The Economic Performance of Hydropower Dams Supported by the World Bank Group, 1975–2015

Abstract

This paper assesses the economic benefits of 57 World Bank Group-sponsored hydropower dam plant investments. Hydropower dams are among the main sources for producing electricity and the largest renewable source for power generation throughout the world. Hydropower dams are often a lower-cost option for power generation in Clean Energy Transition for addressing global climate change. Despite its conspicuous aspects, constructing hydropower dams has been controversial. Considering the World Bank’s long history as the largest hydropower development financier, this study investigates its performance in supporting hydropower dams. The outcomes of this study apply to the wider hydropower development community. Of the projects in this study, 70% experienced a cost overrun, and more than 80% of projects experienced time overruns, incurring potential additional costs as a result. Despite the high cost and time overruns, this hydropower portfolio of dams produced a present value of net economic benefits by 2016 of over half a trillion USD. Based on our findings, the evaluated hydropower portfolio helped avoid over a billion tonnes of CO2 for an estimated global environmental benefit valued at nearly USD 350 billion. The projects’ additional environmental benefits raise the real rate of return from 15.4% to 17.3%. The implication for hydropower developers is that the projects’ assessment should consider cost and time overrun and factor them into the project-planning contingency scenarios. There is a considerable benefit for developing countries to exploit their hydropower resources if they can be developed according to industry practices and international standards. The case for developing hydropower may be stronger when considering its climate benefits. The net economic benefits of hydropower can be even higher if there is a greater effort to manage cost and time overruns.

A Cost-Benefit Analysis of Bakhtiari Hydropower Dam Considering the Nexus between Energy and Water

“…A recent survey on 57 World Bank Group-sponsored hydropower dam plant investments showed that dams produced a present net value of over half a trillion USD by 2016. The evaluated hydropower portfolio reduced over a billion tons of CO 2 that amounted to nearly USD 350 billion when taking the global environmental benefit into account [24]. Hence, hydro dams usually contribute to no poverty but assessing their impact on mitigating climate change needs multi-aspect models consisting of various media [25].…”

A Test of Hirschman’s Hiding Hand Principle in World Bank-Financed Hydropower Projects

“…The estimated nominal costs are extracted from the Staff Appraisal Reports (SARs) and Implementation and Completion Reports (ICRs) made available by the World Bank for each of the projects. Following Bacon and Besant-Jones (1998), Awojobi and Jenkins (2015), and Baurzhan et al (2021), the estimated real cost is taken as the difference between the estimated nominal cost and the amount set aside as price contingency. The actual nominal costs are extracted from the ICRs of the World Bank, while the actual real costs are the deflated actual nominal costs.…”

“…The total actual real cost is computed as follows: where is the actual nominal cost, FCX is the foreign component, is the foreign price index, and is the domestic price index. Finally, cost overrun is computed as the ratio of actual real costs to the estimated real cost. The benefits of the hydropower projects are calculated as the value of the avoided generation costs of fossil fuel-powered plants that would be required to be built and operated to supply the same volume of electricity as would be supplied by the hydro dam (Zuker & Jenkins, 1984; Baurzhan et al, 2021; Jenkins et al, 2022). These avoided costs were estimated based on the exact technologies and their degree of displacement specified by the World Bank at the time of appraisal.…”

Construction Time Estimation Function for Canadian Utility Scale Power Plants

“…For example, most of the nuclear power plants used in this study were constructed during the 1970s. A subsequent study examined hydroelectric power plants and their time overruns by considering 57 hydroelectric dams installed between 1975 and 2015 [28]. This study only included hydroelectric facilities financed by the World Bank Group and assessed the uncertainties in the costs and benefits of the technology.…”

“…This study only included hydroelectric facilities financed by the World Bank Group and assessed the uncertainties in the costs and benefits of the technology. The data analyzed indicated that 80% of the 57 facilities considered experienced a time overrun, which highlights the need to accurately predict the construction of hydroelectic facilities [28].…”