Hydropower and Sustainable Development

Hydropower and Sustainable Hydropower and Sustainable Development:Development:

A view from the World BankA view from the World Bank

BeijingOctober 2004

Story line1. How hydro fits:

– In sustainable energy supply– In water resource management– In reducing poverty

2. Special challenges of hydro3. The evolving role of the World Bank

Electricity shortages (quantity, distribution and

quality) are a major constraint in developing

countries

Red 3 - 33%Green 33 - 66%

Blue >66%

Access to Electricity (in % of Population)

Consumption per capita: Africa and the world

184

85 21

126

55 38 29

204

114

581

900

430

2108

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000C

amer

oon

Nig

eria

Eth

iopi

a

Ken

ya

Tanz

ania

Uga

nda

Bur

kina

Fas

o

Gha

na

Sen

egal

Alg

eria

Egy

pt

Mor

occo

Wor

ld A

vera

ge

Elec

cons

umpt

ion

(kW

h/yr

)/Cap

ita

500 kWh/capita/year minimum consumption for reasonable quality of life

Energy use per person in Africa

United States consumption – 12000kWh/capita/yr

TYPICAL FREQUENCY CURVES ON 01.10.2002 (IST)INDIAN GRID AMERICAN GRID

NORTHERN REGION, EASTERN REGION, NORTH-EASTERN REGION APAGCC

47.50

48.00

48.50

49.00

49.50

50.00

50.50

51.00

51.50

52.00

52.50

53.00

0:00 1:00 2:00 3:00 4:00 5:00 6:00 7:00 8:00 9:00 10:00 11:00 12:00 13:00 14:00 15:00 16:00 17:00 18:00 19:00 20:00 21:00 22:00 23:00

Time

57.50

58.00

58.50

59.00

59.50

60.00

60.50

61.00

61.50

62.00

62.50

63.00

12:00 13:00 14:00 15:00 16:00 17:00 18:00 19:00 20:00 21:00 22:00 23:00 0:00 1:00 2:00 3:00 4:00 5:00 6:00 7:00 8:00 9:00 10:00 11:00

Time

And poor quality of supply imposes huge costs…

Hydropower can play a major role in developing countries

The potential role for hydro in the developing world…

The potential role for hydro in the developing world…

• 70% of energy investments in next 30 years will be for electricity

• Hydro produces about 2,600 Twh/year of electricity; untapped economically viable potential is twice this (5,400 Twh/year)

• 90% of this potential is in the developing world

Development of economically-feasible hydropower potential in different regions

0

20

40

60

80

100

0 0.5 1 1.5 2 2.5Potential in million GWH/year

% o

f pot

entia

l de

velo

ped

EuropeEuropeNorth AmericaNorth America

AfricaAfrica

South South AmericaAmericaChinaChina

Asia (excl Asia (excl China)China)

India as an example

India as an example

• Has lagged further and further behind China

• Similar generation capacity in 1950;• Today:

– India has installed capacity of 100,000 mw– China has 350,000 mw.

• There is a particularly acute shortage of peaking power…

INDIAN POWER SCENARIO• INSTALLED CAPACITY 1,07,972.14 MW

(AS ON 1.4.2003)

• GROSS GENERATION 532 BUs

• PEAKING DEMAND * 81,492 MW

• ENERGY SHORTAGE * 8.8%

• PEAKING SHORTAGE * 12.2% (2002-2003)

(2002-2003)

(2002-2003)

(2002-2003)

SOURCE: CEA

Headline in Times of India “Madhya Pradesh:No power, no votes”

Power shortage is widely acknowledged as critical for well-being and growth…

14

0

2 0 0 0 0

4 0 0 0 0

6 0 0 0 0

8 0 0 0 0

10 0 0 0 0

12 0 0 0 0

Hydro Thermal Others

Growth profile of the power sector in India 1951-2003

Inst

alle

d C

apac

ity

14

0.00

10.00

20.00

30.00

40.00

50.00

60.0019

47

1951

1953

1955

1957

-58

1959

-60

1961

-62

1963

-64

1965

-66

1967

-68

1970

-71

1972

-73

1974

-75

1976

-77

1978

-79

1980

-81

1982

-83

1984

-85

1986

-87

1988

-89

1990

-91

1992

-93

1996

-97

1999

-00

2002

-03

YEAR

HYD

RO

/ TO

TAL

%

50.62

The changing energy mix…

MINIMUM DESIRABLE MIX

24.92

1% of potential developed in GBM Basin

The special case of hydro as an engine for development in the poor Northeast….

