanding existing projects. Additional key factors include:

  • Growing economies — especially in developing countries — need more electricity.
  • Higher energy prices make hydropower more attractive. [For the first time ever, in November 2007, the price of oil rose above US$95 per barrel. At this price level, using oil for generating electricity results in costs for fuel only (without allowance for equipment, O&M, etc.) exceeding US$0.15 per kilowatt-hour.]
  • Countries want to reduce their dependence on expensive imported fuels.
  • Climate and emission concerns also are a factor, although they are secondary to primary economic drivers.

It’s also important that developers are paying more careful attention, during the development process, to matters relating to the various affected parties and stakeholders and, also, to a wide range of needs for environmental protection. As a consequence, fewer projects are encountering the levels of opposition that have been experienced in the past.

About two-thirds of the world’s practical, conventional hydroelectric resources remain undeveloped. This provides a large reservoir of opportunity for expansion of the world’s premier source of much-needed renewable energy!

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