Better and greener - including sustainable hydropower

“In South Asia right now, during these Covid-19 times, we have three major hydropower projects at various stages of construction but what is remarkable during this difficult period,” says Demetrios Papathanasiou, World Bank Practice Manager for South Asia Energy, “is that all of them are still going ahead.”

As Papathanasiou explains, quite often hydropower is located in remote areas which makes social distancing relatively easy. So even if there are thousands of workers in far flung project sites, they can stay safe and healthy due to the nature of hydro. 

“In addition,” Papathanasiou adds, “as the Monsoon season is picking up in Asia there is an even greater value for hydropower at a time when electricity is needed to keep things going both in the health services and with what we’re doing right now. I’m really excited to see that even in circumstances like this hydropower is still an option for power.”

Papathanasiou was speaking at a recent virtual conference organised by the World Bank during June 2020. Responding to the economic damage caused by the Covid-19 pandemic, the bank wanted to emphasise the need for countries to build back better and greener with sustainable hydropower. And this was the theme for the conference where World Bank Vice President for Infrastructure, Makhtar Diop, outlined hydro’s potential to help governments achieve carbon reduction targets set out in the Paris Climate Agreement.

“We know it is possible,” Diop said. “We can do it by using the huge potential we have with hydropower. But hydropower projects are complex,” he added. “We want to do them well, taking into account the environmental and social implications."

Nam Theun 2 in Laos is given as a good example of greater transparency and interaction between project players. Clear engagement from the beginning led to a solid relationship.

Streamlined and effective

Julia Bucknall is Global Director for the Environmental and Social Framework at the World Bank. She believes that “people who implement hydropower projects spend a lot of time worrying about meeting appropriate social and environmental standards”. As environmental issues predominate and are fundamental to project success, she says that project teams “take them very seriously….and as a result we have learnt a lot about how to do environmental and social issues well”. However, Bucknall adds, “we also recognise that it hasn’t been easy”.

Admitting that she is “a bit of a fan” of the International Hydropower Association’s sustainability protocols, Bucknall believes that they can be beneficial as they are consistent, multi-dimensional and set up by neutral parties. This is important as it builds capacity of local agencies to do the work themselves as in the end, she explains, it has to be done by the owner and regulator of the hydro project. If they take it seriously, it works much better. Working upstream with these agencies can fulfil different criteria of sustainability protocols and goes a long way to making project implementation much more streamlined and effective.

“Working on these issues upfront, working on them systematically and throughput the implementation of the project actually makes things much easier. That is what the really successful hydropower projects have done,” Bucknall states.

No excuse

Eddie Rich, CEO of the IHA, was another guest at the virtual conference. He spoke about how the IHA “exists to advance sustainable hydropower” and explained that more than 20 years’ experience of research, operational investigations and stakeholder engagement went into producing the association’s sustainability tools and guidelines. 

Designed to be complementary, and not additional to other tools such as the World Bank and IFC standards, Rich hopes that in the future “there will be no excuse for hydropower development not to be sustainable and not to meet good practice”.

Ultimately good practice can open the door to green finance. And, as Papathanasiou acknowledges, a key part of hydropower is financing. 

“A lot of investors are now looking at how sustainable their investment is and how it can contribute to climate change in a positive way,” Papathanasiou said.

Goldisthal Pumped Storage Station in Germany. Looking to the future, the IHA says it will be focusing on pumped storage development, while the Climate Bonds Initiative is keen to grow investment in this technology as it is needed to manage baseload in many countries.

Climate Bonds Initiative

Sean Kidney is the CEO of the Climate Bonds Initiative (CBI) - a not-for-profit organisation that promotes large scale investments to deliver a global low carbon and climate resilient economy.

“We have been successful over the past ten years in creating a relatively new instrument called the Green Bond,” Kidney explained at the virtual conference. “It’s a simple idea. Anyone who issues a bond promises to allocate proceeds to quality investments in the context of climate and other environmental challenges.”

Climate bonds are described as being instrumental in developing taxonomy work, which is essentially a procurement list for the Paris Agreement and a set of qualifying rules that can be can used to raise money in the green financial market. 

“It is working,” Kidney says. “We had amazing strong demand for this particular instrument. It had been, that is until the Covid crisis, the fastest growing asset class on the planet and has spawned other related markets.”

However, when looking at hydropower, Kidney says that there has been some “controversial” and “negative behaviour in the investment community” which has been “challenging” for the market. Questioning whether it was a “science-based move”, he gave the example of where hydro above 50MW was excluded from certain green bonds. This shows, he says, that there is a need to provide a more robust approach to a science-based inclusion criteria.

This is something that CBI has been working on for a long time. When looking at the inclusion criteria for hydropower they focused on two filters from a climate perspective: mitigation and adaptation.

“We said that hydropower is clearly a low carbon source in many cases,” Kidney states. “And it needs to be part of the constellation of solutions to address the radical challenge we face in reducing emissions to net zero by 2050.”

Kidney believes that all low carbon systems, whatever they are, have to be prioritised “until we have enough headroom by closing fossil fuels, and then we can decide whether we want to differentiate in that system”.

