The allocation and documentation

of hydrological risk

H
A. Blomfield, King & Spalding, UK
J. Plummer, University of Cambridge, UK
This article relates the risks of hydrological flow rates, seasonality and extreme events. Risk is considered from the perspectives of the various
players involved in projects. The analysis will consider specific issues which affect hydrological risk, such as climate-change, watershed
protection and river basin management, and quality of hydrological records. The article will also attend to the issues of management and

ydrology is the branch of science concerned rainfall, glacial lake outburst flood, extreme weather
mitigation of hydrological risk throughout the different stages of a project and how this is reflected in the project and financing documents.

with the properties of the earth’s water, and events (such as hurricanes) or upstream landslides.
especially its movement in relation to land, Hydrological risk can also include the issue of exces-
according to its dictionary definition. Hydrological sive flows during the construction phase of the project,
risk, in particular the risk of having either too much or which may delay the works and/or increase their cost.
too little water, is a key determinant for economic Similarly, inadequate or excessive water levels can
development. The World Bank refers to the possibility cause a delay in performance testing and commission-
of a country being a “hostage to hydrology” [Grey and ing, potentially delaying the commercial operation and
Sadoff, 20071]. technical completion of the plant.
For a hydropower project, the principal issue of Upstream development (causing diversion, impound-
hydrological risk is generally seen as the risk of hav- ment, flooding, debris flows, siltation or sedimenta-
ing insufficient water in the source river or dam to sup- tion) can result in inadequate or too much water, or
port the expected levels of electricity generation. changes in the timing and quality of water flows. On
However, hydrological risk is more complex than this, rarer occasions, downstream development can create
and issues related to the quantity and quality of water risks for an upstream plant, if the downstream plant is
can also affect a project during its planning, design, constructed such that its reservoir interferes with the
construction and financing phases, as well as other upstream operation (for example by flooding the tail-
aspects of operation. race of the upstream plant).
This paper relates the risks of hydrological flow
rates, seasonality and extreme events. The risk is con-
sidered from the point of view of the project compa- The various parties and stakeholders have different
2. Perspectives on hydrological risk
ny(a), government, off-taker, construction contractor, perspectives on hydrological risk. Developers’ atti-
lender and insurer. The authors look at specific issues tudes differ: some refuse ever to take the risk of inad-
which affect hydrological risk, such as climate- equate water during operation, others accept it as part
change, watershed protection and river basin manage- of being a hydropower developer, and for others it
ment, storage (as opposed to run-of-river) projects, depends on a range of factors, including the level of
and the quality of hydrological records. The paper then the tariff and expected revenue, based on different
discusses the issues of management and mitigation of hydrology scenarios. Of course, developers prefer cer-
hydrological risk throughout the various stages of a tainty of revenue and will generally try to shift the risk
project and how this is reflected in the project and to the off-taker and/or government, though may be
financing documents. persuaded to accept a certain magnitude of hydrologi-
Key documents which deal with hydrological risk cal risk if they can recover enough revenue from a con-
include: feasibility studies; the environmental and servative or low-water scenario (such as P90, a level of
social impact assessment; appraisal reports (including hydrology which occurs with a 90 per cent probabili-
the report of the lenders’ independent engineer); con- ty(b)). In some cases the developer will accept protec-
cession (or similar) agreements with host governments; tion from hydrological risk which is time limited, such
power purchase agreements; construction contracts; as a power purchase agreement (PPA) in which the off-
financing documents (such as loan agreements and taker takes hydrological risk for only the first 15 years,
sponsor support agreements); and, insurance policies. as the project’s finances will have significantly lower
sensitivity to changes in revenue after repayment of
the debt. During the planning and development phase
In considering hydrological risk it is important to of the project, the developer will need to assess the
1. Manifestations of hydrological risk
examine who bears the time, cost and other conse- level of hydrological risk it is willing to bear, and will
quences of each aspect of the risk, including the poten- need to take into account watershed or river basin
tial physical and commercial impacts. In addition to the issues as part of that assessment. During construction,
well understood issues of inadequate or excessive developers need to consider the effects of flooding,
water during operation, other aspects of hydropower drought and other hydrological events, which risks
development, such as design considerations on dams they can insure, which they can allocate to the con-
and power stations, are dependent on good data on tractor or off-taker and which they are willing to
hydrology. There may also be a risk of excessive water retain.
and silt levels caused by a period of particularly intense Governments may wish to protect the rights and
(a) Also referred to variously as the seller, generator, developer, (b) A less conservative scenario would be P50, a level of hydrology
borrower or employer, depending on the context. which occurs with a 50 per cent probability.

94 Hydropower & Dams Issue Five, 2014

needs of other projects or uses, such as irrigation, nav- the extent that they perceive that hydrological risk may
igation, water quality or flood control. Off-takers gen- affect the certainty of revenue. Insurers currently tend
erally prefer to shift hydrological risk to a developer, to be focused on the question of damage, as traditional
but may be prepared to take the risk if they have a port- insurance only pays out if there is physical damage;
folio of projects over which to share it. Indeed, it has but other risks are insurable, albeit generally at a high
often been proposed [see, for example, Trouille, Dev- price. Climate change and changes brought about by
ernay et al, 20082] that the optimum method of allo- other basin and water uses can also cause changes in
cating risk would be to leave the hydrological risk with long term hydrology, which need to be considered
the government or state-owned off-taker, which holds when allocating risk. This paper relates the lender,
all natural risks associated with its country, leaving the insurer and climate change perspectives in Sections 5,
developer responsible for the performance of the plant 6 and 8 respectively. It also briefly relates the contrac-
and remunerating the plant largely on the basis of its tor perspective in Section 4.
availability, with only a small percentage of revenue
being proportional to generation. The suggestion is
that state-owned off-takers have the ability to amelio-
3. Hydrological risk considerations during the
rate this risk through the diversity of the country’s
energy portfolio, with thermal generation and It will seem obvious that hydrological data forms a
planning and development phase

hydropower in other parts of the country, which face large part of the planning for a potential hydropower
different hydrological risks. The recommendation is project, yet even within the planning phase, there is a
that the plant is given part of its remuneration through range of considerations of hydrological risk. First and
foremost are the hydrological records, data on both
a capacity or availability tariff, where a fixed amount
historical river flows and weather. Developers normal-
is paid as long as the plant is available to the grid,
ly tend to prefer to collect their own data, but in this
regardless of the actual generation, and that this
there is little option but to rely on the data collected by
amount is sufficient to cover debt service [see, for the relevant government agencies. For example, for
example, Hoover, 20003] with an additional payment, the 100 MW Gulpur project in Pakistan, Mira Power
which is proportional to the energy generated. [20144] observed that hydrological and sedimentation
However, experience suggests that this is rarely data were available for the period 1960-2002, together
implemented in practice. Brazil is an example of this, with data related to meteorological parameters such as
where the grid inter-connection allows for the varia- rainfall, temperature and humidity, obtained from the
tions in hydrology across the country to be smoothed meteorological station maintained at Kotli by the
out, and the thermal plants provide back up in the Pakistan Meteorological Service.
event of adverse hydrology. Many governments insist Having obtained the data, it is a standard procedure
on leaving the hydrological risk with the developer, for any significant water resource development project
which may encourage the developer to lower genera- to run the data through statistical tests and models. The
tion estimates for the plant or, where concessions are Dahmen and Hall set of tests, for example, is general-
based on the final electricity price, increase the price to ly considered one of the most comprehensive method-
compensate for hydrological risk. The government is ologies for analysing hydrological data [Dahmen and
often effectively paying the developer to insure it Hall, 19905]. However, hydrological models cannot be
against hydrological risk. It should be noted that while fully relied upon, especially in situations where the
this paper will discuss ways in which the developer or future precipitation may not follow the pattern of the
off-taker may avoid hydrological risk, the country con- past as a result of issues such as climate change. The
cerned cannot avoid the risk of power outages which data may also be used to prepare a hydrological study,
such risk implies, other than by ensuring that signifi- which can include long-term estimates of the annual
cant back-up power resources are available; however, and seasonal distribution of flow rate, the inter-annual
these are rarely cost-effective or even possible for the variability, factors influencing rainfall-runoff, the
least developed countries. potential for increasing or decreasing trends in the
From the perspective of the developer, the more the stream flow, and the reliability of the estimates [Rae,
off-taker shares in hydrological risk, the more it will 20086].
realize two key benefits in terms of financing for the The necessity to provide adequate ecological flows
project. First, because the developer will have more within the river must also be fully appreciated. As a
secure and less variable revenues, lenders will be more result, while there is a need to carry out detailed hydro-
willing to increase the percentage of investment cov- logical analysis and sensitivity tests, it is also neces-
ered by lending. This decreases the developer’s cost of sary to make a prudent choice on the size of structure,
capital, and thus also any cost-reflective tariff for the with potential for future adjustments such as adding
off-taker (where applicable). Second, because of the additional generation units or changing the project’s
increased certainty of revenue, the developer will be in operating rules. The dam itself will need to be careful-
a better position to negotiate the best possible lending ly designed to withstand the expected hydrological
terms, also reducing any cost-reflective tariff. This variations, such as the probability of extreme floods
applies to both the interest rate, and the payback peri- and their structural or seismic impacts, with the design
od and terms. Consequently, if an off-taker shares in checked and double-checked not only by the develop-
hydrological risk, it may pay a lower average tariff (as er but also by the owner’s engineer and lenders’ inde-
the higher potential gearing and lower cost of capital pendent engineer.
reduces the overall cost of the project), but the off- In the long term, after the initial pay-back period,
taker may face higher variability from year to year in there may be a need to consider structural alterations.
the effective price it pays per kWh. It is at this time that the developer may enter into fur-
Lenders seek certainty of revenue so that they can ther negotiation with the government, off-taker or
have confidence that a developer-borrower will repay operator on risk sharing.
its debt. Lenders may seek sponsor (equity) support to While project design and optimization is the main

