The Sustainable Development Goal #7 states that “affordable, reliable, sustainable and modern energy” is essential to support human development and wellbeing. The energy transition required to shift towards a carbon-neutral economy calls for significant investments in renewable energy sources to satisfy increasing global demand. Despite its controversies, hydropower remains the primary renewable energy technology by capacity and generation and provides stable, low-cost and continuous power supply. However, capacity additions and investments in the field have been showing a decreasing trend for the last five consecutive years (2019 global net additions declined of 45% with respect to 2018).
Financial capital and investments are key to achieve carbon neutrality while also promoting growth and energy security. Finance becomes the enabler of a systemic transformation and here we looked at the key actors behind hydro investments. Understanding the key actors involved in hydropower facilities development and construction, and helps shedding a light on the macro dynamics in the sector.
In this work (Larosa, F., Rickman, J. and Ameli, N.), we use BloombergNEF data on financial transactions linked to hydropower projects realised in a century timespan (1903-2020). We find that the wide majority of investments relate to Run Of River facilities, which happen to be less aggressive on the environment with lower capital invested upfront, but also highly dependent on the water availability (a scares resource under climate change). We then classify the actors to understand the private-public, financial-non financial composition of our sample. The large presence of “patient capital” economic agents reflects the efforts required to support a hydropower project.
Our findings claim the central role of multilateral and international institutions in facilitating the capital allocation via private-public partnerships that reach emerging and developing economies. This core feature leads to a double positive outcome: on one hand, these actors promote the development of hydropower facilities, widening the share of clean and affordable energy; on the other hand, a geographically inclusive capital allocation in developing economies enhances economic growth and promotes a more equitable world.
Our forthcoming paper on hydro finance for SDGs will provide further insights on optimal capital allocation in a sector characterised by decreasing investment trends.
