CLIMATE CHANGE

Climate change has made its way to the top of policy and business agendas. While the concepts of adaptation and resilience are both used, they require better understanding within a hydropower context.

Climate adaptation is the process by which populations and ecosystems adjust in order to cope with changing climatic conditions. In many areas of the world, adaptation services are needed under the conditions of increased hydrological variability brought about by changes to the climate. Hydropower and dams can provide climate adaptation services: in the form of flood protection but also through the provision of a more secure water supply for agricultural, industrial, urban and environmental purposes.

In order for hydropower projects to provide this full range of adaptation services, there is a need to ensure that hydropower assets themselves are resilient to the future impacts of climate change. Some com-panies have started to incorporate climate-related risks into their decisions and actions, and financial institutions are also assessing the resilience within current proposals.

As knowledge becomes more widely spread among the hydropower community, it is important to understand the relationship between building resilient infrastructure and providing adaptation services, and how these related goals are prioritised.

IHA’s initiatives on climate resilienceIHA is collaborating with multilateral organisations such as the World Bank Group and European Bank for Reconstruction and Development to build knowledge on this topic and identify good practices in incorporating climate resilience into project development, operations and modernisation projects.

In October 2015, IHA carried out a survey of more than 50 organisations involved in hydropower development to assess perceptions of climate risk and resilience, and provide insights on the sector’s readiness. Although the survey found that the vast majority of respondents were well aware of the need to develop climate-resilient infrastructure, 74 per cent said that their organisation did not have existing guidelines on climate risk or resilience. Moreover, 83 per cent said that sector guidelines on this topic would be useful.

Joint workshopBringing together stakeholders from the hydropower and water sectors, the World Bank Group and IHA convened a workshop to review the current understanding of

RESILIENCE OF HYDROPOWER AND DAMS TO CLIMATE CHANGE AND NATURAL DISASTERS

International Hydropower Association

Chancery House, St Nicholas Way, Sutton, London SM1 IJB, United Kingdom

T: +44 20 8652 5290 F: +44 20 8643 5600 E: iha@hydropower.org

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WORKSHOP SUMMARY

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Organised by IHACo-organiser World Bank GroupDate 13 November Place London

RESILIENCE OF HYDROPOWER AND DAMS TO CLIMATE CHANGE

(...) relevant climate-change risks, and discuss a common way forward for guidance and reporting. 28 participants representing the hydropower sector, multilateral organisations and research institutions attended the event in London.

Both the survey and workshop demonstrated that there is a significant appetite in the industry for guidelines and a robust framework for approaching climate risks. Such guidelines should be developed in close dialogue with industry and other stakeholders in the hydropower community.

The workshop was hosted in London at the offices of IHA corporate member, ENGIE.

Climate change knowledge networkThe IHA climate change knowledge network is a newly established forum which brings together IHA members and external experts to foster discussion and build knowledge on climate-related topics, including resilience and adaptation. The aim is to provide IHA members with a means of accessing global expertise and to share knowledge and examples of good practices.

If you would like to participate in this knowledge network, please contact climate@hydropower.org

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RESILIENCE OF HYDROPOWER AND DAMS TO CLIMATE CHANGE

Climate change and World Bank Group operationsPresentersPravin Karki, Senior Hydropower Specialist, the World Bank

Key points • Risk screening for project financing now includes an increased

emphasis on climate change impacts and natural disaster risk. The World Bank Group requires all new lending operations to be screened for short- and long-term climate change and natural disaster risks, and where risks exist, for appropriate resilience measures to be integrated into the project.

• The World Bank is working with its clients to make their activities more resilient to climate change. The bank helped countries secure nearly USD 5.9 billion in 2014 to support climate and disaster resilience initiatives. The assistance extends for example to land planning, where future systems can be stress-tested against multiple scenarios.

• The World Bank is aiming to develop guidelines on resilience in the hydropower sector in World Bank Group operations.

Kruskaia Sierra-Escalante Head, Blended Climate Finance, World Bank Group, Climate Change Vice Presidency, International Finance Corporation

• Infrastructure projects are a key component of climate change adaptation. However, these climate projects often present multiple challenges: high upfront costs, insufficient returns, excessive risk and limited access to financing.

