Impact of climatic change on hydropower investment

Abstract

The increased use of renewable energy is critical to reducing emissions of greenhouse gases in order to limit climatic change. Hydropower is currently the major renewable source contributing to electricity supply, and its future contribution is anticipated to increase significantly. However, the successful expansion of hydropower is dependent on the availability of the resource and the perceptions of those financing it. Global warming and changes in precipitation patterns will alter the timing and magnitude of river flows. This will affect the ability of hydropower stations to harness the resource, and may reduce production, implying lower revenues and poorer returns. Electricity industry liberalisation implies that, increasingly, commercial considerations will drive investment decision-making. As such, investors will be concerned with processes, such as climatic change, that have the potential to alter investment performance. This paper examines the potential impact of climatic change on hydropower investment. It introduces a methodology for quantifying changes in investment performance, and presents preliminary results from a case study. These inform discussion of the implications for future hydropower provision and our ability to limit the extent of climatic change.

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