3.4        Economic Implications

Hydro schemes generally involve a huge civil engineering effort, which requires a sizeable investment. The payback on this investment can be a lengthy process so therefore it is mainly governments or large corporations who fund these schemes. However once they have been constructed hydro schemes produce almost cost-free electricity. There are no fuel costs and pumping can facilitate generation at a small cost.

In general the initial costs of constructing a hydroelectric plant increase as the hydraulic head decreases, while scheme viability decreases as generating capacity decreases. However, the initial costs are very dependent on the details of a particular scheme. Land prices and rents vary according to local circumstances. If existing engineering structures are used, capital costs can be considerably reduced.

Despite the high investment costs, the economics of hydroelectric power generation are favoured by the very low maintenance and operation requirements. These schemes are almost completely automated. The only real cost of a hydroelectric power generation system is the capital cost of equipment procurement, instalment, design, civil engineer works and engineering fees.

The key factors relevant when assessing hydro schemes are:

·         initial capital expenditure

·         long lifetime expectancy

·         high reliability and availability

·         low maintenance and operating costs

·         no annual fuel costs.

3.5        Political Implications

The failure of population resettlement schemes has become one of the major political obstacles preventing the development of large-scale hydroelectric schemes. As public opposition became increasingly effective, hydropower projects stimulated political concern over the environmental and social impacts of dams. All these brought industry to a standstill. As a result many development and funding agencies, such as the World Bank, cut back on or entirely stopped financing large dams. Consequently the industry suffers from the lack of public subsidy and can hardly rely on those few private investors who are willing to invest in a construction, which bears high financial risks for low returns.

Due to the public and political opposition it is more and more evident that large new hydro projects will not have the necessary financial support to survive in an increasingly competitive energy market, although we can also see counterexamples.  For instance, the highly controversial Three Gorges Dam, being developed on the Yangtze River in China, is being constructed not only for the purposes of flood protection, navigation and hydroelectric power generation, but as a political statement to the world.

Also there is a growing pressure on the EU to pay more attention to large hydro schemes. Greenpeace, International River Networks (IRN) and other environmental groups pose this issue with a fierce mindset. They claim that large hydroelectric projects are almost always non-additional and generate large amounts of “fake” credits instead of real reductions in greenhouse gases.