Himalayan Dams among the best sites in the world from environmental and social perspectives

Now India plans has started building 50,000 mw of hydro in the next twenty years…

THE SPECIAL CASEOF POOR, MOUNTAINOUSCOUNTRIES

• Those with “water and gravity” next to large markets…• Nepal, Bhutan, Lesotho, Laos, Uganda…• Nepal and US have about the same hydro potential

• US has developed 70,000 mw• Nepal has developed 300 mw

• Potential of huge economic benefits from royalties (~5% GNP)…

• Are wholly dependent on external financing….




There have been major environmental and social concerns aboutlarge dams/hydro…

With the Narmada (Sardar Sarovar) Project in India the postercase….

And partially as a result, hydropower has grown only

slowly…

(Source: bp.com)

Broad acceptance of:• 3 core values and• 5 strategic

priorities

The World Commission on Dams was supposed to forge a new consensus …

but• the 26

normative“guidelines”not accepted by any countries building dams (nor by the Wolrd Bank)

The anti-dam campaign has advocated “compliance with the

WCD guidelines…”

But developing countries have taken an

unprecedented, united position in restoring common

sense…

0

20

40

60

80

100

<1950 1950s 1960s 1970s 1980s 1990s

%

Anticipating ecosystem impactsInformation disclosureParticipation by affected people

WCD documented how performance has improved over time

WSSD/Johannesburg Plan of Implementation…

• Identification of ALL hydro as a renewable source of energy, to be supported by international community….

Another powerful statement from developing countries on the need for dams and other hydraulic infrastructure….

Latest, very important venue… Bonn renewables conference in 2004…

Where developing countries (Brazil and Uganda especially) took the lead against the anti hydro campaign and where all hydro was unequivocally recognised as “renewable”

And with the impending ratification of the Kyoto Protocol, hydro will get another major boost…

Climate change puts the spotlight on hydropower…. with China cited as a global

leader…

85,000 mw of hydro have played a central role in reductingGHGs




Items considered important by world leaders

2004

China has long understood this…

Problems of floods:… historic …

And contemporary (Yangtze 1998)And contemporary (Yangtze 1998)……..

Problems of drought…

And drudgery, especially for women

riverriver

++

++ dykedyke

==

Political Political orderorder

==

Reflection of this in the language itself….

China has long been a leader in water management…

King Yu, China’s forerunner of

water engineering 4,000 years ago

The Dujiangyan Irrigation Scheme, built more than 2200 years ago, still irrigates 730,000 ha of land today.

In recent decades China has invested massively in multi-purpose water

infrastructure….

3,800 km of main dikes have been strengthened3,800 km of main dikes have been strengthened

85,000 mw of hydropower capacity has been built…

There has been massive investment in multipurpose dams…

GezhoubaGezhouba DamDam

Work has started on

The South -North Water

Transfer Project

China is now at an inflection point….

Eastern China

Western China

China now simultaneously investing massively in

improved water infrastructure AND

management…

The Yellow River in its upper reachesThe Yellow River in its upper reaches

The Yellow River further downstreamThe Yellow River further downstream

Sedimetationhas raised the river level above the surrounding plain

With catastrophic floods when the dikes are breached….

Major problems in lower reaches….

What to do?

860,000 km860,000 km22 of eroded area in Loess of eroded area in Loess Plateau has been brought under control.Plateau has been brought under control.

Xiaolongdi Dam – an audacious attempt to scour the raised river bed in the lower Yellow River…

China also faces water quality challenges associated with rapid urbanization

Raise water efficiency, building a water-saving and pollution-preventing society.