• The International Finance Corporation (IFC) can support highly impactful climate-smart projects through ‘blended finance’. Blended finance consists of an investment with IFC’s own account resources together with donor-funded concessional co-investment (usually from public sources, but could also be funded by private philanthropic sources) to provide a financing package on terms that would make a project financially viable and/or sustainable.

• IFC’s Blended Finance is designed for high-impact private sector projects which would not be able to happen without this support. However, any subsidy or support should be the minimum necessary to achieve the desired outcome. In addition, this should be in a sector or area where financial sustainability is expected in the medium term (i.e., no long-term subsidies).

• This type of finance can integrate concessional finance in many forms, including pricing, security, tenor or ranking. Concessional funds can take higher risks and/or lower returns than IFC, to enable high-impact and transformational projects.

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Using models to make effective decisions under uncertaintyPresenters

Julien Harou Professor of water engineering, University of Manchester

Julie RozenbergOffice of the Chief Economist for Sustainable Development, the World Bank

Key points • Researchers are identifying the limitations of traditional models

for decision-making and planning. Global circulation models (GCMs) are useful, but reflect substantial uncertainty about future conditions at the local scale, especially with regard to changes in precipitation. It is no longer possible to make fully robust investment decisions on the basis of historical data as the variables are not predictable.

• “Decision making under uncertainty” (DMU) is emerging as a preferred methodology for making robust investment decisions in the World Bank Group. While traditional planning attempts to predict conditions, DMU begins by considering all possible courses of action before testing a preferred action against the widest range of possible climate scenarios.

• Decisions cannot wait for new information. There is an urgent need to develop new electricity and water infrastructure now, despite current uncertainties. DMU favours flexible solutions which can be adjusted over time, allowing for the necessary actions to be taken now.

• Climate change impacts more than just a single asset, it affects the entire system of assets within a river basin. Therefore, basin- or system-level assessment and design for climate resilience can be beneficial. Basin modelling and system design optimisation tools already exist, have been applied and are being further developed. Different combinations of options for developing a system are stress-tested under a range of future climate and other uncertainties to identify the most robust and balanced portfolios. Results can usefully be presented as trade-offs so that system managers can understand how design changes impact multiple interdependent metrics of system performance.

• Climate change is not the only factor that can make a system fail, it is usually combined with other factors. In Lima, Peru, it is not clear whether precipitation will increase or decrease under climate change, however this uncertainty is compounded by the difficulty in predicting the future population growth. The World Bank is working to help the water utility in Lima to plan for an uncertain future.

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Key points from the IHA survey on climate resiliencePresentersTracy LaneHydropower Development Programme Director, IHA

Key pointsQuick survey facts• Survey administered by IHA with support from Mott MacDonald

and The World Bank.• 51 corporate responses from organisations active in hydropower

development.• A majority of respondents (57%) were owners or operators of

hydropower assets.• Respondents represented a fairly even spread in terms of

geographical location of operations.

Key findings • 63% of respondents felt that the main impacts of climate change

are already being felt by their organisation. A further 36% stated that impacts will be felt within the next 10-30 years. Given that hydropower stations are characterised by their longevity, with lifespans of 100 years or more and turbines lasting approximately 30-40 years, these expectations imply that investment decisions being made now should factor in climate change impacts.

• Despite the majority of respondents indicating that climate change is already materially impacting their organisation, only 22% are already taking steps to increase resilience. Less than half of the respondents (44%) had carried out a climate change risk assessment, and only 10% of the organisations surveyed had existing guidelines on climate risk and resilience.

• 70% of respondents felt that a changing climate may bring potential opportunities for their business. However, a noticeably smaller proportion of organisations active in the south and central Asian regions indicated potential opportunities related to climate change.

• 60% of respondents have developed collaborative partnerships with research organisations to better understand climate change. However, corresponding risk screening programmes, risk management strategies and climate-proofing have not been undertaken as extensively.

• 83% of respondents indicated that sector guidelines on climate risk/resilience would be useful. These results are unsurprising given the numbers of respondents who indicated concerns and impacts associated with climate change, relative to their own business and operational processes.

