Survey of Energy Resources 2007
Many economically feasible hydropower projects are financially challenged. High up-front costs are a deterrent for investment. Also, hydro tends to have lengthy lead times for planning, permitting, and construction. When life-cycle costs are examined, however, hydro often has the best performance, with operating costs being low in comparison with the capital investment. The development of more appropriate financing models is a major challenge for the hydro sector, as is finding the optimum roles for the public and private sectors.
The main challenges relate to creating investor confidence in hydropower and reducing risk. Green markets and trading in emissions reductions will undoubtedly provide incentives in some areas. In developing markets, such as Africa, interconnection between countries and the formation of power pools will build investor confidence. Feasibility and impact assessments carried out by the public sector, prior to tenders from the developers, will ensure greater private-sector interest in future projects.
Unfortunately, investment often only materialises when the need becomes urgent - when the lights go out. Unless policymakers are better informed, much of the investment will be targeted at quick-fix solutions. The avoidance of such unsustainable development is a major challenge.
International Hydropower Association