Hydropower & Dams Issue Five, 2014 95

 concern in the early parts of project preparation, there ment. In such areas, it is possible for a temporary
are other issues which may affect preparation, such as obstruction, such as a landslide, to dam the river form-
the consideration of seasonal flows during construc- ing a glacial lake in the upstream reaches of the river.
tion and the process of reservoir filling. Variations in When such a temporary dam fails, the lake outburst
hydrology can affect the construction schedule and has the potential to cause a sudden extremely high dis-
budget, and even threaten those living close to the charge, which is what happened in Peru in 1998, lead-
project site. An emergency preparedness plan will gen- ing to the flooding and burial of the Machu Pichu
erally cover such extreme situations, but the construc- hydro plant [Reynolds International, 20149]. All coun-
tion schedule and budget also need some contingency tries with glaciers are at risk of GLOFs, and those
for adverse weather conditions. countries where this particularly needs to be taken into
The hydro project should always be configured for account in hydropower development include Bhutan,
the optimum economic value to the country con- Canada, China (especially Tibet), Iceland, Nepal,
cerned. This may at times be at odds with the prefer- Pakistan, Peru and the USA (mainly Alaska). In these
ences of the developer. For example, it may be in the areas it is necessary to consider early warning sys-
interests of the country to have a significant reservoir, tems(c), mitigation and adaptation measures such as
but the developer may consider that the project is sim- remote-sensing [Huggel, Haeberli et al, 200210], refor-
pler and less risky to build as a run-of-river project. estation and conservation of natural pastures for water
Conversely, the environmental impacts may suggest retention, better agricultural practices and integrated
the need for a smaller project, while the developer water management plans that consider glacier runoff
would rather maximize the size. In all such cases the [Durand, 201011].
project should be designed in the best interests of the
country, and to ensure the optimum use of its natural
resources, but this may mean that the government must
4. Hydrological risk during the construction
share some of the risk with the developer, particularly
design risk, if the project is optimized before the con- Hydrological risk during the construction phase main-
phase

cession is granted. Lenders, too, can be so averse to ly involves the effects of delay and increased cost to
hydrological risk as to encourage the developer to construction resulting from excessive flows (such as
approach the project from a risk minimization rather flash floods) during the construction phase of the proj-
than benefit maximization perspective. ect, where some structures are at times very vulnerable
The environmental and social impact assessment and to flooding (such as overtopping of the cofferdam and
resulting environmental management plan and social main dam under construction). Excessive flows can
management plan will cover impacts on hydrology, also affect access to the site by damaging roads and
water quality, water use, aquatic ecology and fishing bridges, and prevent work at certain stages of con-
and levels of ecological flows, based on national stan- struction. Floods, debris flow or changes in silt levels
dards [ADB, 20117]. There may also be a need for an can be caused by GLOFs (see above), by excessive
agreed management plan for ecological flows, water rainfall or by upstream changes in the use of the river
sharing and/or catchment protection. For example, at or catchment such as diversion or impoundment. As an
the 1070 MW Nam Theun II project, the protection of example, flooding and sediment transport has con-
forest in the catchment areas was not only an environ- tributed to delays during the construction of the 168
mental off-set, but also an indispensable measure to MW Cheves hydropower project in Peru [Reynolds,
control soil erosion, consequent reservoir siltation and 201312].
even illegal logging. A construction contractor may have to accept the risk
As part of the lenders’ due diligence, lenders and of flooding up to an agreed recurrence interval, or the
their environmental and social advisors will review all maximum possible flood and other extreme hydrolog-
such plans for compliance with relevant lender ical events up to an agreed recurrence interval (or
requirements, such as the IFC (International Finance agreed absolute level), and will usually have the right
Corporation, part of the World Bank Group) to claim force majeure and a time extension in the case
Performance Standards or the Equator Principles of events that exceed such levels.
[IEA, 20008]. Seasonal changes in hydrological flows can cause
In areas at risk of glacial lake outburst floods difficulties to early works, such as access roads, and
(GLOFs), hazard analysis and on-going monitoring the construction of worker accommodation camps, as
are required when siting new hydropower develop- well as to the main construction site. Work may need
to be curtailed or may be able to be extended, depend-
ing on the unpredictable timing of the seasonal
changes in flow.
One of the most significant issues, later in the con-
struction period, is the availability of sufficient water
for performance testing. The EPC (engineering, pro-
curement and construction) contractor or electro-
mechanical contractor rarely takes the risk of delayed
testing as a result of hydrological factors such as inad-
Catchment protection equate or excessive water. The developer will often
is vital to maintaining
hydrological flows: as (c) See, for example, Nepal’s Proposed Model Project Development
Agreement (for hydro projects with installed capacities of less than 500
with the protection of MW), Nepal Ministry of Energy web site, available at:
forest in the www.moen.gov.np, Section 15.6 (GLOF early warning system), which
catchment for Nam obliges the project company to install a GLOF early warning system at
Theun II in Lao PDR, its cost if required to do so by the Government of Nepal and a Technical
shown here. Review Panel following a study of the GLOF risk.

96 Hydropower & Dams Issue Five, 2014

 Finnish Fund for Industrial Cooperation Ltd
(Finnfund) have contributed finance to hydropower
projects with a range of hydrological risk allocation
and sharing mechanisms. The financial and economic
analysis carried out for such hydro project includes a
range of sensitivity scenarios, looking at hydrological
risk to ensure that the project company remains capa-
ble of servicing its debt and that the government
achieves a suitable return for the use of its natural
resources, either in monetary value or in the availabil-
ity of electricity for economic development. To facili-
tate this, the lenders consider the quality of the histor-
ical data and the impact of likely changes in hydrolo-
A glacial lake outburst flood (GLOF) in Nepal. All countries gy from other developments or effects such as climate
with glaciers are at risk of GLOFs; hazard analysis and on- change. The impact will be considered on a variety of
measures, such as the level of the debt service cover-
going monitoring is recommended.
take that risk in the EPC/electro-mechanical contract, age ratio (DSCR), which is typically between 1.4 and
pursuant to provisions which give the contractor a time 1.6 for a hydro project(d), that means, the project is
extension for such a delay, and the right to recover its capable of generating at approximately 1.5 times its
cost (if the event qualifies as having the required mag- debt service obligations each year in the agreed base
nitude). The developer will often then seek to pass at case scenario)(e). In the case of the DSCR, lenders
least some of that risk on in its concession/implemen- would be looking to see that revenue never falls below
tation agreement with the host government and/or the level of the debt service obligation, that is, not
power purchase agreement with the off-taker, in that it below a DSCR of 1 in the worst-case combination of
will seek hydrological force majeure as an excuse for risk factors including cost overruns, delays and
late achievement of commercial operation date (COD) extreme low hydrology (where this adversely affects
and thereby avoid liquidated damages that may be revenues)(f).
imposed failure to achieve COD by a scheduled com- Commercial lenders are generally somewhat more
mercial operation date. Even governments that do not sensitive to hydrological risk than the development
take hydrological risk during the operations period financiers. They may be content to accept a hydrolog-
may be willing to accept an extension to the scheduled ical risk profile based on good historical data (at least
commercial operation date because of inadequate 10 years and ideally at least 20 years) and relying on
water for testing (although this extension of time may an average flow which has a 50 per cent probability of
sometimes have a limit). Delay in start-up insurance occurrence (‘P50’), but they will also consider in detail
will not cover this risk unless the hydrological event the question of the seasonality of flows (including
causes physical damage. However, the project compa- changes in seasonality, such as shorter or longer
ny will usually have to retain the cost impact of wet/dry seasons) and how the consequent variations in
delayed testing/delayed revenue if hydrological factors production may match the electricity market con-
delay testing, even if it does not have to pay any liqui- cerned. Depending on the overall structure and
dated damages for this risk. Even where the off-taker dynamics of local electricity markets (and options to
does not take hydrological risk during operation, import or export), most lenders would not accept the
developers will often seek to share this aspect of project company entering into PPAs under which its
hydrological risk with the government or off-takers. supply obligations exceed (or would likely exceed) a
As noted in Section 3, flooding during construction prudent level of hydrology, if this would result in oner-
can adversely affect local people and those resettled. ous liquidated damages or other penalties under such
Flooding of the Tokwe-Mukosi dam in south eastern PPAs for failure to meet such supply obligations, or
Zimbabwe in February 2014 displaced thousands of the necessity to buy power on a spot market at high
people, and forced the Government to declare a nation- prices to meet their obligations.
al disaster, after water levels rose higher than expected Lenders also increasingly consider climate change
causing a partial collapse of the dam being construct- risk, and where existing data is inadequate, commer-
ed [Sibanda, 201413]. Good project preparation, under- cial lenders may require inclusion of a mechanism for
pinned by lenders’ safeguard standards, require that recalculation of hydrological risk during the life of the
emergency preparedness plans, including flood warn- loan, taking account of the hydrological experience of
ing systems, are in place for such contingencies. the plant during operation.
All lenders will also conduct due diligence on the
environmental and social aspects of hydrological risk,
The main development financing agencies do not have in many cases based on internationally accepted poli-
5. Hydrological risk during the financing phase
a particular policy towards hydrological risk and tend
to view each project on its merits. Multilateral financ-
(d) Note that this range reflects a project with a long-term PPA. Projects
selling power on a merchant (short term) basis may require a higher
ing institutions, such as the World Bank (including the DSCR.
IFC) or Asian Development Bank, and bilateral
financing institutions such as the Norwegian (e) Commercial lenders will base such DSCR calculations on
Investment Fund for Developing Countries (NOR-
hydrological scenarios based on a thorough assessment by a qualified
and experienced lenders’ independent engineer, which will have the
FUND), Deutsche Investitions - und Entwicklungs- responsibility of providing the required hydrological data for the
gesellschaft mbH (DEG), Nederlandse Financierings- financial model used for the debt sizing.
Maatschappij voor Ontwikkelingslanden NV (FMO),
Société de Promotion et de Participation pour la
(f) In some hydropower-dominated electricity markets, such as Chile, the
price of power in a drought will increase such that low hydrology may
Cooperation Économique SA (Poparco) and the not necessarily mean significantly decreased revenue.

