April 2009
HYDROPOWER
FREQUENTLY ASKED QUESTIONS
The World Bank Group supports quality hydropower projects as an important way to contribute to
its mission: to reduce poverty and help countries embark upon and build a path of sustainable
development.
WORLD BANK SUPPORT TO HYDROPOWER
1. Why does the World Bank support hydropower projects?
The World Bank believes that hydropower can help provide electricity to large numbers of people
who do not have basic access. This can bring improvement in the quality of life to these
individuals, along with economic benefits and sound environmental management. Emerging global
pressures and priorities are expanding the development value of hydropower. A deeper
understanding of the link between hydrological variability and economic growth puts a premium on
better water resources management and infrastructure, especially in the world’s 260 international
river basins. While expanding power generation, hydropower infrastructure can support irrigation,
domestic water supply, navigation and industrial water supplies. In addition, hydropower is an
important tool for building regional cooperation in both energy and water management. Finally,
hydropower can help meet the realities of climate change. As renewable energy, it contributes
directly to a low-carbon energy future and indirectly, it can stabilize more intermittent renewables
such as wind and sun. Multipurpose hydropower can also support adaptation to increasingly
difficult hydrology by strengthening a country’s ability to regulate and store water and so resist
flood and drought shocks.
For these reasons, the Water Resources Sector Strategy (2003) committed the World Bank Group
to re-engage in hydropower. This intent was confirmed in that Infrastructure Action Plan of that
year, which foresaw the ramping of the World Bank Group work in infrastructure in general. Five
years later, the World Bank Group has reinforced that commitment in Directions in Hydropower
which outlines support to hydropower project sin developing countries, working in partnership with
national governments, the private sector, other multi-lateral development banks, and civil society
organizations, helps to support and plan hydropower projects in developing countries.
2. What is the extent of World Bank Group lending in hydropower projects today?
As of January 1, 2009, there were 77 active projects with hydropower-related components in the
Bank Group portfolio. Financing for those projects totaled about USD 3.5 billion (not including
the value of carbon funded projects). The current portfolio reflects a growth in activity over the
last 5 years, from an average of $250 million per year (2002-2004) to over a billion in FY2008.
The portfolio is diverse, distributed across different types of projects as follows: 28% storage, 48%
run of river, 24% rehabilitation.
3. Can the large increase in World Bank Group lending to hydropower in fiscal year 2008
be sustained?
In 2008, WBG lending to hydropower exceeded $1 billion. This level of engagement is both a
reflection of the WBG’s re-engagement in hydropower and is characteristic of the lumpy nature of
Hydro FAQ 1
For questions, please contact Daryl Fields, Senior Water Resources Specialist, 202-458-8740
April 2009
hydropower investments. In fiscal year 2008, four projects alone accounted for over three quarters
of total lending (over $800 million) to hydropower. As many hydropower engagements require
substantial up-front investment to cover start-up costs, 2008 may prove to be an exceptional year
for approvals of new lending, however, the WBG’s pipeline for investments is strong, with over $2
billion in possible projects over the coming few years.
4. Which financing instruments does the World Bank Group use to develop hydropower?
The World Bank Group has adapted financial instruments over time to meet changing needs and
opportunities of its clients. A range of new instruments have been introduced since the World
Bank Group’s commitment to re-engage in hydropower. In addition to lending from IDA/IBRD
(representing 48% of the WBG’s hydropower portfolio), the International Financing Corporation
(IFC) increased support (now 20%), carbon finance (now 5 percent), and guarantees (now 17
percent). The Multilateral Investment Guarantee Agency (MIGA) has played an important role in
major new projects, with total guarantees of $315 million since 2005.
5. How does the World Bank Group help governments effectively implement hydropower
projects?
The ultimate objective of the WBG’s engagement is to assist countries to maximize the value of
their hydropower resources, fully integrating the principles of sustainable development. This task
embodies good practice in energy planning and development, and links with the multiple
dimensions of water management and environmental and social protection. It encompasses choices
among storage, run-of-river and rehabilitation projects, as well as finding the right balance of
public and private allocation of risks, responsibilities, and benefits.
The World Bank Group’s contribution to scaling up hydropower for development is structured
along two reinforcing tracks. On Track 1 the WBG must lead its own increase in direct
investment in high-quality projects, executed in a timely manner. This encompasses the
implementation of safeguards, policies, and due diligence to carefully review proposals from
governments to assess: 1) the impact of engagement and non-engagement; 2) the need for support;
and 3) the sustainability and quality of a project.
On Track 2, the World Bank endeavors to strengthen the sector itself by improving the
environment for sustainable hydropower development. The primary areas of focus are::
 Addressing financial barriers and constraints to realizing projects;
 Promoting good practice with specific emphasis on governance, environmental
management, social inclusion, and hydrological data and analysis;
 Strengthening planning, regulatory frameworks and institutions, to help realize the
strategic value of hydropower; and
 Leveraging regional development to enhance development benefits beyond the project
 Build partnerships with national governments, the international community, and project
financiers in the public and private sectors to strengthen financing options and maintain
global dialogue on sustainability.
6. How does the World Bank Group follow the guidelines of the World Commission on
Dams?