Requiring large investments in Wastewater TreatmentRequiring large investments in Wastewater Treatment

All accompanied by an impressive All accompanied by an impressive National Water Saving CampaignNational Water Saving Campaign

But China is far ahead of most other developing countries in terms of infrastructure…

China has 2,400 China has 2,400 mm33/cap/cap

US and Australia have ~5000 mUS and Australia have ~5000 m33/cap; /cap;

India has 130 mIndia has 130 m33/cap, Ethiopia has 50 m/cap, Ethiopia has 50 m33/cap/cap

India India 130130

QED: Most developing countries still have to make massive investments in multipurpose water infrastructure

Most developing countries




Investments in water Investments in water resources development and resources development and

management have broad, management have broad, regionregion--wide impacts:wide impacts:

Large economic and employment multipliers:

• 2 or more in wide variety of settings:– Tamil Nadu in India– Muda Basin in Malaysia– Sao Francisco Basin in Brazil– Columbia Basin in US– New South Wales in Australia…

For example: The Bhakra-Beas complex in India

Irrigated 7 million hectares and provided 2800 mw of powerIrrigated 7 million hectares and provided 2800 mw of power

0

20

40

60

80

Landowners Agr Labor Rural Non Agr Rural Others Urban

% change of Income of Different Types of Households With and Without Bhakra Dam

•The indirect benefits were as large as the direct power and irrigation benefits

A major recent World Bank retrospective assessment of the economic impact

• Landless laborers benefited (proportionately) more that landowners…

• and this does not include the million seasonal workers who migrate from Bihar to Punjab and Haryana each year….

…… the overall effects on the poor?the overall effects on the poor?

Income per capita

Net effect: Unirrigated districts (< 10% of cropped area irrigated) --- 69% below poverty lineIrrigated districts (> 50% of cropped area irrigated) --- 26% below poverty line

In India…those who provide water are saints



2. The special challenges of hydro• As part of multi-purpose projects• Finding the right blend of public and

private financing• Benefit sharing

3. The evolving role of the World Bank






A particular public policy challenge …

• Hydro developers prefer run of the river sites (lower costs, smaller resettlement);

But• This often means losing the other,

“public” benefits of dams which come with storage (flood control, low flow augmentation…)

The example of India’s Northeast:Enormous damages from floods

What is being done?

A number of excellent multi-purpose sites—not being developed..

Run of the river sites – which hydro developers like – are being developed –because easy to finance and little resettlement…

The Ganges/The Ganges/BrahmaputraBrahmaputra/ / MeghnaMeghna Basin:Basin:“the glaring contradiction of the largest concentration of the world’s most poor unable to garner the bounty of one of the world’s richest natural resource regions in which they live…….. is an indictment that can no longer be tolerated….”

Will mean more than just Will mean more than just singlesingle--purpose hydropurpose hydro……

An example of good practice, where “public goods” (flood protection) is given primacy over

“private goods” (electricity generation)…

Three Gorges Dam






Major growth in power demand will be in developing countries

Power Consumption Projections (IEA)

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

1990 2001 2005 2010 2015

Bill

ions

of k

Wh

All Developing Countries

USA

ChinaEastern Europe/FSU

Central & South America

India

The characteristics of The characteristics of thermalthermal and and hydrohydro ……(after Chris Head(after Chris Head……))

Needs patient, long-term financing and insurance against political risk

Risks best assumed by public sector

Quality civil contractor, often local, is key

Export credits play only supplementary role

Public “beyond project”interest is central

How did this play out in “the roaring 1990s”, when private

sector investment in infrastructure was seen as a

panacea?

Private investment in developing countries in all Private investment in developing countries in all elecricityelecricity generation and hydro (1985generation and hydro (1985--2000)2000)

$0

$10,000

$20,000

$30,000

$40,000

$50,000

1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

Year

US$

Mill

ions

Hydropow er Electricity

$0

$10,000

$20,000

$30,000

$40,000

$50,000

1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

Year

US$

Mill

ions

Hydropow er Electricity

• Hydro accounts for less than 5% of all private investment in infrastructure in the developing world• Private investment in hydro in developing countries is very important, but• private investment accounts for only about 20% of the the $15 billion annually of public investment in hydro

Traditional International Private Investors Capability Has Declined

AES Corp Energy 1.44 70.62 Oct-00 B+/ Credit Watch NegativeEnron Energy In Chapter 11Endesa Energy 9.62 26.60 Jan-99 A/NegativeCMS Energy Energy 6.56 40.45 Dec-98 BB/Negative

StockDeveloper Sector Current Peak Peak Date S&P Rating

– The largest western infrastructure investors are struggling to restructure. Many are shedding their global portfolios.