Hydropower & Dams Issue Five, 2014 97

 cies, such as the IFC Performance Standards, and may status of upstream dam maintenance and conditions of
require a cumulative impact assessment where a proj- operation, check design floods considered in upstream
ect forms part of a cascade of hydro projects on the dam engineering, and propose risk management strate-
same river. gies where appropriate(g). Lenders often also require an
Lenders’ conclusions on the magnitude of hydrolog- ecological flow management plan (sometimes includ-
ical risk faced by a project may lead to lenders requir- ed in a cumulative impact assessment), which miti-
ing an increase in the size of the debt service reserve gates the environmental and social impact of water
account such that the account retains sufficient cash to diverted from its natural course, including its impact
cover debt service for 12 months instead of the more on fish, river-dependent population and other site-
usual six months to tide the project over its debt serv- specific factors.
ice obligations in the event of low hydrology affecting Lender sensitivity analysis will usually include a
revenues. In addition, the lenders may request inc- worst-case hydrological scenario, which includes a
reased obligations on the sponsors. For example, at the number of low generation, that is, dry years during the
13 MW Bugoye run-of-river project in Uganda, early years of the project’s operating period. For the
Emerging Africa Infrastructure Fund (EAIF), as financial and economic study for the 250 MW
lender, required 10 per cent of the loan amount as Bujagali project on the Nile in Uganda, the economic
sponsor support to cover hydrological risk [Davis, analysis was based on low and high water flow sce-
200914]. This commitment will expire before the dis- narios, allocating a 79 per cent probability for lower
charge of the loan, as EAIF’s exposure to low hydrol- water flows and 21 per cent probability for high water
ogy reduces as the project company repays the loan. A flows [PPA Inc, 200715]. Both lenders and sponsors
sponsor such as NORFUND sees no problem giving seek to size the debt at sustainable levels, based on
limited sponsor support for hydrological risk where it their analysis of the hydrological data. Sponsors and
has agreed that the project company will take this risk, lenders may also consider various approaches to insur-
because it takes the view that the project should not ing hydrological risk, which the next section will dis-
risk a default for a short-term hydrology event when it cuss.
has made an investment decision, and based the plant’s
design, on long-term hydrology. The sponsor support
will have a maximum amount, and, if water flows are The insurance perspective on hydrological risk differs
6. The insurance perspective
persistently low, as a result of an error in the hydro- between construction period insurance and operations
logical analysis or changed hydrology, then debt will period insurance, and the traditional and non-tradition-
have to be resized and rescheduled, and the sponsor al insurance markets.
support would be an element of that work-out. With respect to construction period insurance, the
However, it is recognized that other sponsors may not traditional insurance market focuses on those hydro-
be willing to provide sponsor support to lenders for logical risks which are likely to cause damage to the
hydrological risk. plant under construction. The reason is that traditional
Lenders of all types are sensitive to issues of water construction and property insurance policies, includ-
sharing with other users such as irrigators. While this ing Construction/Erection All Risks and Delay in Start
may be subject to a formal agreement in practice, it Up, will cover the damage directly caused by a hydro-
may be contentious to deprive irrigators of flow during logical event such as flooding, cyclone, hurricane or
times of low hydrology, and local unrest can affect storm, but not the financial impact of project delays
plant operation. Other hydrological issues described and additional costs (including labour and other pro-
in this paper, such as flooding or low flows during con- longation costs) where the insured assets do not suffer
struction are also of a concern to lenders and may be physical damage from such event. The traditional
subject to a requirement for additional support (fund- approach of insurers to due diligence on hydrological
ing) from the sponsor and/or a requirement upfront for risk reflects this approach, in that insurers focus on the
additional construction works to mitigate such risks, risks of sudden accidental and potentially catastrophic
including required teams with the requisite expertise hydrological incidents rather than historic river flows
for such works. and seasonal variations. The main insurers do have
Lenders may also require the borrower (project com- elaborate (although mainly backward-looking) models,
pany) to conduct an upstream dam safety assessment, which they use in an effort to predict the scale and fre-
which is a risk analysis contemplating the conse- quency of such incidents, and they are beginning to
quences and probability of failure of upstream dams. incorporate climate change data in these models; how-
This should model the potential effect of downstream ever they all admit that these data remain unreliable.
flood waves resulting from upstream dam failures on In setting the pricing for construction period insur-
the project’s hydraulic structures, verify the current ance for hydro projects, underwriters suffer from lim-
ited availability of actuarial data on losses to
hydropower plants caused by hydrological events,
although insurers have received a number of landmark
claims generally arising from major flood events caus-
ing damage and delay to hydropower plants in Canada
and Scandinavia (and one in Scotland as well) [Shiels,
The 13 MW Bugoye 201416]. The sum insured for Construction/Erection
plant in Uganda;
All Risks insurance will equal the full replacement
value or an agreed limit. For Delay in Start Up insur-
the lender required
ance, the sum insured can vary from debt repayment
10 per cent of the
loan amount as
sponsor support to (g) For example, see Cheves Hydropower Project, Supplemental
cover hydrological Environmental and Social Action Plan, IFC web site, available at:
risk. http://ifcext.ifc.org.

98 Hydropower & Dams Issue Five, 2014

obligations at a minimum to complete loss of antici- irrespective of the actual loss or damage incurred.
pated profit as a consequence of delay to the commer- Thus, proponents of parametric insurance claim that it
cial operation date. can lead to a quick pay-out, and avoids the transaction
A different set of insurers typically insures hydro costs involved in loss assessment and underwriting
plants during the operational period. Typically such based engineering or portfolio due diligence.
insurers take a portfolio rather than an engineering Parametric weather insurance products have a repu-
approach to underwriting. Operations period insurers tation for being expensive and some are sceptical of
provide cover on an annual basis, and diversify their their value for hydropower projects. However, despite
risk across types of business and locations. This makes the dearth of such transactions in the public domain,
engineering due diligence on a project-specific basis the hydropower sector has seen some large weather
less necessary. Insurers covering risks during the oper- insurance transactions(h). Although the cost may not be
ations period commonly use natural catastrophe mod- insignificant, their value to the insured, usually the
els to ensure that they do not face disproportionate project company, can manifest itself in one or more of
exposure to any particular risk, type of asset or loca- the following advantages: reduced earnings volatility;
tion. Both the main traditional insurance policies improved project bankability; and, facilitation of the
applying to hydrological risk, All Risks of Physical involvement of institutional investors. For them,
Damage insurance and business interruption insur- hydrological risk often conflicts with their need for a
ance, require direct physical damage to the insured minimum guaranteed yield and require a guaranteed
property. The sum insured for All Risks of Physical yield and more financial flexibility. Furthermore, the
Damage insurance will equal the full replacement ability of providers in this space to tailor such products
value or an agreed limit. For Business Interruption to the specific needs of the insured means that the cost
insurance, cover ranges from debt service obligations of such products can be reduced by sharing some of
to full loss of profit. There may also be hydrological the advantages of good hydrology with the insurer. For
damage aspects to Third Party Liability and terrorism projects with considerable hydrological risk, this
coverage. insurance could mean the difference between some
Having established that traditional insurance requires projects proceeding or not.
a physical damage trigger, it is easy to see that such Parametric weather insurance products are usually
insurance leaves many effects of hydrological events taken out in the hydropower sector to cover the rev-
uninsurable. For example, a Construction/Erection All enue effects of decreased production as a result of
Risks policy may respond to flooding which causes inadequate water during operations. However, a recent
damage to equipment in the powerhouse, but it will not innovative transaction (albeit not in the hydropower
respond to the effects of excessive water that does not sector) underlined the potential of parametric struc-
cause physical damage, such as lost work time or pre- tures to cover project down times during the construc-
vention of certain construction activities or perform- tion period, in that it was structured to respond to
ance testing and commissioning as a result of storms, objectively defined cyclone and rainfall events occur-
flash flooding or debris flow. A Delay in Start Up ring during the period of construction of a mine over
insurance may respond to the loss of revenue caused two cyclone seasons [Willis, 201318]. Hydropower
by damage to substation equipment caused by a freak developers working in areas prone to extreme hydro-
storm but, in the absence of physical damage, it will logical events such as cyclones, hurricanes or even
not cover the loss of revenue caused by delayed com- certain flooding could potentially find that such poli-
mercial operation as a result of inadequate water for cies make business sense.
performance testing, which does not cause physical Pay-out based on the measurement of rainfall or even
damage. Nor will Business Interruption insurance stream-flow against an index requires good quality
cover loss of revenue during operations caused by hydrological data. In practice, this means that
inadequate water as a result of drought, low rainfall or providers often require that data from meteorological
a lack of snow. Thus, using conventional insurance, it agencies be checked and verified by a reliable, third-
seems that a lot of hydrological risk is uninsurable. party data source. In case such third-party quality-
Indeed, it has been observed that the psychology of the checked data are not available, parametric insurance
traditional market is directed to reducing rather than providers may ask specialized companies to set up
expanding its exposure to weather. additional stations and calibrate measurements to his-
Since 1997, a few non-traditional insurance pro- toric time series.
viders have developed weather insurance products While project owners are the main customers for
which make use of weather data (measurable weather parametric insurance and weather derivatives for
variables such as temperature or precipitation) as the hydrological risk for hydropower plants, the World
basis for risk indices. This has led to a weather insur- Bank (with reinsurance backing from Swiss Re and
ance market developing, which today can tailor prod- Allianz) has sold such a product to Uruguay’s state-
ucts to mitigate hydrological risk faced by players in owned utility Administración Nacional de Usinas y
the hydropower sector, without the limitations of tra- Trasmisiones Eléctricas (UTE) in what it believes to
ditional insurance [WRMA, 210417]. Non-traditional be the first example of a state-owned utility insuring
insurance for weather is a specialist product provided hydrological risk. UTE is like many state-owned off-
by only a small number of insurers including
Endurance Global Weather, Munich Re, Swiss Re (h) See “Weather derivatives. Come rain or shine. The outlook for the
Corporate Solutions, Allianz, Liberty and a few hedge
business of hedging against the elements”, The Economist, 4 February
2012. “There have been some big transactions with companies that
funds. Such policies are usually structured as paramet- generate hydropower, which requires consistent snow and rain”; and,
ric insurances. This means that cover is triggered if “Swiss Re Corporate Solutions receives award for Weather Risk
certain pre-defined event parameters are met or Management Transaction of the Year 2012”, which describes a
exceeded. If cover is triggered, the pay-out will be
precipitation index insurance solution for Guangdong Meiyan
Hydropower Co Ltd, the first such risk transfer deal of its type in China
determined by the behaviour of one or more indices, available at: www.swissre.com.

