Hydropower projects can support sustainable development but they’re often seen as risky so can struggle to get finance. A new framework from FutureDAMS researchers Plummer Braeckman and Markkanen for identifying, measuring and managing risk for large hydropower projects in low-income countries (LICS) and lower-middle income countries (LMICs), aims to maximise the likelihood of a project obtaining sustainable finance.
Demand for low-carbon electricity generation infrastructure development in LIC and LMICs is increasing. Large hydropower, when properly planned and implemented, provides an affordable, reliable, sustainable and modern source of low-carbon electricity. It can help communities, nations and regions to access a stable supply of electricity, thus supporting economic and social development and environmentally sustainable industrialisation.
Financing such large hydropower projects can be challenging: there’s often a shortage of public funds for infrastructure investment so projects need to be increasingly financed and developed by private sector actors through alternative financing arrangements such as public–private partnerships. But private financing organisations make investments to see a return and they’re unlikely to engage in ventures that are in unfamiliar country contexts or that they consider to be too risky.
Private sector financiers need to access information that enables them to comprehensively and accurately understand and estimate the risks associated with infrastructure investment.
Click on the image to explore the interactive risk framework.
Through a 2-part series of working papers, Plummer Braeckman and Markannen have been developing the tools to support public and private sector actors. The first paper establishes an analytical framework. The framework can be used for identifying, measuring and managing risk for large hydropower projects in LICs and L-MICs. It provides a structured approach to the analysis of risk which can aid governments, developers, lenders and investors in maximising the likelihood of a project obtaining sustainable finance.
The second paper integrates original qualitative and quantitative data on financiers’ perceptions of risk into the framework. The findings suggest that many of the greatest risks associated with large public-private-partnership (PPP) hydropower projects in LICs and LMICs are those that may cause reputational damage to the parties involved, such as social and environmental risks.
The results presented in the papers will enable governments and developers to take targeted action to reduce risk and thus facilitate more effective use of the PPP financing model for large renewable energy infrastructure projects in LICs and LMICs, where additional large-scale sustainable electricity generation capacity is most needed.