“I do think we will end up differentiating,” he adds, stating he is dubious that the current crop pf nuclear is right given previous risks and is also dubious about damming of wild rivers. 

“But I know the most urgent challenge is to get emissions down. If we don’t, we will see the collapse of biodiversity, of wilderness areas and of society. Catastrophic climate change is not a picture you want to put your children into but that is what we are up against,” he says.

Although the Intergovernmental Panel on Climate Change clearly states that hydropower has to be part of a solution, Kidney says that “we still need to educate the public and other environmentalists as they have conflicting environmental objectives which are getting to be a problem in the sector”.

CBI has focused on two relevant aspects for the hydro criteria. The first covers mitigation where it asks for a power density calculation as the first guide to inclusion. If this is not met, then Kidney says that GHG emissions intensity will be looked at in order to qualify. The second consideration will be adaptation and at a minimum the IHA ESG analysis tool will be used with further caveats around water catchment management plans.

The eligibility criteria are expected to be applied to run-of-river, impoundment and pumped storage projects. Kidney says that they are especially keen to grow investment in pumped storage as it is needed to manage baseload in many countries and avoid construction of gas fired stations.

“We need hydropower,” he commented, “but we need to make sure we do not do more harm while using hydropower…..There is a huge market in the green bond market and this demand will grow. We think this will be the tool to help make hydropower a part of what it has not been able to be so far.”

It is hoped that the hydropower criteria will be ready for use in certifications by the end of 2020.

Climate risk disclosure

James Falzon, from Principal Investment Services at the EBRD, went on to speak about climate risk disclosure and its relevance for financing hydropower projects.

“We are seeing a growing focus on climate risk disclosure and think that it will create incentive for hydro operators to demonstrate robust climate risk management. It is important that hydropower companies demonstrate that they have accounted for risk in appropriate ways,” he said, adding that the hydropower sector is in a good position if it remains proactive. “Hydropower is quite crucial for a low carbon energy sector. Without hydropower it will be very difficult to decarbonise the power sector.”

Falzon advises the hydropower industry to proactively manage their physical climate risks.  Understand them and incorporate them into corporate level disclosure. He believes that attention to climate risk disclosure will be a positive thing for the hydropower sector and for financing, but “you need to capture the upsides, and manage the downside risks”.

Greater transparency

James Dalton is the Director of the Global Water Programme at IUCN. He discussed stakeholder engagement and managing the downsides of hydropower projects. He traced IUCN’s history with the hydropower and dams industry back to May 1998 when it helped the World Bank establish the World Commission on Dams. 

“We’ve come a long way since then,” he said.

“The mood around engagement of NGOs with the hydro industry, financiers, operators and the construction industry has changed slightly,” Dalton explained, “as people are now looking for climate solutions far more than they were in the past.”

He gave the example of the IHA conference, which he describes as a constructive process of engagement with different groups across the table, where talking things through and maintaining a constructive dialogue was more productive than “allowing NGOs to go down a particular route that can become very negative”. 

“But industry and financiers also have to recognise that there is bad practice out there,” Dalton adds. “Although it is not a case of everyone is complicit and involved, it does taint the overall atmosphere around hydropower and dams which is unfortunate when there are good things happening.

“Recognising that criticism is often valid, but not necessarily valid everywhere all of the time, is always a good way to start this dialogue,” he says.

Dalton advocates greater transparency and interaction between players and greater transparency around data sharing, particularly in the early stages of hydropower project development. He admits that there will be commercial sensitivities, as well as political sensitivities depending on where the projects are being built, but greater transparency early on allows you to develop a good level of trust and engagement. Transparency is a key element in helping to reduce emotions and anger. A project which is often given as a good example is Nam Theun II in Laos. Clear engagement from the beginning laid the foundations for a solid relationship.

Furthermore, Dalton says that IUCN pushes for clarity about what standards and tools are being used for projects; where the level of transparency will be; how this will be monitored; and how can people engage with the process. 

“One problem with projects is that if this is not very clear upfront, then it raises negative attention with NGOs and pressure groups,” Dalton states. “This can be dispelled, I won’t say easily, but it can be dispelled by being clear about what is going on upfront. Let’s not short change the value of transparency and the value of clarity and engagement early on in the project process.”

Mainstreaming

The last words in the virtual conference were given over to Eddie Rich from the IHA, who spoke about how everyone can work together and disseminate information.

“We’ve done the technical background and we’ve got the multi-stakeholder buy in. We’ve got the tools and guidance,” he said. “We know what should be done but this has not been mainstreamed yet.”

However, Rich did acknowledge that “today as we speak” 47 World Bank members of staff were undergoing virtual training for the IHA hydropower sustainability tools.  The course provided a deeper understanding of how IHA tools can be used along with World Bank policies, including its environmental and social standards to reduce risks and impacts and to use good and best international practices for better planning, construction and operation of hydropower.

Admitting that “we’re at the start of our journey” in an effort to mainstream such information, Rich says that although a lot more needs to be done the future does look very encouraging.

References

Hydropower Conference - Session 3: Safety, Climate and Sustainability. 25 June 2020 

World Bank building back better and greener with IHA training. Posted on 28th July 2020 by International Hydropower Association