Hydropower has a history dating back to the late 19th century, contributing to societal and economic development. However, the sector faced challenges, particularly in the 1990s, when numerous projects were criticized for their adverse environmental and social impacts. This criticism led to a decline in new projects and heightened scrutiny.
The establishment of the World Commission on Dams (WCD) in 1998 marked a shift towards more sustainable practices. The WCD set guidelines to safeguard the environment and communities affected by hydropower projects. The International Hydropower Association (IHA) further advanced these efforts by publishing Sustainability Guidelines in 2004 and a Sustainability Assessment Protocol in 2006. These documents provided frameworks for new and existing projects to ensure they met sustainability criteria across environmental, social, and economic dimensions.
In 2021, the IHA launched the Hydropower Sustainability Standard, a global certification framework establishing sustainability benchmarks for hydropower initiatives covering 12 key areas, including biodiversity, indigenous peoples, and cultural heritage. The creation of the Hydropower Sustainability Alliance in 2023 reinforced these efforts by managing the standard, tracking compliance, and building capacity for project assessments.
Domestic Participation in the Hydropower Value Chain:
Hydropower projects offer opportunities for local economic growth through domestic participation in the value chain. From equipment manufacturing to construction and maintenance, involving local businesses can boost economies and strengthen project sustainability. While complex components may require specialized expertise, many elements, such as valves and piping, can be produced locally. Employing local labour and subcontracting project portions further enhance community involvement.
Enabling Environment for Domestic Companies:
Creating an enabling environment for domestic companies to participate in the hydropower value chain requires effective collaboration between governments, developers, and suppliers. Well-crafted policies that incentivize localization can open up various opportunities for domestic firms. Fostering communication channels and trade groups can help disseminate information about opportunities and facilitate business relationships. Establishing financial mechanisms to support companies in achieving operational readiness is another critical step, typically under the government’s purview.
Procurement from Companies in Project Countries:
Incorporating domestic procurement incentives into project procurement documents is a strategy some governments use to encourage collaboration between hydropower developers and local companies. These incentives can be communicated during the pre-bidding phase, allowing potential bidders to form partnerships with domestic entities.
Often, localization is hindered by inadequate awareness of local capabilities and connections within the country. Building visibility for domestic companies and establishing new connections can sometimes be more effective than purely financial incentives.
International development finance institutions, like the World Bank, require competitive procurement. While local content requirements are not permitted, procurement documents can be designed with incentives and weighted assessment criteria to encourage local procurement without limiting funding potential. This approach ensures that localization efforts do not lead to price distortions or compromised quality.
Hydropower Jobs and Skills
The hydropower sector has an estimated 2.36 million individuals directly employed globally as of 2021. The employment distribution within the sector reveals a concentration in manufacturing (64 per cent), construction and installation activities (30 per cent), and operation and maintenance (O&M) services (6 per cent). China and India lead the global hydropower job market, contributing 37 per cent and 18 per cent of total employment, respectively.
Assessing the Skill Gaps in the Hydropower Sector
The hydropower industry faces a critical shortage of specialized skills essential for project planning, development, and operation. This gap, particularly pronounced in regions like Latin America and Africa, often leads to overreliance on foreign experts, increasing costs and limiting local involvement. The skill shortages are particularly evident in Uganda, where the reliance on foreign expertise in hydropower projects like the Kiira and Nalubaale stations drives up costs.
Addressing this issue requires a comprehensive approach to training and education. Governments, industry, and academia must collaborate to develop tailored programs that meet industry needs. India’s Skill Council for Green Jobs offers a valuable model with its Jal-Urjamitra program, which aims to train 1,780 hydropower professionals.
Encouraging the Private Sector to Hire Domestically
To address the hydropower skill shortage, increased domestic hiring and knowledge transfer are essential. Incorporating training mandates into development agreements can expedite skill development. Partnerships between universities and industry can create specialized hydropower curricula, reducing reliance on foreign expertise.
Sharing Benefits with Local Communities
Benefit-sharing mechanisms can ensure local communities receive tangible and equitable advantages from hydropower projects. These mechanisms can be categorized into:
Improvements to Local Services:
Investments in infrastructure such as roads, schools, and healthcare facilities can significantly enhance local living standards. The Nam Theun II project in Lao PDR, for example, allocated a portion of its revenue to local community development, resulting in improved health and education outcomes.
Skill Enhancement:
Programs aimed at upskilling residents can foster long-term economic benefits. The Chilime Hydropower Project in Nepal included specific initiatives to train and employ local women, thereby promoting gender equality and economic participation.
Revenue Sharing:
Allocating a share of project revenues to local communities can ensure they benefit directly from the project. The Bujagali Hydropower Project in Uganda implemented a revenue-sharing scheme that funded community projects, such as the construction of schools and health centers. The project engaged over 1,000 local companies in its supply chain and 60 per cent of procurement was sourced locally.
Case Study: Nam Theun II Project
The Nam Theun II Hydropower Project in Lao PDR, a 1,070 megawatt facility, exports 5,354 GWh annually to Thailand and supplies 200 GWh domestically. It has exceeded its generation targets and contributes approximately LAK 415 billion (USD 25 million) yearly to the Lao government. The project is projected to generate a net benefit of LAK 9.1 trillion (USD 550 million) for Lao PDR by the end of its concession period. The poverty rate in Lao PDR decreased from 33.5 per cent in 2002–03 to 23.2 per cent in 2012–13, partly due to the project’s revenues. By 2017, around LAK 3 trillion (USD 180 million) from Nam Theun II had supported government poverty reduction efforts. Additionally, the project’s scholarship program covers tuition and living expenses for local students, with many returning to their villages to aid in local development.
Case Study: Nachtigal Hydropower Project
The Nachtigal hydropower plant in Cameroon is a 420 MW run-of-river project on the Sanaga River, led by Nachtigal Hydro Power Company with ownership shared among Électricité de France (40 per cent), the International Finance Corporation (30 per cent), and the Republic of Cameroon (30 per cent). The project aims to create 1,500 direct jobs during construction, with 65 per cent of the workforce locally sourced. To address potential unemployment after construction, developers are collaborating with Cameroon’s unemployment agency. This partnership includes training, CV preparation, and job search support to help local workers transition to new employment opportunities.
Conclusion
Benefit-sharing mechanisms are essential for ensuring that local communities receive equitable advantages from hydropower projects. By investing in local infrastructure, skill enhancement, and revenue-sharing initiatives, developers and governments can foster sustainable development and promote long-term economic benefits for local communities. These efforts will not only enhance the socioeconomic impact of hydropower projects but also contribute to their overall sustainability and community acceptance.
For further reading, refer to the source “Hydropower: Unveiling the Socioeconomic Benefits” by the World Bank.