– Project debt is downgraded daily, and debt investors are demanding higher and higher risk adjusted returns

The public sector will necessarily play the major role in much financing of water

infrastructure…

PublicPublic PrivatePrivate

Thermal Power generation

Bus Transport

Rail FreightsRoads

Passenger trainsGas

pipelinesBulk water supply

Urban water supply

Rural water

Rural electrificationSewerage/Sanitation

Solid Waste

Metro

Rural roads

Multipurpose dams

Run of the river hydro

Telecoms

Irrigation and drainage






Most of the opposition to large dams has been because local people have borne a large proportion of the costs and received too little of the benefits..

Good resettlement and benefit sharing are

essential..

Emerging good practice:…China a world leader, treating resettlement less as a cost than an opportunity for development…

Emerging good practice:

…Benefit sharing in IndiaStates get 12% of gross revenues as royalties

But where more needs to done to push these benefits down to local people…

Emerging good practice:

…Benefit sharing in Brazil…






The mission of the World Bank

With Narmada as a flagship – large opposition from NGOs and developed countries to Bank involvement in major water infrastructure

0

200

400

600

800

1000

1200

90-92 93-95 96-98 99-01 02-04

IBR

D/ID

A &

Gra

nt C

omm

Am

t The Bank and Hydro: Recent

History

But what did the “infrastructure-desperate”borrowers of the Bank think

of this?

Middle-income countries “with choices” find the Bank’s business processes rigid and unrealistic

Governor Tasso Jeressati of Ceara, Brazil:“When I build a 10 meter high dam in the middle of the semi-arid, the Bank requires due diligence as though I were building Itaipu!”

Poor countries Poor countries ““without choiceswithout choices””

The BankThe Bank’’s justs just--released released ““Global Poll of 1000 opinionGlobal Poll of 1000 opinion--makersmakers””

Feb 2003: New World Bank Water Strategy

Summary of main messagesSummary of main messages

1. …2. …3. …4. On development – the Bank needs to assist countries develop

and maintain appropriate stocks of well-functioning infrastructure

5. The Bank has a comparative advantage in dealing with these complex issues, and there is strong demand for Bank engagement

6. The Bank will follow become a predictable, transparent partner which will re-engage with “high-risk/high-reward”infrastructure.

Unprecedented leadership by developing countries on the Board inUnprecedented leadership by developing countries on the Board insupport of resupport of re--engagement with major infrastructureengagement with major infrastructure……....

… We are firmly of the view that infrastructure investment is central to the Bank’s mission of poverty reduction….

….We would like senior management commitment to at least two high risk high risk –– high benefithigh benefit projects per region…

Infrastructure Infrastructure Business Business

Trends & Action PlanTrends & Action PlanPresentation to BoardPresentation to BoardJu

ly 8

, 200

3

Official World Bank position on hydro…

So what is happening?

… and the proof of the pudding (as always) will be in the eating!

Carbon Offsets

Global Environment Facility (GEF)

International Development Assn. (IDA) -

concessional credits

IBRD - standard

World Bank loans

8

7

2

2

The current Bank hydropower portfolio is still small….Number of Active Hydropower Projects

by Product Line

But energy is coming back on the Bank agenda

IBRD/IDA Lending Approvals for Energy projects (supervised by all SBs)

0

500

1000

1500

2000

2500

3000

3500

4000

4500

FY93 FY94 FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05

IBRD Commit Amt IDA Commit Amt

And hydro projects are now actually being approved by

the Bank’s Board over protests from NGOs…

The example of South Asia:Anticipated World Bank lending in India

and Pakistan…

0

500

1000

1500

2000

2500

3000

3500

Pakistan India

Current Within 2 years

With ALL projected increase into infrastructure…

And substantial portion into hydro…..

New Country Assistance Strategies including major

hydro

• India CAS approved last month• $700 million for two major proposed

hydro projects• “why not more”? from the Board

which used to wince at the word “hydro”!

World Bank Lending for Water over Past Three Years

0%

2%

4%

6%

8%

10%

FY02 FY03 FY04

% o

f al

l Ban

k le

ndin

g

Irrigation Serv Irrigation WR Urban WSS ServUrban WSS WR Rural WSS Serv Rural WSS WRHydropow er Serv Hydropow er WR WR St/Alone Components

Some promising signs….

Last month’s Annual Meetings…

We think that the Bank’s Board and management has now “got water (and hydro) on the brain”…

The takeaway message on the World Bank and infrastructure

WeWe’’re back!re back!

Thank you!

Hydropower and Sustainable Development

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