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Case studiesPresentersPeter Baum Analyst, European Bank for Reconstruction and Development

Marco BraunSpecialist in Hydroclimatology, Ouranos Consortium

Philippe Meunier Environmental Advisor, ENGIE

Óli Grétar Blöndal Sveinsson, Executive Vice-President, Landsvirkjun

Key points • Hydropower companies are already working closely with

scientists to forecast the future impacts of climate change. Landsvirkjun has participated in the Nordic Climate Change Project, working with over 100 scientists and 30 organisations to project future climatic conditions in Iceland, Greenland and Scandinavia. The Compagnie Nationale du Rhône partnered with Météo France to study the impact of climate change on the availability and management of water resources in the south-west of France.

• Adapting to climate change can mean increasing the capacity for electricity generation and/or water storage at hydropower facilities. In Iceland, the generation capacity of the current hydro system has already increased by 8 per cent due to warming. The same system will only be able to exploit 30 per cent of additional energy brought by the future projected increase in glacial runoff, so there is a need to increase capacity at existing plants. The rehabilitation of the Qairokkum hydropower plant in Tajikistan will increase its installed capacity from 126 MW to 174 MW, to optimise productivity in the face of increasing climate variability.

• Organisations are already adopting policies and guidelines on climate change, adaptation and resilience. ENGIE’s corporate policies on climate change emphasise building awareness by taking part in national or international adaptation dialogues; adapting by identifying the sites and infrastructure which are at risk, assessing that risk, and developing action plans; and anticipating climate change by using the latest scientific data to consider the widest range of possible climate scenarios.

• Innovative partnerships are emerging in response to the projected impacts of climate change. As members of the Ouranos Consortium, Hydro-Québec, Rio Tinto Alcan, Manitoba Hydro, Ontario Power Generation, and the water authority of Québec are studying and exploring potential climate adaptation measures, e.g. future changes in probable maximum precipitation. EBRD is facilitating a partnership between Barki Tojik, the state-owned utility in Tajikistan, and Hydro-Québec/Ouranos to support skills transfer and capacity building around best international practices in climate resilience and adaptation measures.

• Blended finance is being used to support climate resilient projects. The rehabilitation of the Qairokkum hydropower project in Tajikistan is being supported by an initial financing package for project implementation and technical assistance built on blended finance, including a USD 50 million loan from EBRD, USD 21 million grant and concessional finance from the Climate Investment Fund, and a USD 4 million technical cooperation grant from DFID, UK.

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• Risk management is business-as-usual. It’s important not to take the challenges out of proportion. Developers and operators already deal with a range of risks, including hydrological variability. However, climate risks should be incorporated into these processes.

• Changing climatic conditions are already having a palpable effect on the sector, and these impacts are expected to become more pronounced in the future. Hydropower businesses are faced with direct economic impacts due to increased or decreased capacity to generate electricity. Developers and operators may also need to make changes in the design and operation of schemes and systems to improve resilience or adapt to new conditions.

• Changes to the climate may also bring new opportunities for the hydropower sector. Opportunities include higher hydropower potential due to increases in precipitation, as well as the roles which storage projects can play in helping societies adapt to climate change. Flexible project design is an approach which means understanding and preparing for the adaptations which may be necessary at a later date, without the need to build all of them immediately.

• Climate resilience can be defined both in terms of specific assets and at the system level. However, a more general framework will be required to guide local assessments and define international standards of quality. A wide range of stakeholders will need to be involved to determine the appropriate metrics.

• There is a case for public funds to be invested in climate screening and assessment. Public funds may be appropriate due to longer time horizons and broader constituent bases. Hydropower projects can provide climate adaptation services which are of benefit to broader society, such as flood and drought management.

• Developers are wary of adding costs to the project preparation phase. There is a need for a standard assessment for climate resilience which is recognised by investors and multilateral organisations, but it is important to seek ways to finance this without over-burdening project developers. Further clarity is also required on the role of regulators. Very detailed and intensive assessment methods may be useful, but can be costly.

• There is a need to communicate climate resilience and adaptation measures to investors in a simple and clear manner. Investment decisions will consider a range of factors and compare other options, so climate risk and resilience measures must be presented clearly, necessitating consensus on standards and definitions in the sector.

• Operators and developers need guidelines on how to plan for climate variability. Ideally, such guidelines should be developped in partnership between businesses, the finance sector, and the academic community, taking into consideration recent experiences and current initiatives. A common approach at the international level would be particularly useful.

Discussion and way forward

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