Energy

Can Myanmar Balance the Risks and Rewards of Hydropower?

June 23, 2016

Myanmar's rivers. Photo © Getty Images.

As a personal investor, you tend to hear a lot about balancing risk and reward through a few fundamental strategies, such as developing — and sticking to — a long-range plan that features a diversified portfolio.

But this is not an essay on personal finance. It’s about hydropower energy and sustainable development and how countries that invest in hydropower often don’t follow those fundamental strategies. And how, as much as any country, Myanmar stands poised to benefit from adopting them.

Like most countries, Myanmar thus far has not relied on a long-range investment plan for hydropower development; initial projects have often not delivered full rewards but have certainly underscored hydropower’s risks, including social and environmental impacts and conflicts. One high-profile example was the Myitsone project, a 6 gigawatt (GW) dam planned for the Irrawaddy River, which was suspended due to social conflicts after the developer, the China Power Investment Corporation, had already invested hundreds of millions of dollars.

Myanmar has recently undergone a dramatic transition in government with the National League for Democracy (NLD) entering power this spring. In their electoral campaign, the NLD raised the issue of hydropower’s impacts and articulated strong support for sustainable energy development. Thus, the new government is starting with a clear mandate to reassess current practices for hydropower planning and management and require high standards.

The Nature Conservancy (TNC), WWF, and the University of Manchester (UK) recently released a report (funded by the UK’s Department for International Development) exploring the benefits of a long-range, diversified portfolio approach to hydropower investments and illustrated its potential value to Myanmar. In the report, we propose that system-scale and comprehensive planning — what TNC calls ‘hydropower by design’ — can allow the government to identify a set of investments that will provide the broadest rewards to its people with lower risks and impacts.

Yeywa dam. Photo © eng.SinoHydro.com
Yeywa dam. Photo © eng.SinoHydro.com

For many countries, hydropower is a primary source of electricity or factors prominently in their development plans. The world is poised to approximately double hydropower capacity by 2040, building as many hydropower dams in the next twenty-five years as were built in the previous century.

Hydropower dams are major investments. They can produce significant rewards — electricity to grow economies and alleviate poverty — but also run great risks. Financial risks include cost overruns, delays and, once built, river flows — and thus electricity generation and revenue — that fail to live up to expectations. Considering broader economic values of a country, risks also include ineffective relocation programs for people displaced by reservoirs and lost fisheries and other environmental impacts. These environmental and social impacts can generate conflict and contribute to delays and cost overruns — socioeconomic risks manifesting as financial risks for investors and developers.

Photo © Justin Blethrow
Photo © Justin Blethrow

However, most countries do not follow investment fundamentals for managing hydropower’s risks and rewards. They don’t pursue diversified portfolios, but instead go all in on a single project and then another one. And they often choose these investments based on very limited information and without a long-range plan of how those investments will work together toward a set of objectives. In that context, hydropower development resembles gambling more than investing.

For Myanmar, hydropower offers potential for both great rewards and great risks. One-third of its population lacks access to electricity while the country has a large undeveloped hydropower potential, estimated at 100 GW (20 times current total capacity for electricity generation and four times the estimated demand in 2030).

The Irrawaddy at dusk. Photo © Joerg Hartmann
The Irrawaddy at dusk. Photo © Joerg Hartmann

But hydropower also poses high risks for Myanmar. Its primary river—the Irrawaddy—contains much of the country’s hydropower potential but is also a critically important for navigation and agriculture. River fisheries are also extremely important: Fish are the most important source of animal protein in Myanmar and the country ranks fourth in the world in terms of freshwater capture fish harvest (1.3 million tons) from a fishery that employs 1.5 million people.

Hydropower development can impact all these resources, potentially either positively or negatively. A hydropower by design approach seeks to compare and identify a set of investment decisions that work together to meet objectives for water, energy and river health. To illustrate the potential benefits of this approach, we developed a framework to compare investment options on the Myitnge River, a medium-sized tributary of the Irrawaddy River with two existing hydropower dams. We examined multiple portfolios that represent different combinations of additional dam sites and designs and operational rules for current and/or potential dams (e.g., how they store and release water). Each portfolio was quantified in terms of performance across 10 metrics such as energy, investment cost, fisheries, forest loss, navigation and biodiversity.

Photo © Jeff Opperman
Photo © Jeff Opperman

The results clearly showed that a system-scale approach can identify multiple development options that meet energy objectives while minimizing negative impacts or bolstering other sectors, such as navigation. For example, building additional dams in the Myitnge sub-basin would increase river fragmentation and could potentially diminish fish production. However, the research also found several combinations of dams and operating rules that would produce almost the same amount of energy, but with potentially much lower impacts on fish productivity. Similarly, the results showed that even though most combinations of investments produced clear tradeoffs, a few options produce high performance for multiple sectors (e.g., energy, fish, navigation) at a relatively low cost. These options only become apparent through system-scale planning.

Overall, the results illustrate some key points about a system-planning approach:

  • Tradeoffs between values are inherent in decisions. In most cases, energy development will have some negative impacts (true for energy development in general, not just hydropower). But visualizing tradeoffs allows stakeholders and decision makers to understand the full set of rewards and risks associated with investment decisions over time — this is not possible when only considering a single project at a time.
  • While there are tradeoffs, a system-scale approach can identify “win-win” or “close to win-close to win” options — those that meet energy objectives but minimize negative impacts or have synergistic benefits for other sectors (e.g. navigation) — or do all of the above. These balanced and diversified portfolios — combinations of site, design, and operation — are highly unlikely to emerge from a set of project-level decisions.
  • This approach is conducive to a transparent and informed approach. By moving away from seeming “black box” decisions, projects that emerge from this process are much more likely to be in the greater public interest.
Photo © Joerg Hartmann
Photo © Joerg Hartmann

Myanmar’s new government has many decisions to make about energy and development, including hydropower. A system-scale approach — characterized by long-range plans and diversified portfolios — can move hydropower decisions from gambling to investments that deliver broad benefits to the people of Myanmar and serve as a model for sustainable energy development.

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