Hydropower Renaissance Signals Investment Surge

According to the World Energy Council’s latest World Energy Resources (WER) report, hydropower already provides a substantial proportion of energy worldwide, contributing approximately 15 percent of global electricity production. Indeed in several countries, for example Iceland, Nepal and Mozambique, hydropower accounts for over half of all electricity generation.

In terms of capacity, this new analysis declares the top five largest hydropower markets as Brazil, Canada, China, Russia and the U.S. Of these, China significantly exceeds the others, representing 24 percent of the total global installed capacity.

Perhaps more significantly, during 2012, an estimated 27-30 GW of new hydropower and 2-3 GW of pumped storage capacity was commissioned worldwide, the report says. Noting the growth in hydropower was facilitated by renewable energy support policies and penalties related to carbon dioxide emissions, WEC finds that the total global installed hydropower capacity has increased by 55 percent over the last two decades. Furthermore, since the last report three years ago, hydropower installations have seen growth of some 8 percent.

The report is published to coincide with the triennial World Energy Congress, held this year in Daegu, South Korea. This major event brings together global energy leaders and policy makers to explore a route to resolving the energy “trilemma,” which is secure, affordable and sustainable energy access for all.

Richard Taylor, executive director of the International Hydropower Association, echoed the WEC report’s findings, saying negotiations with environmental activists, banks and other players since 2000, which led to the 2011 Hydropower Sustainability Assessment Protocol, have been rewarded with “record deployment” since 2007.

Meanwhile, Oskar Sigvaldason, founder and president of environmental consultancy form SCMS Global, told the 6,000 assembled delegates that in mature markets such as the United States and Canada, “the lowest cost charges are in those jurisdictions which happen to be hydro-dominated.” His message regarding hydro was emphatic, “wherever it is, it should be built,” he said.

This positive attitude towards hydropower investment is reflected in a recent report that highlights a forecast for significant cash flow into the sector.

New analysis from GlobalData finds worldwide cumulative hydropower installed capacity is expected to increase from 1,065 GW in 2012 to 1,407 GW in 2020, at a Compound Annual Growth Rate (CAGR) of 3.5 percent. Over the same period, hydropower investments are expected to reach US $75 billion.

Breaking down the capacity profile, GlobalData forecasts that by 2020 some 1,052 GW of the total will come from large hydro capacity, with 215 GW of pumped storage and 140 GW of small hydropower capacity.

The Asia-Pacific region is expected to dominate the capacity growth, at approximately 208 GW in total, with China alone likely to contribute 147.3 GW over the forecast period. India, Indonesia and Vietnam are big players too, planning to add around 23.2 GW, 9.4 GW and 5.8 GW, respectively, the analysis adds.

Meanwhile, Europe and North America, which have mature hydropower markets, will also experience growth in installations, with the respective addition of 271 GW and 197 GW. Expansion of pumped storage capacity and the modernization and refurbishment of existing plants is expected to drive investment in these regions.

According to the report, overall the hydropower market is a lucrative area for investment, with a less risky portfolio than other renewables. Furthermore, various countries have announced expansion targets and support programs for the development of this sector, the document adds.

Commenting, GlobalData power sector analyst, Swati Singh, said: “Although fossil fuels dominate electricity generation across the world, more than 60 countries use hydropower to meet more than half of their electricity needs. The technology is the most popular non-polluting source of electricity generation for various reasons, including its ability to respond to changing electricity demand, water management and flood control.”

Evidence of the scale of investment in hydropower projects can be seen in Laos, where China was reportedly the county’s largest foreign investor in the first 11 months of the 2012-2013 financial year, with over $1.33 billion of inward cash. The 290-MW Nam Ngiep 1 hydropower project in Borikhamxay province was apparently responsible for more than $868 million of this total. Construction is expected to commence next year with completion scheduled for 2019.

It is also potentially the scale of such investments that makes them opportunities for a multitude of players. An example comes from the Democratic Republic of Congo and its giant Grand Inga 3 project. Three groups of companies are already bidding to develop this $12 billion, 4,800-MW project. But, according to media reports, Energy Minister Bruno Kapandji said at a recent mining and infrastructure conference: “We’re open to other operators [joining the bid groups] the candidates are not closed.” A development group is expected to be chosen next summer.

Inga 3 is the first new phase of the proposed eight power plant and cumulative 40 GW capacity Grand Inga project, which will make it part of the world’s largest hydropower installation.

It’s not just enormous projects like Grand Inga that are attracting investors though. Small hydro, too, has seen a resurgence. A recent example comes from the UK where venture capital group Albion Ventures has invested £9.3 million ($16 million) in partnership with Green Highland Renewables to fund the development of a single 2-MW hydropower scheme in the Scottish Highlands. The group says it expects the scheme to benefit from the UK’s feed-in-tariff regime.

In closing the World Energy Congress, UN Secretary General Ban Ki-moon reaffirmed his pledge to provide one billion people across the globe with access to sustainable energy by 2030, “energy is the golden thread that connects economic growth, environmental health, social fairness and opportunity,” he said. 

Ban Ki-moon continued: “Clean, modern and affordable energy services are essential for sustainable development and achieving the Millennium Development Goals.”

Indeed, subsequently Executive Secretary of the United Nations Framework Convention on Climate Change, Christiana Figueres, speaking at a press conference, was unequivocal: “The quality of future energy will determine the future quality of life of people on this planet.”

Of course, they weren’t referring to sustainably developed hydropower alone, but they nonetheless defined it perfectly.

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