Hydropower & Dams Issue Five, 2014 99

 takers with a large proportion of hydropower in its
generation mix, in that it often faces high costs for
7.1 Allocation of hydrological risk to the off-taker
purchasing fuel (mostly oil and natural gas) for
The 84 MW New Bong Escape hydro project on
expensive thermal generation in times when rainfall
7.1.1 New Bong Escape hydropower plant, Pakistan

Jhelum river in Azad Jammu and Kashmir (AJ&K)

and/or accumulated water reserves are low. The insur-
was Pakistan’s first independent hydropower project.
ance policy that UTE has taken out against this risk
It is downstream of Mangla, a major storage reservoir
will pay out if precipitation falls below an agreed pre-
for irrigation as well as power. Of the discharge from
cipitation level, with pay-out levels linked to the oil
Mangla, a fixed amount is required for irrigation and
price, which means that the pay-out will be higher if
only the excess can go to New Bong, which has no sig-
oil prices are high [World Bank, 201319]. The high-
nificant storage capacity. As a result, the long-term
value and importance of good quality data underpin-
PPA with the national transmission company
ning such policy has necessitated additional sourcing
(Pakistan’s National Transmission and Dispatch
of hydrological data, quality control of such data and
Company Ltd, NTDC) allocates the hydrological risk
the installation of new weather stations [Speedwell,
to the purchaser. A guaranteed payment (take-or-pay
201420].
obligation) for 470 GWh/year (c.f. annual electricity
generation of 540 GWh ‘based on historic hydrology’)
covers fixed costs such as debt servicing, operations
Hydrological risk during the operations phase of a and maintenance, return on equity and insurance.
7. Hydrological risk during the operations phase
hydropower plant may manifest itself as inadequate or NTDC will pay for energy above 470 GWh at a special
excessive water, or changes in the timing of flows as a rate of 10 per cent of the prevailing tariff [Laraib
result of seasonality, climate change or other reasons. Energy Ltd, 201422].
If the risk remains with the owner, then low hydrolog- In this case, the Government had little option but to
ical flows will translate into lost revenue. In contrast to retain the hydrological risk through the state-owned
the potential for high losses in revenue caused by low off-taker, as the plant was effectively being managed
water flows, developers are often remunerated at a as part of a cascade of competing water uses (the
much lower level for generation which is beyond the Government of Pakistan having guaranteed the pay-
agreed dispatch, creating a mismatch between the ment obligations of NTDC, Government of Pakistan
upside and downside risks. Projects with large storage and Government of AJ&K, under the concession doc-
may be less vulnerable to the risk of lost revenue than uments). In the case of such cascades, it is possible for
run-of-river projects. the off-taker to absorb the hydrological risk, especial-
The site-specific nature of hydropower makes it dif- ly where there is a developed energy market, but this
ficult to make general statements about the allocation was not the case in Pakistan.
of such risk. In the early days of hydropower conces-
sion agreements, it appeared probable that developers
would refuse to accept hydrological risk. According to Similarly, in the case of the 44 MW Singrobo hydro
7.1.2 Singrobo hydropower project, Côte d’Ivoire

Head [200121]: “There is now recognition that it is project in Côte d’Ivoire, a 35-year PPA has been
often unrealistic to expect a private owner to assume agreed with state utility CI-Energies, based on fixed
hydrological risk when he has not been party to the and variable capacity payments, which allocate the
collection of the original data on which the river flow risk of adequate water supply to CI-Energies, given the
is assessed.” location of Singrobo downstream from the state-
However, more recently, as the appetite for owned Taabo dam and hydropower plant [Whiteaker,
hydropower concessions has improved, it has become 201423].
apparent that some developers do accept the hydrolog-
ical risks. However, the authors have found no evi-
dence that any one element of a project affects the For the 250 MW Bujagali hydropower project on the
7.1.3 Bujagali hydropower project, Uganda

developer’s attitude to hydrological risk, not even the Nile in Uganda, the off-taker, Uganda Electricity
degree of design freedom which the concession Transmission Company Limited (UETCL), takes the
allows. Every case (as with so much of hydropower hydrological risk through a capacity charge which is
development) is case-, site- and country-specific. Thus adjusted based on the prevailing hydrology in such a
the section which follows will consider different way that the project company is paid irrespective of
examples of hydrological risk sharing. the actual production output (low or high hydrology
and demand) [AFDB, 200824]. The rationale for this
risk allocation was twofold: first, because of the
unique hydrology of Lake Victoria and the Nile, on
which even experts have widely divergent views; and
second, to encourage development in Uganda, which
suffered particularly high power prices.
UETCL has some protection against this allocation
of hydrological risk, in that if the water flow falls
The 84 MW New below a low base level for an extended period for any
Bong Escape project, reason other than a cause attributable to it or the
Pakistan’s first Government of Uganda (GOU), then UETCL can ter-
independent minate the PPA and purchase the plant by paying off
hydropower project.
the debt and a defined equity return [World Bank,
200725].
In this case the
The allocation of the hydrological risk to UETCL
Government retained

was later claimed to give the GOU possible cause to

the hydrological risk
through the state-
owned off-taker. overdraw water from Lake Victoria. An independent

100 Hydropower & Dams Issue Five, 2014

review panel, authorized by the African Development
Bank (AfDB) to review the Bujagali hydro project for
7.3 Sharing of hydrological risk between the off-taker
compliance with AfDB policies, concluded that the new In some cases there is a sharing of the hydrological
and the seller
Bujagali dam would increase the incentive for the GOU risk, or a range within which revenue can be affected
to extract more water from Lake Victoria to generate as by the risk.
much power as possible. The panel came to this conclu-
sion because the Bujagali project “is governed by a
capacity-based power purchase agreement, and the only At the 1070 MW Nam Theun II project in Lao PDR,
7.3.1 Nam Theun II project, Lao PDR

way for GOU to avoid paying for electricity not gener- the hydrological risk is shared between EGAT (the
ated is to ensure that as much water as needed is made Thai off-taker) and the Nam Theun Power Company
available to the dam, including in driest years”. Thus, (the operator) [Sinha, 200728]. While the water man-
the AfDB Review Panel could not rule out the risk that agement remains entirely the project company’s
the new Bujagali dam could lead to draining more water responsibility, the variation in revenue to Laos is lim-
from Lake Victoria than allowed by the Agreed Curve ited such that (among other terms) the revenue will not
(historically used to govern such outflows). fall below 86 per cent of the average annual revenue
even in the driest year.
Power from the 147 MW Ruzizi III hydro project, on
7.1.4 Ruzizi III hydropower project, DRC/Rwanda

the Ruzizi river between Lake Kivu and Lake Brazil’s Energy Reallocation Mechanism [Barroso,
7.3.2 Brazilian hydropower

Tanganyika, which forms the border between DRC 200329] is a complex way of managing hydrological
and Rwanda, will be sold to the utilities of Burundi, risk, which spreads the risk across the system rather
DRC and Rwanda [EGL, 201426]. The tariff under the than having a defined approach for each plant which is
three PPAs for that project is being structured in much independent of the system. The scheme effectively
the same way as that for the Bujagali project. creates a compulsory hedging system for hydropower
Observers have speculated that a similar rationale to plants. This works because although the production of
Bujagali applies for such an approach, that is, the individual plants may vary, in general across Brazil the
unique hydrology of the Great Lakes region and the hydropower production does not vary significantly.
development imperative. Plants are allocated a proportion of the overall
hydropower production and remunerated according to
this nominal production rather than to their actual pro-
There are many examples of projects where the hydro- duction. This reduces risk unless the overall produc-
7.2 Allocation of hydrological risk to the project company

logical risk remains with the developer, despite the tion is reduced in the year, thus hydropower plant
fact that developers will always endeavour to allocate owners in Brazil face systemic risk at times of drought,
this risk to another party. such as in 2001 and 2014.
Hydrological risk needs to be viewed in context of
historical flows and plant sizing. For example, the PPA
for the 60 MW Khimti I hydro project in Nepal, the In the case of the 345 MW San Roque hydro plant in
7.3.3 San Roque hydropower project, The Philippines

first privately financed hydropower project in that The Philippines, the utility off-taker, the National
country, allocates hydrological risk to the project com- Power Corporation, shares part of the hydrological
pany, but in practice this is limited to flow in the dry risk through a minimum payment provision. This is
season (October-March), as wet season flows far partly because of the project’s multipurpose aspects,
exceed plant capacity [Head, 200027]. with a public-sector entity overseeing the project’s
In countries such as The Philippines and Panama, a non-power benefits including flood control, irrigation
well developed and functioning spot market allows and water quality [Head, 200027].
developers to finance hydro projects on a merchant
basis, which means without any long-term PPA. This
usually means that the project company will retain In a Sub-Saharan Africa run-of-river project under
7.3.4 Sub-Saharan Africa run-of-river project under development

hydrological risk during operations. The project com- development, the project company and the state-
pany obviously will not develop and finance a project owned off-taker have agreed to share hydrological risk
in this manner without a high degree of confidence in by way of a tariff structure, which obliges the off-taker
the hydrology of the project and the market’s ability to to pay for a minimum volume equivalent to the annu-
compensate it adequately based on such hydrology. As al P90 volume irrespective of hydrology. A firm-energy
exemplified by the project financings of The tariff will be sized to allow the project company to
Philippines’ 170 MW Ambuklao and Binga hydro derive 90 per cent of its base case revenue (revenue
projects and Panama’s 58 MW Bajo Frio project, required for debt service and equity return) from such
lenders will usually be comfortable lending to such P90 hydrology volume and a non-firm energy tariff will
projects if there is a heightened focus on hydrology be sized to allow the project company to derive the
and by engaging their own market consultants to pre- remaining 10 per cent of base case revenue from the
dict the likely power price range within which the P50 production. By taking most of the hydrological risk
project company will sell power. in such way, the state-owned off-taker is likely to
In Chile there are punitive penalties for failure of a achieve a lower tariff through a lower cost of financ-
hydro plant to meet its PPA commitments; not even ing as well as reasonably priced equity.
force majeure can be used to justify such failure.
Penalties are imposed if a partial or complete blackout
occurs, to fund compensation to the customers. As a Specific circumstances in some countries may include
7.4 River basin/watershed issues

result, many hydropower producers have invested in the issue of upstream development (causing diversion,
thermal plants to ensure that they have a back-up impoundment, flooding, debris flows, siltation or sed-
source of supply. imentation) resulting in inadequate or too much water,

