Climate change impacts on financial risk in hydropower projects

15 November 2004

Limiting the emissions of greenhouse gases from power generation will depend, among other things, on the continuing and increased use of hydroelectric power. However, climate change itself may alter rainfall patterns, adversely affecting the financial viability of existing and potential hydro schemes. Previous work developed a methodology for quantifying the potential impact of climate change on the economics of hydropower schemes. Here, the analysis is extended to examine the potential for changes in project risk. A case study is presented that indicates that the applied climate change scenarios alter not only the mean financial performance of the scheme but also the financial risk facing it. Given that investors must balance project risk and reward, this finding has implications for the future provision of hydropower.