Finance |
Above: Hydropower construction on the Mekong River. Recent research has been looking into hydropower financing in the region © Gerardo C.Lerner /
Shutterstock.com
have long-lasting impacts on the environment and local communities.
“Our primary call is for financial institutions to develop and disclose an overarching human rights policy and due diligence process aligned with the United Nations Guiding Principles on Business and Human Rights when investing in this sector. So, this is the first line of call for them to develop and disclose sector policies in line with hydropower while diversifying their sources of information when conducting risk assessments,” Bernadette Victorio said. “And by diversifying their sources, I mean they do not only rely on the companies to provide the risk assessment information, but also conduct broader consultations with impacted communities and other independent stakeholders that could provide more nuanced and detailed information on what would be the cumulative negative impacts of these projects.”
References
Comparing Alternatives For Managing Hydrometeorological Financial Risk For Hydropower Suppliers by Rosa I. Cuppari, Simona Denaro, Yufei Su, Jordan D. Kern, and Gregory W. Characklis. August 2024. Manuscript submitted to the Journal of Water Resources Planning and Management.
Cross-influence of Risk, Return, and Governance on Decision-Making in Hydropower Investments Karki, D. (2024). Economic Journal of Development Issues, 37(1), 96–
116.
https://doi.org/10.3126/ ejdi.v37i1.63920
Risky business Droughts and heatwaves create significant financial
risk for hydropower suppliers, and although many suppliers manage their risk independently, some are government-supported. Research recently undertaken provides a framework to address how the costs of a government-supported risk management strategy compare with a self-supported one. This was applied to the Bonneville Power Administration (BPA) – a hydropower supplier in the US with access to a government-supported line of credit. Including models to simulate weather, electricity prices, and BPA’s operations, the analysis results suggest government support effectively mitigates BPA’s hydrometeorological financial risk, but at costs to taxpayers that can exceed US$1 billion over 20 years. Replacing the line of credit with index-based insurance comparably manages financial risk at lower costs limited to BPA and its customers.
28 | January 2025 |
www.waterpowermagazine.com
It is thought the framework may prove useful to both hydropower suppliers and governments as they decide how to manage hydrometeorological financial risk, especially in lower-income countries with limited public funds.
Investor behaviour
A new study has analysed the behaviour of investors towards initial public offerings (IPOs), focusing on the hydropower development sector in Nepal, and offers valuable insights and implications for investors seeking to align investments with their goals. The study’s findings suggest Nepalese investors prioritise returns and organisational governance over market risks, as well as revealing significant associations between investor behaviour and sociodemographic variables like age, education, occupation, and primary investment objectives. This, according to study author Dipendra Karki from Tribhuvan University in Nepal, highlights the diverse perspectives influencing investment decisions within the Nepalese context. There is a critical need for hydropower developers
to prioritise investor protection and transparency, fostering trust and confidence in the sector, while regulatory bodies should enhance disclosures, enforce shareholder accountability, and strengthen project oversight to ensure the integrity and stability of the market. Future research endeavours, according to Karki,
could explore a deeper understanding of the evolving dynamics of investor behaviour in the hydropower sector, considering emerging trends and external factors that may shape investment decisions. In addition, exploring the impact of regulatory interventions and policy changes on investor sentiment could offer valuable insights into creating a favourable investment environment.
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