Hydropower & Dams Issue Five, 2014 101

Non-hydrological ple uses and users should be granted in conjunction
issues upstream can with an obligation to enter into a water use agreement
represent risk for that establishes the amount and nature of the water
facilities down-
available to the project, as well as details relating to its
consumption, storage and release, including with
stream. At Esti in
respect to sharing with other users. This is in effect
Panama, unforeseen

what is happening for the Ruzizi III project, for which

ground conditions
caused problems
with the headrace a management secretariat catering for the multiple
tunnel (shown here), water uses of Lake Kivu and the Ruzizi forms part of
so the project was the deal for the hydropower concessionaire. The Lake
delayed in supplying Kivu and Ruzizi River secretariat will be set up and
water to the operated by Burundi, DRC and Rwanda, and will give
downstream
certainty to the hydropower concessionaire [EU-
Africa Infrastructure, 201431] about water manage-
Gualaca plant.
ment and hence the hydrology available to its project.
or changes in the timing and quality of water flows. Non-hydrological construction issues upstream can
While this is generally covered within the cause hydrological issues downstream. For example,
Government’s basin development plan, watershed the 120 MW Esti hydro project in Chiriqui Province,
management agreement or similar, at times there can Panama, experienced a number of collapses in its
be unforeseen impacts on downstream plants, or issues headrace tunnel as a result of unforeseen ground con-
which are in violation of such agreements. Similarly, ditions [Tunnel Talk, 201132], which meant that, until
there can be risks to an upstream plant if another is repair of the damage, it could not discharge the water
constructed downstream such that its reservoir inter- intended to supply the downstream Gualaca facility,
feres with the upstream operation. Generally, if such meaning that it prevented operation of that partially
risks were known at the time of plant construction, in commissioned facility for approximately one year
other words, they were already part of the basin devel- [Winner, 201033]. The Gualaca facility forms part of
opment plan, or are part of normal plant operation such the 115 MW Dos Mares hydro project, which consists
as sediment flushing, then these risks remain with the of a cascade of three run-of-river plants between the
owner. However, when the risk was not known at the Esti and Chiriqui rivers in Chiriqui Province. In
time of construction, or where development contra- Panama, generators using water from the same river
venes the watershed agreements, then the damaged have no contractual relationship with each other,
plants may be entitled to compensation either from the meaning that a generator has no contractual remedy
Government or from the plant which is in contraven- against an upstream owner for lack of water. The
tion. downstream owner may, however, have an action in
Trans-boundary issues with upstream and down- tort for negligence. A further interesting question in
stream development may be a question of relevant this context would be whether the downstream owner
international water law such as the Indus Water Treaty, has any remedy against the regulator for a failure to
which governs water sharing between India and receive the supply of water allocated by its licence.
Pakistan with respect to the six rivers in the Indus sys- The 120 MW Sanjay Vidyut Pariyojna (Bhaba) proj-
tem of rivers [Indus Water Treaty, 196030]. However, ect on the Bhaba river in Himachal Pradesh, India, had
in most cases: “there are no widely enforceable water its tailrace diverted through a tunnel so that the dam
laws to preserve natural flows for downstream riparian height (and hence reservoir size) of the downstream
states” [Head, 200027]. project could be raised [Chauhan, 200834]. Had this
In the absence of established basin protocols, it is left work not been carried out, the operation of Bhaba
to the cascade owners to maximize their joint produc- could have been significantly affected by the raising of
tion. Sometimes the owners can cooperate successful- the Nathpa Jhakri dam height.
ly to maximize production without formal basin proto-
cols. Turkey, for example, has allocated some cascades
to several developers in sections large enough that the Capacity pricing for hydropower production can rep-
7.5 Capacity pricing
daily dispatch can be managed well by each. On the resent a form of sharing of hydrological risk, although
Niagara river, which borders Canada and the USA, it depends on the structure of such payments as avail-
trading of water rights pursuant to a Memorandum of ability needs to be independent of hydrological condi-
Understanding between the New York Power tions for a transfer of hydrological risk to the off-taker
Authority and Ontario Power Generation(i) often facil- to occur (as it does for the Bujagali project).
itates water allocated to one country, under the 1950 The use of capacity payments can be a very effective
Niagara River Water Diversion Treaty, being used by way of moderating risk, but it can be difficult for
the power company from the other country, which can Governments or off-takers to set the capacity payment
generate more energy from the same resource(j). The at exactly the right level over a long-term PPA. In
two companies then settle the commercial gains Colombia and some other South American countries,
among themselves. capacity payment values are determined through auc-
In less well developed locations, hydropower devel- tions among interested generators. If set correctly,
opment rights with respect to a watershed with multi- capacity payments can both provide predictable rev-
(i) Memorandum of Understanding between the New York Power enues for operators and also protect consumers from
Authority and Ontario Power Generation dated 19 January 1965, as price spikes [Campo, 200935].
discussed on the Niagara Frontier web site, available at: However, capacity payments for hydropower plants
http://www.niagarafrontier.com.
do not fit well into a larger energy market dominated
(j) Treaty Between Canada and the USA concerning the diversion of the by per kWh energy prices, and incentives such as feed-
Niagara River, 1950; available at: http://www.treaty-accord.gc.ca. in tariffs. Thus many of the more mature markets, such

102 Hydropower & Dams Issue Five, 2014

as Norway, do not use capacity-based pricing. There is
a degree to which hydro-dominated markets may be
9. How is hydrological risk reflected in project
self-correcting, in that during a low hydrology year,
the scarcity of power will lead to price increases and Most projects will consider project risk in the basic
documentation?

hence operators sell less power but for a higher price, project appraisal documentation, whether this is the
and vice versa in high hydrology years. However, in detailed feasibility study or appraisal report prepared
less developed or less hydro-dominated markets this by a lender. As mentioned above, the economic analy-
effect will not be significant. sis will generally include a sensitivity analysis, which
looks at the impact on the project rate of return of vari-
ations in hydrology [World Bank and IFC, 200238].
There may be a specific section of the report which
The level of uncertainty imposed on a project by cli- analyses each risk and the possible management and
8. Climate change
mate change considerations is significant. Climate mitigation, often called a ‘risk matrix’ [World Bank,
change calls into question the value of past data and 200739].
trends, and yet there is little certainty as to the direc- In addition, a ‘risk register’ for a project may include
tion or amount of change relating to hydrology for par- various terms which are provided to define various
ticular hydropower projects. One solution is to use risks, to identify measures to be taken in case the risk
optimization techniques such as real options analysis materializes and to allocate the risk to various parties.
to consider the best decisions in light of this uncer- Such registers may consider (among other site-specific
tainty. This approach has been demonstrated on the issues) geotechnical and geological data, seismicity,
Blue Nile [Jeuland and Whittington, 201336]. In this environmental issues and hydrology, including the
case the aim was to minimize the losses from future probable maximum flood for which the dam is
changes in hydrology and maximize the gains. The designed, the available data on river flows and the
analysis concludes that in the case of the Blue Nile, it possibility of GLOFs. The preparation of such a regis-
is better to build now, with some flexibility in plant ter can do much to improve the understanding of the
size, rather than wait for better information: “For all project risk by all stakeholders, and may thus help to
reasonable investment strategies and a realistic time avoid future disputes over the nature of the project risk
horizon for obtaining more information about hydro- and their allocation. Risk registers are increasingly
logical change and development uncertainties, the eco- used as part of the construction contract to define the
nomic costs of delay are greater than the benefits asso- risk sharing.
ciated with obtaining that information”.
It is vital that each project considers climate change-
related issues even if the data are inadequate, and there
appears to be no effective solution; the fact that an Typical environmental (and social) impact assess-
9.1 Environmental and social impact assessment

