A study out of Oxford last month analyzed 245 large hydroelectric dams built around the world since 1934 and found huge cost overruns, debt and inflation problems in most of the projects. This study just analyzed the economic logic of building these mega-projects and it concluded that they were a terrible investment in most cases. The average cost overrun was 90%, making it the worst of all infrastructure projects. And the authors point out that the budgets continue to be wrong. There was no difference in cost overrun in 1934 and today; they were both horribly wrong in their budgets.
Writing in the Guardian, the two authors of the study suggest that smaller dams should be favored over these mega-projects. Smaller dams can be built faster and cause less destruction, meaning less cost overruns. Unfortunately, most countries continue to support these projects.
The World Bank was basically shamed out of supporting these projects in the 1990s, but has increased their investment in hydroelectricity again to the point that they are now investing more than ever. That is probably not a coincidence. These projects do tend to benefit some people, just not the people that need the help. The World Commission on Dams found that these projects do benefit mining companies and aluminum smelters a lot. Meanwhile, after two mega-dams were built along the Congo River 30 and 40 years ago, only 10% of the DRC has access to electricity while 85% of the electricity generated is used by high-voltage consumers (ie mining companies). The other reason the World Bank might be reluctant to back away from mega-projects: administration costs. They basically say that administration costs are the same for a million dollar project and a billion dollar project, so they might as well go with the big one. It doesn’t matter that these mega-projects have been huge failures and human catastrophes, they give the World Bank more bang for their buck.
Back to the authors of the first study (from their Guardian article):
¨Countries with a higher per capita income and better macroeconomic climate typically build dams more quickly with lower cost overruns. This suggests that developing countries, in particular, despite seemingly being most in need of complex facilities such as large dams, ought to stay away from bites bigger than they can chew.
A 90% complete dam is as valueless as a dam not built at all. This typically escalates politicians’ desire to throw good money after bad and try to complete a dam long after it has become clear that the investment is a dud.¨
Just another reason why hydroelectric mega-projects are not viable. And as wind and solar technology improves (and the World Bank continues to direct most of their renewable funds at hydropower), these mega-projects should be abandoned. If 10 million people displaced and environmental catastrophe didn’t convince them—dream on—maybe the fact that they are a terrible investment might. Then again, it seems to really just mess up your public finances and create a lot of public debt and what leader cares about public debt? Well, besides when they are using it as an excuse to cut social services.