Financial risks

Hydropower relies on running water to generate electricity. This water is provided by the rain cycle, a natural process outside the bounds of human control. Consequently it is impossible to guarantee the output from a hydropower plant at any given time in the future. Nevertheless the output can be guaranteed with a fair degree of certainly over a long time scale; the greater the period, the more certain the predictions will be.

This hydrological risk - the risk that there may be periods with no water in the river where a plant is operating - can be quantified in the same way as the risks involved in other types of power plant project. In fact one could argue that it can be more precisely quantified than the risk associated with, for example a fossil fuel supply, where the supply chain depends on human intervention.

The second major risk associated with hydropower is geological risk. Geology is seen as a problem because too many developers in the past have not taken geological factors into full account. It is wise to assume that every hydropower project will face some geological problem that will complicate its construction. The complication-free project is the exception. This may appear to be a bleak prognosis, but it is pragmatic. Once the prognosis is accepted and factored into the project, cost and construction overruns become manageable.

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