analysis has been carried out can form a baseline when ments (ESIA) will comment on the hydrology on
better data become available. Until the data and mod- which the plant design is based. This will include the
elling of climate change are better and more site- mean flows, the seasonal variations, the size of the
specific, forecasts are available, the most appropriate catchment, the area of the basin and the quality of
way forward is to incorporate Adaptive Risk the water in terms of silt and other indicators. This
Management in water resources management, espe- technical information will then be used in all subse-
cially in planning new projects. This would entail reg- quent considerations of the effects of issues such as
ular monitoring, evaluations and reviews, with possi- in-stream flows, fisheries, other water users, local
ble redesign of the management programme, as populations, water regulation, river fragmentation,
required, based on an appropriate set of indicators. For local stream habitats, migration of aquatic species,
example, some PPAs for BOT projects in Turkey have erosion, transport of sediment, wetlands, seismicity
provided for tariff adjustment to reflect changes in and the environmental sustainability of the catch-
long-term hydrology [Head, 200027]. ment area.
Sometimes it will be possible to provide a range of The ESIA or consequent environmental management
possible impacts of climate change on hydrology. For plan (EMP) will define the level of environmental or
example, the draft hydrology report for the Amaila in-stream flow which must be maintained to protect
Falls hydropower project in Guyana provided as fol- the flora, fauna and water quality of the river, which in
lows [PPA Energy, 201137]: “The simulated energy turn must be incorporated into the project forecast
yields indicate that the impact of climate could result hydrology(k). The ESIA/EMP will also consider the
in reduction in annual energy yield from 1.3 to 2 per safety implications of the level of river flow during
cent for different scenarios when reductions in rainfall construction, and the possibility of extreme events
range from -0.6 to -2.9 per cent.” such as flash floods both for the construction work-
Some developers report that they are using a shorter force and the local populous. This will include such
sequence of hydrological data to predict future hydrol- actions as a local area flood warning system. Water
ogy, particularly where the recent flows have been quality monitoring and management are specified in
lower. This change in methodology is considered the ESIA, and would form part of the EMP or ongoing
appropriate since some climate change effects are adaptive management plan.
already in place, and thus recent data may provide a Depending on the nature of the project, similar issues
better predictor of future flows than long-term histori- may be assessed in a cumulative impact assessment of
cal trends. However, as yet there is no strong academ- a river system or basin area and in a review of any gov-
ic basis for this approach. erning bilateral or multi-lateral agreements on the use
From the insurance perspective, insurers do try to of water in particular river systems.
update their backward-looking loss models to include
climate change factors, to varying degrees of reliabili-
(k) See, for example, the briefing note on environmental flows for the
120 MW Itezhi-Tezhi Hydropower Project, Zambia at:
ty [Shiels, 201416]. www.hydrosustainability.org.

Hydropower & Dams Issue Five, 2014 103

 [Head, 200027]. A government, on the other hand, may
Traditional insurances will usually be documented by seek to limit such covenants in the interest of maxi-
9.2 Insurance policies

way of standard contracts of insurance, which set out mizing its freedom to manage and develop the water-
the trigger as loss or damage to a physical asset, and shed further in the way it sees fit. Instead, it may seek
certain policy conditions, deductibles and exclusions a covenant for the developer to cooperate and coordi-
[Swiss Re, 201140]. Parametric or index-based cover nate its operations with other projects to be developed
may use documentation developed by the International on the river, to optimize basin value, where consistent
Swaps and Derivatives Association (ISDA) for stan- with the achievement of expected return on equity and
dard weather hedge structures [Speedwell, 201441] or share its engineering design and operating assump-
bespoke contracts for tailored structures. For legal or tions with other hydropower project developers being
regulatory reasons, the cover may be structured as a developed in the same basin [MOEN, 201442].
derivative rather than insurance. If the project is located on an international river, the
developer may seek a requirement in the concession
agreement for the government to notify, consult and
In addition to the foregoing documentation of a com- share information with riparian states, and obtain any
relevant approvals required from such states to the
9.3 Concession agreement

mercial and/or technical nature, the legal documenta-

tion will address hydrological risk in the Concession extent required for the project(l).
Agreement Power Purchase Agreement and EPC A government may also seek to include certain obli-
Contracts. gations on the developer in the concession agreement
The key right that a developer will want protected in with respect to hydrological matters, including:
its legal arrangements with the government is its right • a covenant obliging the developer not to impair the
to water. While the right to use a certain quantity of use of the river for drinking water, irrigation, and other
water is usually a feature of a generation licence from industrial, recreational and cultural uses without mak-
the applicable regulator, developers will often seek to ing alternative provisions to the satisfaction of the
include this right in the Concession Agreement, which existing users; and,
governs the relationship between the Government and • a covenant obliging the developer to ensure that the
the developer with respect to the development of the water released from the power station after COD is of
project. A Concession Agreement for a hydropower the same quantity, quality and discharge rate as before
project (or relevant Government permit) would usual- COD [MOEN, 201442].
ly grant water use rights to the extent and under the In such a case, the water released should not sub-
conditions specified in a generation licence, including stantially impair the value and operation of the exist-
the right to use flow from a certain river or rivers, and ing projects or projects being constructed or proposed
sometimes tributaries of such river(s), within a certain for the future in the downstream stretches of the river.
elevation. Some governments, such as the Government of Nepal,
Such a right may be exclusive or subject to agree- include in their concession agreements a requirement
ment with other water users within the river basin. The for an Environment, Social and Local Benefits Panel,
right to use water during operations may be separate whose responsibilities may include review and
from the right to extract water from a watercourse dur- approval of plans, reports and implementation
ing construction. arrangements with respect to “upstream and down-
A developer will usually seek protection for its water stream hydrological impacts”.
use rights in a concession agreement. This is done by
negotiating a covenant to prevent the government or
any other agency, from issuing any other licence or
permit for the harnessing, use, diversion or release of Whether or not an EPC contract will allocate the risk
9.4 EPC and other construction contracts

water resources in the catchment area of the site that of inadequate or excessive water during construction
would: to the contractor or employer generally depends on
the magnitude of such lack or excess of water (gen-
• substantially impair the flow of the water with the erally drought or flooding) and whether it constitutes
effect of reducing the average daily, seasonal or annu- force majeure. These two questions are linked, in
al flow yields or volume of available water at the site that the EPC contract may define one of the require-
to a level below that required for the plant(s) to pro- ments of a force majeure event by reference to an
duce electricity at the planned level of electric output; agreed recurrence interval, such as a one in 100 year
or, flood, or an absolute level of flooding based on the
• otherwise adversely affect the operation or mainte- maximum possible flood (as discussed in Section 4).
nance of the plant(s). An event which qualifies as a force majeure will
A developer may seek to strengthen such a covenant excuse the EPC contractor from performance and
by including a provision that obliges the government entitle it to a time extension for completion of the
to consult with the developer first, and take all reason- works.
able measures requested by it, to avoid an adverse The standard form FIDIC construction contract, used
effect caused by the granting of a water use right widely in the hydropower business, defines ‘force
which could negatively affect the implementation and majeure’ as “an exceptional event or circumstance (a)
operation of the project, and to pay the developer com- which is beyond a Party’s control, (b) which such
pensation in the event of such an adverse effect. Party could not reasonably have provided against
Similarly, the developer may seek to include in the before entering into the Contract, (c) which, having
concession agreement a right to compensation if the arisen, such Party could not reasonably have avoided
government fails to protect the upstream catchment
area and it deteriorates, causing siltation of tunnels and (l) Consider, for example, obligations under the Nile Basin Cooperative
waterways which adversely affect the project’s flow Framework Agreement, available at: http://internationalwaterlaw.org.

104 Hydropower & Dams Issue Five, 2014

or overcome, and (d) which is not substantially attrib- cause a shortage of water, delaying performance test-
utable to the other Party”(m). ing and commissioning. Furthermore, contractors con-
The indicative list of such events includes “natural cerned that shortage of water from drought may delay
catastrophes such as earthquake, hurricane, typhoon or commissioning and hence handover to the client, may
volcanic activity”(n). Parties may seek to define ‘excep- request a specific right to a time extension (although
tional’ further in such context, and avoid disputes over an employer may seek to exclude from such a right
the nature of the standard, by reference to a specific delay to completion caused by inadequate water aris-
recurrence interval or absolute level (sometimes dif- ing from poor design by the contractor).
fering depending on the nature of certain force Extreme hydrological events may also excuse a party
majeure events). For example, the parties may agree from performance under a construction contract pur-
on a flood return level based on flood hydrology stud- suant to the English law doctrine of frustration. The
ies, meaning that the employer only takes the risk if FIDIC standard form contract includes an analogous
flooding exceeds a certain level. However, this contractual remedy as it provides that “if any event or
approach assumes that the necessary historical hydro- circumstance outside the control of the parties (includ-
logical data exist on which to base such risk allocation. ing force majeure) arises which makes it impossible or
The FIDIC Red Book contract, often used for the unlawful for either or both parties to fulfil their con-
civil works of a hydro project, and the FIDIC Yellow tractual obligations or which, under the law governing
Book contract, often used for the electro-mechanical the contract, entitles the parties to be released from
works of a hydro project, also contain the following further performance of the contract, then upon notice
Employer Risk: “any operation of the forces of nature by either Party to the other Party of such event or cir-
which is unforeseeable or against which an experi- cumstance, the Parties shall be discharged from further
enced contractor could not reasonably have been performance”(s).
expected to have taken adequate preventative precau-
tions”(o). FIDIC defines ‘unforeseeable’ as “not rea-
sonably foreseeable by an experienced contractor by The key approach in a PPA to the allocation of hydro-
9.5 Power Purchase Agreements
the date for submission of the Tender”(p). If the con- logical risk during operation of a hydro plant is
tractor suffers delay and/or incurs cost from rectifying through the payment provisions, which allocate the
loss or damage caused by such an event, it may claim revenue risk of decreased production caused by low
a time extension and its cost. Thus, under a FIDIC con- hydrology. However, PPAs also allocate hydrological
tract, a contractor will prefer to characterize flooding risk through the concept of forced outages, the appli-
or drought as an ‘Employer Risk’ rather than force cation of liquidated damages and certain covenants.
majeure, so it may recover its cost from such event and PPAs for hydropower projects usually contain pay-
not just receive a time extension. Most other standard ment obligations, which involve either a capacity
form and bespoke construction contracts do not grant charge, an energy charge or a combination of the two.
a contractor recovery of cost from a force majeure A capacity charge is a fixed payment that is paid in
event of a non-political nature(q). Again, some parties each billing period for each kilowatt of available
may seek to avoid disputes over the meaning of capacity even if not actually dispatched (see also sec-
‘unforeseeable’ by including recurrence intervals or tion 7.5). It is intended to reimburse fixed charges
absolute levels for risk allocation, rather than relying involved in the construction, operation, and mainte-
on what a court, arbitral tribunal or dispute adjudica- nance of the powerplant, including charges for repay-
tion board will consider “not reasonably foreseeable ment of the principal, and interest on the debt used to
by an experienced contractor”. construct the facility, a return on equity capital invest-
The FIDIC Red Book contract and FIDIC Yellow ed, fixed operation and maintenance costs that are
Book contract also grant a contractor a right to an independent of the amount of energy generated (such
extension of time if “exceptionally adverse climatic as staffing costs, administrative expenses, operator fee,
conditions” delay completion(r). This could include insurance premiums, and so on), demand or through-
flooding and presumably even drought, which may put charges, or minimum take-or-pay obligations. An
energy charge is paid each period for each kilowatt-
hour of energy dispatched and delivered at the agreed
(m) Sub-Clause 19.01 (Definition of Force Majeure), FIDIC Red Book,
1999; Sub-Clause 19.01 (Definition of Force Majeure), FIDIC Yellow
Book, 1999; and Sub-Clause 19.01 (Definition of Force Majeure), FIDIC delivery point. It includes variable costs involved in
Silver Book, 1999. the generation of the energy delivered, including com-
modity charges for each unit of fuel used, variable
operation and maintenance costs (such as spare parts,
(n) Paragraph (v) of Sub-Clause 19.01 (Definition of Force Majeure),
FIDIC Red Book, 1999; paragraph (v) of Sub-Clause 19.01 (Definition
of Force Majeure), FIDIC Yellow Book, 1999; and paragraph (v) of Sub- lubricants, and other consumables) and a major main-
Clause 19.01 (Definition of Force Majeure), FIDIC Silver Book, 1999. tenance sinking fund to cover the costs of required tur-
bine maintenance based on usage [Nehme, 201243]. As
discussed in Section 7, a PPA may use capacity pay-
(o) Paragraph (h) of Sub-Clause 17.03 (Employer’s Risks), FIDIC Red
Book, 1999; and paragraph (h) of Sub-Clause 17.03 (Employer’s Risks),
FIDIC Yellow Book, 1999. ments or minimum energy charges (including take-or-
pay arrangements) to allocate the hydrological risk of
decreased revenue resulting from adverse hydrology.
(p) Sub-Clause 1.01 (Definitions), FIDIC Red Book, 1999; Sub-Clause
1.01 (Definitions), FIDIC Yellow Book, 1999; and Sub-Clause 1.01
(Definitions), FIDIC Silver Book, 1999. Some companies seek to reduce the amount of
hydrological risk that they incur using a PPA which
contracts firm and non-firm/surplus energy. Firm ener-
(q) Sub-Clause 17.04 (Consequences of Employer’s Risks), FIDIC Red
Book, 1999; Sub-Clause 17.04 (Consequences of Employer’s Risks),
FIDIC Yellow Book, 1999; and Sub-Clause 17.04 (Consequences of gy is restricted to a conservative amount which the
Employer’s Risks), FIDIC Silver Book, 1999.
(s) Sub-Clause 19.07 (Release from Performance under the Law),
(r) Paragraph (c) of Sub-Clause 8.04 (Extension of Time for FIDIC Red Book, 1999; Sub-Clause 19.07 (Release from Performance
Completion), FIDIC Red Book, 1999; and paragraph (c) of Sub-Clause under the Law), FIDIC Yellow Book, 1999; and Sub-Clause 19.07
8.04 (Extension of Time for Completion), FIDIC Yellow Book, 1999. (Release from Performance under the Law), FIDIC Silver Book, 1999.

