Impact of climate change on hydropower investments

Impact of climatic change on hydropower investment
G.P. Harrison & H.W. Whittington
Dept. Electronics & Electrical Engineering, University of Edinburgh, Edinburgh, UK

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 mayreduce 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 hydropowerinvestment. 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. 1 INTRODUCTION Climatic change is expected to be the outcome of increases in atmospheric concentrations of “greenhouse”gases resulting from human activities (Houghton et al., 1990). The emissions are caused, in part, by fossil-fuelled electricity generation, and as world energy demand is expected to at least triple by the end of the twenty-first century (Nakicenovic et al., 1998), emissions and hence concentrations are expected to rise considerably. The impact of climatic change could be significant especially ifless developed countries expand their electricity supply systems using fossil fuels. In an attempt to control greenhouse gas concentrations and slow down the greenhouse process, governments are aiming to cut or stabilise emissions relative to 1990 levels. To achieve this target, the energy sector will have to change the way it operates: it could reduce its reliance on fossil fuels, use morerenewable energy, and practice greater energy efficiency. Together with other means, such measures should allow the climate to reach and stabilise at a new equilibrium level. Over the next century or so, during which this new set of equilibrium conditions will be reached, generating plant could be expected to be replaced twice (the design life of the electro-mechanical equipment in a power station israrely greater than 50 years). Increasing demand and the move to deregulated electricity systems means that private investment is likely to be used to fund new and replacement capacity. This, in turn, means that the perceptions of current and future investors will play a major role in whether emission cuts are achieved. 2 CLIMATE CHANGE Many greenhouse gases, including carbon dioxide (CO2), occurnaturally and keep the earth warm by trapping heat in the atmosphere. However, since the Industrial Revolution, man-made sources of CO2 have added greatly to atmospheric concentrations. In particular, transportation and the burning of fossil fuels for electricity generation are frequently cited as major sources. Enhanced levels of greenhouse gas concentrations are predicted to cause a significantrise in temperature over the next century, with rates of increase anticipated to be greater than at any time in the past. The current consensus is that under present rates of economic and population growth, global mean temperatures will rise by around 3°C by the end of the next century, although there is considerable uncertainty surrounding the degree of climate sensitivity. Figure 1 shows that...