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Hydropower Overview

Worldwide, 1.2 billion people lack access to electricity. Of these, 590 million live in sub-Saharan Africa—about two-thirds of the continent’s population. Another 418 million without electricity live in South Asia. In many countries, access to electricity is below 10%. 

Countries cannot realize sustainable economic growth and poverty education without a stable supply of electricity. It enables children to study after dark, clinics to store medicine safely, and people to charge their mobile phones, which they use to access development or business opportunities. Industry and business stagnate where electricity is absent or unreliable.

Along with constrained access to electricity, by 2025, 2.4 billion people will be living in countries without enough water to meet all their needs. Water security is threatened by increasing demand for water, mismanagement of available water resources and increasing changes in weather patterns due to climate change. Every year, floods and droughts cost 5-10% of GDP in countries with negative consequences that linger for years.

Hydropower is the world’s largest source of renewable energy, accounting for a fifth of global electricity.  Hydropower has helped drive economic growth in numerous countries, including Brazil, Canada, China, Norway, and the United States.

As demand grows for clean, reliable, affordable energy, along with the urgency of expanding access to reach the unserved, hydropower has assumed critical importance. Not least, this is because sub-Saharan Africa, where the access deficit is largest, has 400 gigawatts of undeveloped hydro potential—enough to quadruple the continent’s existing installed capacity of 80 GW.

Lessons from the past, together with emerging global dynamics, have recast the role of hydropower and prompted revived investment, along with rehabilitation of existing capacity.

The opportunities are great. But hydropower development poses complex challenges and risks too. These risks vary significantly by the type, place, and scale of the project. And while large storage hydro may offer the broadest benefits to society, it also tends to present the biggest risks.  Reservoirs sometimes mean resettlement of whole communities, the flooding of large areas of land, and significant changes to river ecosystems.

These risks are not to be taken lightly. They must be managed and mitigated. Over years of experience in implementing complex hydropower projects, the Bank Group has developed expertise to ensure that they both bring benefits to the poor and help grow economies, while minimizing environmental impacts.

Last Updated: Mar 24, 2014

The World Bank Group is firmly committed to the responsible development of hydropower projects of all sizes and types—run of the river, pumped storage, and reservoir—including off-grid projects meeting decentralized rural needs.

The Bank Group supports interventions and demand management approaches to address and integrate energy consumption and water resource issues in ways that maximize benefits and minimize risks. This arises from the recognition that hydropower is not only a vital renewable energy resource, but for many countries, it is the only renewable energy that has the potential to expand access to electricity to large populations. Yet it remains underdeveloped in many countries, especially in Africa, where less than 10% of hydropower potential has been tapped.

When designed properly, hydropower projects can deliver benefits far beyond energy and water security. They often lead to investments in roads, social infrastructure, communications, and skills building to support local or regional economic development. They can also provide power generation for industrial, manufacturing and commercial operations that create jobs.

The intent in such projects is to recognize the potential synergies and efficiencies available when hydropower infrastructure is considered within the broader landscape of development and poverty reduction. Multipurpose hydropower dams can support adaptation to increasingly extreme weather conditions by strengthening a country’s ability to regulate and store water and so resist flood and drought shocks.

By having the World Bank Group cover the investment risk, countries can secure investment from the private sector to realize their energy and water security projects. Perceived high risk has traditionally inhibited private sector investment in infrastructure in many countries.

Sustainability: There are better and worse ways of doing hydropower projects. Hydropower projects entail significant economic, environmental, and social risks, which must be managed. The Bank Group has developed safeguard policies used by many that address and attenuate potentially adverse social and environmental impacts.

The Bank Group also helps client governments strengthen their capacity for early incorporation of environmental and social dimensions in hydropower projects, including consultations, benefit sharing, and inclusion of indigenous peoples. 

The Bank Group supports the Hydropower Sustainability Assessment Protocol, an enhanced sustainability assessment tool used to measure and guide performance in the hydropower sector, launched in Brazil in 2011.

The Protocol is the fruit of several years of effort by representatives from social and environmental NGOs (Oxfam, The Nature Conservancy, Transparency International, WWF); governments (China, Germany, Iceland, Norway, Zambia); commercial and development banks (Equator Principles Financial Institutions Group, World Bank); and the hydropower sector, represented by the International Hydropower Association, to develop the protocol.

Financing: Since the 2003 Water Resources Strategy, which states that the Bank would re-engage in hydraulic infrastructure, the World Bank (which includes the IBRD/IDA, GEF and Recipient Executed Activities) has approved about 100 projects related to hydropower (fiscal years 2003-13), for a total of US$5.7 billion in financing. 

The World Bank portfolio since 2003 shows:

  • 48% of projects were for green-field investments, 27% supported rehabilitation, and the remaining 25% were for technical assistance and preparatory studies.
  • Of our green-field and rehabilitation projects: 36% were storage hydro, 31% run-of-river, and 30% programs for small-scale development (including off-grid micro hydro). The remaining 3% of projects were pumped storage.

During this period, the Bank Group also facilitated 21 carbon market transactions around hydropower to offset emissions from other technologies.  Of these, approximately 60% were for run-of-river projects.

The IFC has approved 42 hydropower projects totaling US$1.3 billion over the last decade.

Last Updated: Mar 24, 2014

Nam Theun 2 in Lao PDR:  The World Bank facilitated financing, as well as environmental and social benefit-sharing programs associated with the 1,080 MW Nam Theun 2 Hydropower Project in Lao PDR, widely recognized as a prime example of sustainable hydropower.  Since the project was commissioned in 2010, over US$50 million in revenues have been allocated to poverty reduction and environmental protection around the country.  Besides helping avoid large amounts of greenhouse gas emissions, the project provides over US$1 million a year to help safeguard a significant national protected area.  Meanwhile, 87% of those who have been resettled reported that their lives have improved after resettlement, and that services, as well as livelihoods have improved. Socio-economic monitoring data shows that incomes are now well above baseline levels, public health is improving, and more children are attending school.

Bujagali in Uganda:  In Uganda, until recently, power blackouts averaged about 12 hours a day, while only 5% of the population had access to electricity.  To address this persistent energy challenge, the Bank Group led financing for the Bujagali run-of-river hydropower project.  With Bujagali’s five turbines now providing up to 250 MW of generating capacity since its commissioning in 2012, blackouts have been eliminated.  Bujagali Hydropower now meets 49% of Uganda’s electricity needs and constitutes 90% of the country’s renewable energy sources, placing its electricity supply among the cleanest in the world.  Reliable electricity service has allowed schools, universities, and hospitals to reduce the overall costs of energy while offering better services, such as night classes at universities and diagnostic tests at clinics.  The Bujagali project includes a comprehensive social program that seeks to restore and improve the livelihoods of local communities.  The private sector sponsor of the project, Bujagali Energy Limited, committed to spending US$2.8 million on programs ranging from environmental conservation to health, from sanitation to education, agriculture to vocational training, as well as other community development programs.

Last Updated: Mar 24, 2014