Investment in sustainable hydropower will help countries meet their carbon reduction targets and drive economic development. Despite the strong demand for clean energy, securing favourable financing for hydropower development is a challenging and complex task.
The scale of deployment needed is big, yet attainable. The International Energy Agency (IEA) and International Renewable Energy Agency (IRENA) both estimate that the most cost effective, achievable global net zero energy system will require around twice as much hydropower by 2050 as there is today - that is between 2,500 GW and 3,000 GW, including pumped storage hydropower (PSH).
To get there we need to deploy over 45 GW a year. The hydropower sector and its partners have achieved this before - in 2012, 47 GW was commissioned. However, our forecast of the pipeline suggests that without urgent action we will fall a long way short with 590 GW of projects at various stages of development, including 214 GW of pumped storage. Even if all this capacity is built (only 131 GW of the pipeline is actually under construction) it will still leave a gap of over 700 GW.
We know the potential is out there. Off-river pumped storage can be widely deployed and the Australian National University has identified over half a million potential PSH sites globally and 23 million GWh of storage capacity. For conventional hydropower, there remains a vast amount of economically viable potential across all continents, more than enough to deliver hydropower’s essential role in the energy transition.
Potential does not just sit within greenfield sites; the hydropower fleet is ageing. Almost half of the global capacity (630 GW) is over 30 years of age, and almost 40 per cent (490 GW) is over 40 years old, according to IHA data. This presents a huge investment opportunity, not only to secure existing capacity, but also to increase both generating capacity and capability, allowing more flexible operation in response to changing electricity grids and climate change.
We also know that most dams are not used for hydropower – out of nearly 59,000 large dams (higher than 15 metres) and reservoirs (more than 3 million cubic metres), only 21 per cent of single purpose and 16 per cent of multipurpose reservoirs are used for electricity generation. While not all these non-powered dams would be appropriate for hydropower, where in-depth assessments have been carried out, considerable retrofitting potential has been identified. In the US for example, the Department of Energy Wind and Water Program found as much as 12 GW of potential, which could increase the US’s fleet by 15 per cent – enough to power nearly 5 million US homes annually.
Many market and policy frameworks however do not adequately incentivise investment in greenfield developments. Services that hydropower provides, particularly pumped storage hydropower, are not fully recognised nor adequately remunerated. This is despite the services provided by pumped storage facilities being vital to integrate variable renewables into power grids.
Much of this investment is needed in developing countries throughout Africa and Asia. Africa’s pipeline has 120 GW in development in the region, with the largest proportion of projects having received regulatory approval, but considerably less capacity under construction. Due to the urgent need to electrify the continent, most projects in the pipeline are conventional hydropower. Around 84 GW (excluding closed loop pumped storage) are reported to be at an advanced development stage (approved from the regulator or under construction), suggesting that Africa could substantially accelerate its development process over the next decade, reaching a level close to 8 GW per year, in line with IRENA’s 1.5°C Pathway projections. Even excluding the Grand Inga project currently in the pipeline, which alone accounts for 39 GW, African hydropower is expected to experience accelerated growth. Initial analysis suggests that the long period from project announcement to construction is usually due to lack of financial partnership and/or funding availability. In some cases, projects have received international financial support but have not met the requirements to use the funds due to lack of local community buy-in or because of the slow procurement of consultancy services. Considering Africa’s high potential for hydropower development and a need to rapidly increase electricity to meet demand, accelerating access to financing and sustainable construction is crucial for the region.