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Study says hydropower dams may not be economically viable

New research by Oxford University suggests that in the majority of cases large dam projects are not economically viable due to higher than predicted construction costs.

The study, undertaken by the university’s Saїd Business School, claims that instead of obtaining hoped-for riches, emerging economies risk drowning their fragile economies in debt owing to ill-advised construction of large dams.

The study is based on 245 large dam projects from 65 different countries and found that construction costs of large dams are on average +90% higher than their budgets at the time of approval, in real terms.

The study also found that the magnitude of cost overruns has not declined over time and dam budgets today are as wrong as at any time during the 70 years for which data exist. The researchers behind the report claim that dam planners seem to not learn from the past.

In a statement the researchers have said: “Brazil’s Itaipu dam, built in the 1970s, suffered a +240% cost overrun that impaired the nation’s public finances for three decades. Despite producing much-needed electricity, Itaipu will likely never pay back the costs incurred to build it. Regardless, Brazil is currently building the controversial Belo Monte hydroelectric project, which has proved non-viable even before opening and awaits a fate like Itaipu’s.”

Readers' comments (1)

  • The academic paper (from Oxford) on which you were reporting is flawed in a number of ways. It appears to me that perhaps it had not been peer reviewed. You have been misled, and thus also you have proceeded to mislead your readers.

    Most particularly the quoted figure of “ 90 % cost overrun” is misleading and represents (if you read the study) the mean of a highly skewed distribution curve (there appears to be one point somewhere near 5,000 percent overrun, neatly "obscured" by a break in the abscissa).

    It is disingenuous to quote the mean from such a highly skewed, long tailed, curve. A careful researcher would be at pains to examine and document the 5,000 percent overrun which in itself must be very unusual in some way (maybe it’s a simple typographical error from some old document used to derive cost data, or the first estimate on that project was made before some extreme inflationary period such as occurred in Argentina or Zimbabwe?). Even if the 5000 percent overrun is a valid data point, it may be an overrun on the smallest and earliest project sampled- which would have little bearing on modern projects, but because of the parameter (percentage overrun) it assumes greater weight than it merits. This outlier has a great influence on the curve and the conclusions of the researchers so it is important for a studious researcher to find out how the overrun on the outlier became so large.

    In any case, as statisticians understand, the mean of a highly skewed curve is important mainly in defining the extent of “skew”. If one is trying to draw some realistic conclusions from the data contributing to such a skewed curve it is more proper to use the mode or the 50th percentile.

    I suspect that the authors may understand the "spin" that they were putting on the analysis, as they have quoted the 50th percentile figures in Table 8 on page 12 of the original paper, but then could not resist using the mean for their conclusion - and for the associated press releases. Comparing the 50th percentiles in Table 8 indicates that historical cost overruns for dams and hydropower are very much “in line” with other infrastructure development projects.

    It is regrettable that this conclusion has been reported around the world without (I suspect) any of the reporters actually reading the original paper, but relying on a press release that has been (in my humble opinion) spun to suit the authors intent, rather than documenting robust scientific research.

    It is also noticeable that the authors - in their press release and also (I think I recall) in articles written for journals such as the Wall Street journal - refer to dam planners and designers as "fools and liars". Now that is a class academic act, and ironically is a charge that could reasonably be leveled against them in regard to their own efforts on the subject paper !!

    In a wider context, large infrastructure projects in the developing world are almost always an integral part of a country's development profile. While we should all be prudent, of course, there are many historical examples (in the development of the western democracies) of infrastructure that has required extensive support to ensure its construction. A good example is the US trans continental railway which only got built because the US government gave the railway companies about 175 million acres of land grants (or land equivalent to Texas -or one tenth of the country). Now I wonder what the authors would say about that - and the contribution of that infrastructure project to the development of the US?

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