Hydro power: the right renewable for emerging countries

Hydro power: the right renewable for emerging countries

The International Finance Corporation (IFC)  - part of the World Bank Group - has

helped to  launch many private-sector hydro plants  in  developing countries. We  talk to them about the advantages and challenges of hydro power for developing nations.

Tonei Bakovie, a native of Bolivia,is the Energy Specialist for the IFC, dealing with the revenue side of its energy projects all over the world, including its 40 hydro power projects.Bakovic previously served as Dominion Energy's Manager for Business Development in Latin America. and, before that, he worked with Ernst & Young's energy group.

Jorge Villegas, from Colombia, is a specialist in the IFC's Environmental and Social Development Division,where he performs extensive due diligence on the environmental and social  impact of IFC projects. He previously worked with the  World Bank, the United Nations and the Colombian government.

HyPower sat down with Tonci Bakovic, IFC Energy Specialist, and Jorge Villegas, Specialist at IFC's Environmental and Social Development Division.

What is the rationale behind IFC's support for hydro projects in emerging economies?

Bakovic: Without power, developing regions cannot grow. In fact , in some countries, two percent electricity growth is needed to achieve one percent GDP growth. Of course, we need to balance a need for power with concerns for the environment, and  hydro power is a clean , reliable energy source. IFC has been involved in 40 hydro  plants with an average capacity of around 100 MW that add up to a total 4,000 MW  of energy. These hydros currently displace around 10 million tons of CO2 emissions

every year.

What advantages does hydro electricity have over other renewable energies?

Bakovic:Hydro is currently the most efficient among the renewables.Until researchers achieve a technological breakthrough in solar energy, hydro is the best choice for countries that have adequate hydro resources. Solar and wind plants can  cost as much to build as hydro plants, but produce less energy as they have lower plant factors.

As well as bringing power to local residents, what other advantages can hydro prejects provide developing countries?

Villegas:Benefits can include better irrigation systems downstream as well as flood  control.They can also offer significant cost savings for power, particularly for  countries without their own oil and gas reserves.Job creationduring the construction  phase is another valuable short- to medium-term benefit. In the long term, some countries require project developers to provide direct benefits to local communities , such as a percentage of revenues. Every developer of a hydro project must minimize  the negative impacts and enhance the positive ones.

How is IFC helping contribute toward this aim?

Bakovic:IFC has devised policy and performance standards for the social and environmental sustainability of our projects,and these standards have become the  international benchmark.Nearly 70 international commercial banks and financial  institutions have adopted the Equator Principles,which are based on IFC  environmental and social standards. Villegas: When a large commercial bank that is  a signatory to the Equator Principles finances a power project in an emerging  market,it will use IFC standards as a reference.Developers willing to apply these  standards will have easier access to financing.

What are some of the challenges that hydro power faces?

Villegas:Location is the key when it comes to minimizing the negative effects of  changing a water course.Ideally,companies would identify places with few or no  inhabitants and where the project will not require flooding large areas.Companies  should also avoid environmentally sensitive places as much as possible.

What about resettlement?

Bakovic:Avoidance of displacement of people and adequate resettlement is a critical issue in hydro developments.IFC pays particular attention to this issue, applying the  lessons that we have learned in past hydro projects.This global experience in social  and environmental issues is very much valued and appreciated by our clients .So far,  our relatively small hydro projects have been located in areas with low populations.

Where are the main markets for investments in hydro power?

Bakovic:Around 80 percent of today's feasible hydro power projects in the US and  Europe have already been developed.That is not the case for Latin America and Asia.In Africa,almost no hydros have been built,despite the continent's huge resource potential.We need to encourage more hydro power investors to go outside their home regions.Of course, investors have to be able to count on clear rules of the game before they enter a market.Villegas:Most of the places where we work in  Africa mainly require power for peak times.In many cases,a hydro power project in Africa will not  require a huge reservoir, and there are plenty of opportunities for smaller projects. If  a project does have a large reservoir,it makes sense to focus on a regional market  rather than just a local one.

How has investment in hydro power changed over recent years?

Bakovic:Twenty year ago,most investment came from governments.With privatization and reforms,the private sector has become more involved.The IFC has had considerable success with small and medium-sized hydro projects.These plants will  last 100 years,and many are on a build-own-transfer basis.Hydro power is an efficient  option that, when developed responsibly, will bring power and social benefits to developing countries as well as help to protect the environment.