Hydropower & Dams Issue Five, 2014 105

 operator feels can be delivered reliably. Non-firm/sur- This would entitle the off-taker to be excused from
plus energy is used for the sale of any additional energy its obligations and after the agreed prolonged period
available over and above the firm energy. This is effec- terminate the PPA.
tive in reducing the risk taken by the developer, but is
not generally the most remunerative option, as non-firm
energy receives a lower tariff than firm energy. Loan documentation, such as common terms agree-
9.6 Financing documents
A failure to earn revenue may not be the only conse- ments and facility agreements, do not usually contain
quence of low hydrology causing lower production. A many provisions relating to hydrological risk. The main
PPA may obligate the seller to pay liquidated damages thrust of these provisions will usually focus on
(LDs) in certain cases, when it cannot generate for covenants relating to the environmental and social
hydrological reasons, including an obligation to pay aspects of hydrological risk (discussed above) and
the buyer LDs for failure to meet the COD by the reporting obligations with respect to compliance with
scheduled commercial operation date (as discussed the Environmental and Social Management Plan,
above) or forced outages, that is, a failure to make
Ecological Flow Plan and other requirements. In addi-
available contract energy at the connection points for
tion to the environmental and social requirements, loan
any reason other than a permitted outage (including
documentation will usually contain covenants obliging
maintenance and buyer risk events). While such LDs
the borrower to notify the lenders of damage to, or
may be capped on a periodic basis or for the term of
the PPA, they may still constitute a significant risk for delay to, the project’s completion, so this covenant will
the seller to bear, which will affect the financing terms capture damage or delay caused by hydrological events
for the project and hence the power price. during construction or operation. For projects on inter-
Besides the commercial terms relating to payment national rivers, lenders will allocate the responsibility
and LDs, a PPA may also allocate hydrological risk of any required notification of (or approval from) ripar-
through its definition of force majeure. A hydropower ian states to the government. Multilateral financiers
developer may seek to include the following within the will generally insist on such consultation as a pre-con-
definition of force majeure, whether as a “political dition to entry into the financing(t).
force majeure event” or as a specific definition for a In Section 5 above, it was noted that lenders may
“hydrological force majeure event”: require sponsor support if the project company is
exposed to hydrological risk of a magnitude that they
“any diversion or impoundment of water upstream or cannot accept. Lenders usually request such support
downstream from, or siltation of the impoundment area by way of a sponsor support agreement, according to
immediately behind, the generation facility, caused by (i) which the sponsors agree to make available funding to
the installation of any hydropower, irrigation, flood con- the borrower if a certain trigger event occurs after the
trol or other project other than the generation facility, or occurrence of a debt service default by the project
(ii) any land-use activity carried out by any person other company/borrower. This commitment will sit as a con-
than the seller (or a person controlled by the seller), tingent liability on the respective sponsor balance
whether lawful or unlawful, or landslide, erosion or any sheet(s), although in some cases, depending on the
other natural event, that occurs within, or impacts on, any strength of the balance sheet of the relevant sponsors,
portion of the watershed area for any such facility, in the lenders will require one or more sponsors to back
each case occurring after the agreement date.” such corporate guarantee with a letter of credit or on-
The developer will be excused from its obligations demand payment guarantee.
during such a hydrological force majeure event, and
obtain a time extension for the duration of such an
event. If the event continues for a prolonged period,
usually exceeding 12-18 months, the developer often
10. Comments on the allocation and

has the right to terminate the PPA and require the off- The key to managing risk may well be better hydro-
documentation of hydrological risk
taker to buy it out for the price of the outstanding logical data. Although little can be done to improve the
debt, plus a return on equity. historical data set, governments should understand the
Viewed from the offtaker’s perspective, adverse vital importance of collecting good data for the future.
hydrology may expose it to increased fuel costs for This could be enhanced by sharing information across
replacement thermal generation (as discussed above borders and regionally, either bilaterally or through
in the case of UTE), volatility in its revenue and river basin organizations. In addition, the industry
even, in some cases, compensation obligations to dis- needs to use better analysis of the possible impacts of
tribution companies and other parties, including climate change and incorporate flexibility in design to
downstream parties. If the payment provisions in the deal with such impacts.
PPA require the off-taker to make minimum guaran- Several approaches noted in this paper deserve fur-
teed payments (or take-or-pay obligations) irrespec- ther investigation and consideration. In particular, the
tive of the actual production output (low or high calculation of liquidated damages for forced outages
hydrology and demand) such as at the Bujagali proj- and supply shortfalls caused by hydrology should take
ect discussed in Section 7.1, the off-taker may wish account of the purchaser’s ability to mitigate a short-
to include the following additional limb (or similar) fall of production through the generation mix, includ-
in the definition of ‘hydrological force majeure ing as a minimum use of “conjunctive operation of
event’: power stations in the overall utility supply region”
“Unforeseeable climatic conditions including any peri- [Rae, 200844]. In addition, projects could benefit from
ods of drought, which disrupt the operation of any increased use of tailored parametric insurance and
hydropower facility, connected to the grid system. For derivative products to facilitate hedging of hydrologi-
the purposes of this definition, ‘unforeseeable’ means a cal risk, so that a deeper market in these products
climatic condition reasonably expected to occur less fre- (t) Refer to safeguard guidelines such as the World Bank’s operational
quently than once every fifteen (15) years.” policy 7.50 on the use of International Waterways.

