Hydropower sector receives green light for climate bond finance

The launch of Climate Bonds Standard criteria for hydropower paves the way for a “new era” for green investment in renewable energy and will help accelerate global decarbonisation efforts, says the International Hydropower Association (IHA).

The hydropower sector-specific criteria were released earlier today by the Climate Bonds Initiative (CBI), a not-for-profit organisation responsible for climate bond standards and certification.  

CBI certified climate bonds are widely regarded as the best way to direct investment to infrastructure that supports the Paris Agreement while reducing negative impacts on local environments and communities. CBI criteria already exist for solar power, wind power, marine energy and geothermal power among other industries.

Following the announcement, developers, banks, governments and other investors can now issue certified climate bonds to finance or refinance hydropower projects that comply with strict social, environmental and climate criteria. Pumped storage, run-of-river and impoundment facilities of any size are eligible.

Eddie Rich, Chief Executive for IHA, said: “The world needs urgent investment in renewables to avert catastrophic climate change. Until now, however, the lack of specific hydropower climate bond criteria has meant that most issuers have either excluded hydropower or limited investments to small-scale projects.  

“The CBI’s new Climate Bonds Standard criteria clears the way for significant additional investment in sustainable hydropower. It provides the clarity and assurance that investors, governments, the industry, as well as local communities, have demanded for years. To qualify, new and existing projects must now assess their environmental, social and governance (ESG) performance and report a low carbon footprint.  

“Let there be no mistake, these are tough criteria to meet for any energy industry. Whilst the hydropower sector can be proud of being held to the most rigorous sustainability investment criteria for any renewable, we will continue to strive for a level playing field to ensure that good green projects don’t get left behind. Nonetheless, this marks the beginning of a new era for investment in sustainable hydropower.”

The Climate Bonds Initiative (CBI) is an international investor-focused and not-for-profit organisation working solely to mobilise the US$100 trillion bond market for climate change solutions. To-date, worldwide green bond issuances have reached over US$1 trillion.  

In order to limit the rise in global temperature to well below two degrees Celsius, the International Renewable Energy Agency (IRENA) estimates worldwide hydropower capacity will need to grow from just over 1,300 GW today to reach 2,150 GW by 2050. Annual investment in hydropower topped US$50billion in 2019, but this is far short of the estimated US$100 billion required, according to the International Energy Agency (IEA).

The Climate Bonds Standard criteria for hydropower stipulates use of two sustainability assessment tools supported by the International Hydropower Association (IHA) and a multistakeholder coalition of organisations. These tools are the ESG Gap Analysis Tool for identifying and addressing gaps against recognised good practice across 12 environmental, social and governance assessment topics; and the G-res Tool for reporting the estimated net greenhouse gas emissions of a reservoir.  

Notes to Editors:

Renewable hydropower is a reliable, versatile and low-cost source of clean electricity generation and responsible water management. Modern hydropower plants are helping to accelerate the clean energy transition, providing essential power, storage, flexibility and climate mitigation services.  

CBI Climate Bonds criteria have already been developed for solar energy, wind energy, marine renewable energy, geothermal power, low carbon buildings, low carbon transport, water infrastructure and forestry.

Key CBI criteria

Under the new CBI criteria, to qualify for a climate bond a hydropower project must:

- Demonstrate it meets international good practice with an official sustainability assessment using the Hydropower Sustainability ESG Gap Analysis Tool (HESG), one of the Hydropower Sustainability Tools. The assessment must be carried out by an accredited assessor, be publicly available, and show:  

  • No more than 10 gaps in total against international good practice.
  • No more than 2 gaps in each section.
  • If gaps are identified, the majority must be closed within 12 months and the remaining within 24 months.

- Demonstrate it has a low carbon footprint: recording either a power density of more than 5 W/m² or an emissions intensity of less than 100 gCO2e/kWh. For newer projects (in operation from or after the year 2020), the power density should be greater than 10 W/m² or the emission intensity should be less than 50 gCO2e/kWh. Emissions intensity can be estimated using the G-res Tool.

Projects of all sizes, types (including pumped storage), and in all locations, will be eligible, provided they meet the CBI criteria.

Learn more about CBI climate bonds and view the eligibility requirements:  

Learn hydropower key facts by visiting IHA’s website:  

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