Hydro FAQ 2
For questions, please contact Daryl Fields, Senior Water Resources Specialist, 202-458-8740
April 2009
The World Bank supports the core values and strategic priorities in the World Commission on
Dams (WCD) report. The WCD guidelines, along with the International Energy Association
guidelines and the International Hydropower Association's Assessment Protocol, complement
World Bank Group safeguards on the evaluation and management of sustainable hydropower
projects. The Bank Group utilizes these tools, in addition to working with governments and
developers of the hydropower projects it supports, to evaluate which best practices can be applied
to individual projects in a practical, efficient, and timely manner.
BACKGROUND ON HYDROPOWER
7. What do we mean when we refer to “hydropower”?
Through technology and infrastructure, hydropower regulates natural water flow through turbines
to produce energy, which is converted into electricity. Through different types of infrastructure,
the amount of water that passes through a turbine (the volume) and its downhill speed (the head)
can be regulated to produce more or less energy, as needed. By regulating water flow, hydropower
can also help manage water allocation across different uses and reduce vulnerability to water
variability, such as droughts or floods.
8. What are the different types of hydropower projects?
There are many types of hydropower projects being implemented around the world, ranging from
small to large scale projects, and solely hydropower to multi-purpose infrastructure. The World
Bank Group portfolio includes run-of-river, rehabilitation, and water storage projects that feature
hydropower.
a. Run-of-river: Projects that do not affect the natural river flow more than for daily storage.
b. Rehabilitation: Upgrading, refurbishing, and changing operations at existing facilities,
which can be run-of-river or storage projects.
c. Storage: Allows for seasonal collection of water, which can have multiple uses
9. What is meant by multi-purpose water infrastructure?
Through project design and operations, multi-purpose water infrastructure can serve more than one
water purpose. These projects can feature several water management tools, such as hydropower
generation, irrigation, domestic and industrial water supplies, water storage, and protection from
floods and droughts. When well developed and managed, multi-purpose infrastructure offers
important opportunities for urban and rural communities in developing countries.
10. What is the extent of hydropower in the world?
Currently, 20% of the world’s energy is generated from hydropower sources. In several developed
countries such as Canada, Norway, and Switzerland, hydropower is a major energy source.
Countries that are part of the Organization for Economic Co-operation and Development (OECD)
have developed approximately 70% of their hydropower capabilities compared to just 5% in SubSaharan Africa. Many countries in the developing world, such as India, China, and several in East
Africa, are recognizing hydropower as a critical component in their energy and/or water resource
management plans.
11. How is hydropower different from other energy resources?
Hydropower, a renewable energy and low-carbon fuel as declared by the 2002 World Summit on
Sustainable Development, does not produce the same harmful emissions as fossil fuels, such as
Hydro FAQ 3
For questions, please contact Daryl Fields, Senior Water Resources Specialist, 202-458-8740
April 2009
natural gas, oil, or coal. It is also, for most countries, a domestic resource and not subject to the
volatility of international fossil fuel markets. While the presence of water is a hydrological risk,
the price risk for countries is minimal. Projects experience significant start-up costs but face low
operating costs. In addition, hydropower projects experience longevity; they frequently are used
for 50 years or more.
12. What are the main issues in hydropower development?
History has shown that there are always challenges in sustainable development which includes
balancing environmental, social, and economic concerns. Hydropower development similarly must
address these complexities and include attention to environmental, climate change, social, and
financial impacts of projects.
a.
Environmental impact
Hydropower projects generate renewable energy while producing less harmful emissions
than thermal power plants which burn fossil fuels, such as natural gas, fuel oil, or coal.
Certain hydropower projects, such as large dams, have the potential for a negative impact
on the environment if not carefully planned, implemented and monitored. They can
inundate lands and regulate natural water flows, which can affect terrestrial and aquatic
ecosystems. It is important to consider environmental mitigation and adaptation, along
with guidelines from the Environmental Impact Assessment and Environmental
Management Plan, when considering a project. Strategic Environmental Assessments are a
key means of integrating environment into sectoral decision making and planning
processes at early
b.
Climate change impact
Climate change may impact the quantity and pattern of water at hydropower sites, which is
why it is important to conduct hydrological forecasts and scenario testing and to design
smart, flexible infrastructure. Water infrastructure and storage are vital tools in managing
the effects of climate change and increased vulnerability to water variability. Seasonal
storage can protect communities from catastrophic events, such as floods and droughts, and
can have multiple water uses. Certain projects, however, that are not well designed may
emit greenhouse gasses. As the World Bank Group and the World Commission on Dams
state, it is necessary to have strict environmental safeguards and careful site selection to
mitigate these effects.
c.
Social impact
Great efforts are made to minimize the impact of hydropower projects on local residents,
who are often indigenous people. Measures are taken to displace the smallest number of
people, if any at all, and provide viable resettlement options for those affected. The World
Bank Group finds displacement of individuals a significant consideration in reviewing a
potential project and has safeguards to minimize the social impact, preserve cultures and
communities, and ensure that all stakeholders, in particular the poor, share in the benefits.
d.
Financial implications
Hydropower projects experience significant start-up costs which require large sums of
financial support; however, they face low operating costs. Such projects are frequently
used for 50 years or more; this provides steady revenue for national governments, which
many times are re-allocated towards domestic poverty alleviation projects.
Hydro FAQ 4
For questions, please contact Daryl Fields, Senior Water Resources Specialist, 202-458-8740