106 Hydropower & Dams Issue Five, 2014

grows, leading to a better understanding, and cost- Patrind Hydro Project in Pakistan”; ADB, 2011.
efficient structuring of such products, and hence better 8. IEA Hydro, “Survey of existing guidelines, legislative
mitigation and management of hydrological risk. framework and standard procedures for EIA of hydropower
projects”, IEA Technical Report; May 2000.
Further, the use of hydrological baselines which are
9. Reynolds International, “Glacial hazards projects”.
analogous to the geotechnical baseline report approach Available at: www.reynolds-international.co.uk; 2014.
to risk sharing, and the allocation of risk based on 10. Huggel, C., Haeberli, W., Kääb, A., Hoelzle, M. Ayros, E.
forward-looking absolute water flow projections, rather and Portocarrero, C., “Assessment of glacier hazards and
than solely relying on backward-looking data, could glacier runoff for different climate scenarios based on remote
also be worth consideration. While this approach also sensing date: a case study for a hydropower plant in the Peru-
has its difficulties, the project agreements could include a vian Andes”; University of Oldenburg, Germany; 2002.
built-in risk sharing mechanism for re-calibration of 11. Durand, E., “Adaptation in the Tropical Andes”, Adaptation
hydrology benchmarks based on experience. Knowledge Day, Ministry of Environment, Peru; June 2010.
Further analysis of the documentation of hydrological 12. Reynolds, P., “Latin challenges”, Water Power & Dam
risk approaches, over and above that which is present- Construction, 14 October 2013.
ed here, is constrained by the confidential nature of 13. Sibanda, T., “Zimbabwe: Thousands evacuated as dam
many of the project documents concerned, particularly begins to collapse”, All Africa web site, 10 February 2014.
the concession and power purchase agreements. There 14. Davis, M., “Bugoye Hydropower Project, Uganda”, Norfund
presentation, available at: www.nve.no; 2009.
is more that the industry could do to share best practice.
15. PPA Inc., Lake Victoria Hydrology, Bujagali II – Economic
However, the analysis described in the preceding sec- and Financial Evaluation Study, Power Planning Associates;
tions serves to show the complexity of this subject. As February 2007.
far as hydropower development is concerned there is 16. Shiels, T., Indecs Consulting Ltd, private correspondence
clearly scope for more risk-sharing and a more nuanced with the authors; April 2014.
approach to facilitate the needs of the different stake- 17. Weather Risk Management Association, “History of the
holders, but these possibilities are often not being con- Weather Market”, available at: www.wrma.org; 2014.
sidered. Governments and state-owned off-takers in 18. Willis, “Willis Places Innovative Australian Weather
less developed electricity markets do not know how Transaction. Multi-year protection covers mining firm
much it may be costing them to get developers to take against cyclone and extreme rainfall risk”, available at
hydrological risk and should consider whether the www.willis.com; December 2013.
avoidance of this risk is truly cost-effective. ◊ 19. The World Bank, “Mitigating the Impact of Drought on
Energy Production and Fiscal Risk in Uruguay”, The World
Bank Treasury, available at: http://treasury.worldbank.org;
January 2013.
The authors gratefully acknowledge assistance from the 20. Speedwell Weather, “Speedwell Weather Acts as Settlement
Acknowledgements
following people in the research for this paper: Brian Blakeley, Agent for World Bank Weather Risk Transaction”, available
Inter-American Development Bank; William Blomfield; Kevin at: http://www.speedwellweather.com; 2014.
Candee, Aqua Energie LLC; Ajay Chaudhary, Mott MacDonald; 21. Head, C.R., “At the turn of the runner – On the simple
Mark Davis, Norfund; Emre Dulkar, Borusan EnBW Enerji subject of payment”, Hydro Review Worldwide, Vol. 9, No. 1,
Yatırımları ve Üretim; Nicholas Farrar, Statkraft; Kevin Futch, July 2001.
King & Spalding; Colin Gin, Asian Development Bank; James 22. Laraib Energy Ltd, “Project Highlights”. Available at:
Green, JLT; Oliver Haupt, KfW; Chris Head, Chris Head and www.laraibenergy.com; 2014.
Associates; Per Aage Jacobsen, DNB Bank; Juan Marcano, 23. Whiteaker, J., “AFC buys into Singrobo hydro in Côte
Swiss Re Financial Services Ltd; Eduardo Morel, GDF Suez; d’Ivoire”, IJ Global, 6 August 2014.
Mona Katigbak, King & Spalding; Kelly Malone, King & 24. AFDB, “Compliance Review Report on the Bujagali
Spalding; Rohit Mittal, World Bank; Ton Nijensteen, FMO; Hydropower and Interconnection Projects”, Independent
Alessandro Palmieri, former World Bank Lead Dam Specialist; Review Panel Report for the African Development Bank;
Mats Pettersson, Fountain Intertrade Corporation; Peter Rae, available at www.afdb.org; 20 June 2008.
Peter Rae Hydro Consulting Ltd.; Ralph Renner, Endurance
Global Weather; Kevin Seakins, JLT; Mathias Seibitz, Borusan 25. World Bank, “Project Appraisal Document for International
EnBW Enerji Yatırımları ve Üretim; Tom Shiels, Indecs Development Association Partial Risk Guarantee, to Bujagali
Consulting Ltd; Edward Sidgwick, Mott MacDonald; Fernando Energy Ltd”; 2 April 2007.
Tovar, GDF Suez; Bruno Trouille, MWH Global; and Juerg 26. EGL, “Ruzizi 3 Regional Hydroelectric Project”, Energie
Trueb, Swiss Reinsurance Company Ltd. des Grands Lacs, available at www.egl-ruzizi3.com; 2014.
27. Head, C.R., “Financing of Private Power Projects”, World
Bank Discussion Paper No. 20; July 2000.
28. Sinha, S., “Nam Theun 2 (NT2) Hydroelectric Project”, Indian
1. Grey, D. and Sadoff, C., “Sink or swim? Water security for Institute of Management, available at: www.ppiaf.org; 2007.
References
growth and development”, Water Policy; No. 9, 2007. 29. Barroso, L.A., Granville, S., Trinkenreich, J., Pereira, M.V.
2. Trouille, B., Devernay, J-M., Grant, C. , Head, C. R., and Lino, P., “Managing Hydrological Risks in Hydro-Based
McWilliams, M., Mondik, M., Plummer, J., Stokke, T. I. Portfolios”, IEEE, available at www.psr-inc.com; 2003.
and Tarmey, B., “Hydro Finance Handbook”, companion 30. Indus Waters Treaty, 1960.
document for Hydro Finance Tutorial, HydroVision 2008, 31. EU-Africa Infrastructure, “Ruzizi Hydropower”,
Sacramento, CA, USA; 2008. Infrastructure Trust Fund EU Africa, Grant Operations,
3. Hoover, P.M., “Hydropower Status and Market Barriers”, available at: www.eu-africa-infrastructure-tf.net; 2014.
International Conference on Accelerating Grid Based 32. Tunnel Talk (Journal), “Panama awards urgent Esti headrace
Renewable Energy Power Generation for a Clean repair”; December 2011.
Environment, 2000. 33. Winner, D., “Hydroelectric Power Generation - Reservoirs
4. Mira Power, “Hydrology and Energy”, available at: At Maximum Capacity”, November 2010.
www.mira-power.com; 2014. 34. Chauhan, R.S., Tulsianey, S.S.H., Aumta, K.L., Mahajan,
5. Dahmen, E.R. and Hall, M.J., “Screening of Hydrologic J.P. and Gupta, S., “Special Issue on 1500 MW Nathpa
Data, International Institute for Land Reclamation and Jhakri Hydroelectric Project”, Water & Energy International,
Improvement (ILRI); 1990. Vol. 65, No. 2, April-June 2008.
6. Rae, P.J., “Effective Allocation of Risks for Project 35. Campo, R., “Estimation of Capacity Payments in Hydro
Financing”, ASIA 2008, Danang, Vietnam; 2008. Dominated Systems”, Conference of the US Association for
7. ADB, “Environmental Impact Assessment for the 147 MW Energy Economics; 2009.

Hydropower & Dams Issue Five, 2014 107

36. Jeuland, M. and Whittington, D., “Water Resources
Planning under Climate Change: A “Real Options” Alex Blomfield completed his law degree and a Masters of
Application to Investment Planning in the Blue Nile. International Law at the University of Sydney, New South
Environment for Development Discussion Paper”; 2013. Wales, Australia. He subsequently practised as a lawyer in
Sydney, Melbourne, London and Oslo before returning to
37. PPA Energy, “Amaila Falls Hydropower Project Hydrology London in 2012, where he is a senior associate in King &
Review”, Draft Report, Halcrow Group Ltd; June 2011. Spalding’s London office and a member of the firm’s Global
38. World Bank and IFC, “Project Appraisal Document for the Transactions Practice Group. His practice centres on energy-
Pamir Private Power Project in the Republic of Tajikistan”; related infrastructure development and finance, and
31 May, 2002. specializes in the development and financing of projects
39. World Bank, “Pamir Project Appraisal Document”, 2007 worldwide. Alex has advised and represented project
and “Project Appraisal Document for International sponsors, national governments, state-owned utilities,
petroleum producers, international consortia and development
Development Association Partial Risk Guarantee to Bujagali finance institutions in relation to the development,
Energy Ltd”; 2007. construction, privatization and/or financing of projects. Since
40. Swiss Re, “Weather Insurance and its application in the practising in Norway, Alex has developed a particular
Energy Sector”, Swiss Re Corporate Solutions Presentation, expertise in advising project sponsors on the development
ICEM Gold Coast; November 2011. and financing of hydropower projects, particularly pathfinder
41. Speedwell Weather, “A Quick Guide to Weather projects in developing countries. Alex has advised on
Derivatives”. At: www.speedwellweather.com; 2014. hydropower projects in 12 countries across Africa, Latin
America, Europe and Asia.
42. Ministry of Energy, Nepal, “Nepal’s Proposed Model
Project Development Agreement (for Hydropower Projects King & Spalding, 125 Old Broad Street, London EC2 N1E, UK.
with installed capacity less than 500 MW)”, Nepal Ministry
Judith Plummer has, for the majority of her career, worked
of Energy web site, www.moen.gov.np; 2014. on large infrastructure and engineering projects in developing
43. Nehme, B.A., “TWI - Financial Solutions, Renewable countries with the aim of bringing sustainable improvements
Energy Training Program. Financing Renewable Energy in living standards and reductions in poverty. Her experience
Projects. PPAs and Tariff Design”, available at: derives from a wide range of assignments across several
www.esmap.org; 2014. infrastructure sectors both in the UK and internationally,
44. Rae, P.J., “Effective Allocation of Risks for Project focussing on the energy and water sectors. Judith was part of a
Financing”, ASIA 2008, Danang, Vietnam; 2008. high level team responsible for developing and implementing
a strategy for re-engagement of the World Bank in the
construction of large water infrastructure such as dams and
hydropower plants. The strategy included consideration of:
economic impacts, environmental and social sustainability;
cumulative impacts; sharing of benefits; safety management;
communication and consultation; financing; and management
of riparian rights. Judith has recently completed a PhD at the
University of Cambridge into the optimisation of planning and
development of large hydropower projects, considering the
economic, social, environmental and institutional effects of
delays in project development.
University of Cambridge, UK.
A. Blomfield J. Plummer