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World Bank Puts Hydropower Back Into Favor, NGOs Do Not

Nam Theun 2 before/after

The World Bank has experienced what it calls a long and complex relationship with hydropower.

In the 1990s, concerns about the environment, water equity, population displacement and social justice led to protests and lawsuits around hydropower projects and a steep decline in Bank funding for hydro development that bottomed out in 1999, when the Bank put no money at all into hydropower.

Then in 2003, the Bank began funding hydropower projects again, including Bujagali in Uganda, Bumbuna in Sierra Leone, Felou in Senegal, Nam Theun 2 in Laos (above), and Rampur in India.

A recent report from a World Bank Group (WBG) team led by Senior Water Resources Specialist Daryl Fields verifies the shift: Directions in Hydropower: Scaling Up for Development describes the World Bank taking a renewed role in hydropower development and examines the challenges and opportunities hydropower presents today.

This realignment of hydropower is being driven by a number of factors, starting with estimates that the developing world has 1,333 GW of potential and unexploited hydro capacity.

Some NGOs, however, say that number, also promoted by the hydropower industry, would be much lower if negative social and economic impacts were taken into consideration. Some also don’t believe large scale hydropower is the answer for rural electrification.

“Large hydropower projects have been shown to lead to irreversible impacts on rivers and their ecosystems, displace communities and even small towns, and often do not provide economic benefits - or even electricity - to those living close to the dams,” says Elizabeth Bast, International Program Director for Friends of the Earth U.S.

“The reservoirs created by the construction of large dams have been shown to create substantial greenhouse gases, contributing to climate change.”

Yet the authors of the World Bank policy believe that hydropower, when developed sustainably, can mitigate a number of global issues including climate change, carbon emissions and energy security.

New standards of hydro development, they claim, take into account issues of water security, regional cooperation and population displacement, though they acknowledge that has not been the case in most large hydro installations to date:

Implementation of good practices is challenged by lack of capacity throughout the industry and in client countries, and by weak regulatory and policy frameworks. Inherent complexities and the multisectoral, multi-objective nature of hydropower projects further emphasize the importance of a strong risk management approach to the sector. This framework has to encompass both careful project preparation and supervision (including efficient decision making) and strengthening of the sector’s basic foundations along the entire life cycle of hydropower investments.

As a result, the World Bank is showing some realism that there will continue to be risks and challenges associated with hydropower developments.

A foremost challenge is limited funding.

Private sector investment is slow, particularly when it comes to project preparation. That is why the World Bank believes it must play a major role in financing by making direct investments in high quality projects.

Some organizations worry about how the Bank will define "high quality projects," though, and they wonder whether hydropower is crowding out support for renewable energy alternatives.

The Bank's lending for hydropower increased from an average of $250 million per year in 2002-2004 to more than $1 billion in 2008. Based on industry trends, it expects more than $2 billion in projects in the coming years. Meanwhile, Bank funding for wind, solar, biomass and small hydro was $476 million in 2008.

“The World Bank's current approach to the energy sector on all fronts appears to be repackaging old strategies with green-washed language,” Bast says. "'Sustainable' hydropower is actually proving to be a way to repackage the return to the large-scale hydropower projects that it supported in the 1990s. Similarly, the proposed energy sector strategy is more of the same dirty energy projects despite the Bank's professed climate concerns.”

Triple Bottom Line

Due to these kinds of concerns, hydropower has been in disfavor for a number of years resulting in a lack of planning and what the Bank calls a “lost tradition of prefeasibility studies”, as well as a lack of development of service firms and expertise.

The Bank also says that to avoid environmental and social risks, new standards of development - which few have experience implementing - must be integrated into new projects. The Bank recommends ‘blending’ energy and water policies, integrating upstream environmental and social concerns and taking a triple bottom line approach of social, environmental and economic considerations:

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