The Economic Case Against Big Dams

Even disregarding the social and environmental problems caused by big dams, they tend to be a net-liability in economic terms—especially in developing countries.

In 1998 the World Bank and the World Conservation Union (a Paris-based multilateral environmental agency) set up the World Commission on Dams, or WCD. One of its tasks was to assess the effectiveness of large dams.

The US $10 million study reviewed 125 dams in 56 countries and made in-depth case studies of eight large dams on five continents. The commission’s report, released in November 2000, Dams and Development: A New Framework for Decision-making, made for sobering reading.

Dams, have on average, generated less power, irrigated less land and provided less water than forecast, and in some cases have increased the risk and severity of flooding (there is also evidence that mega-dams located on or near fault lines may increase the risk and severity of earthquakes—the huge weight of water seems to make tectonic plates less stable).

Fifty five percent of projects with a hydro-power component generated less electricity than forecast. A quarter of the 28 dams that exceeded targets did so only because installed capacity was increased, which required a larger investment (irrigation and water supply dams performed even worse).

“Large dams have demonstrated a marked tendency towards schedule delays and significant cost overruns” the WCD report stated. On average, the cost overrun of the 81 large dams reviewed by the commission was 56 percent. Half the dams in the sample also had construction delays of a year or more.

Evaluating the economic returns of dams was problematic, but the WCD was able to analyze the results of 20 hydro-power projects carried out by the World Bank, Asian Development Bank, or ADB, and African Development Bank. Of the 20, nine had Economic Internal Rates of Return, or EIRRs, of less than 10 percent (infrastructure projects in developing countries are normally considered successful if their EIRRs exceed 10 percent).

The report estimated that 0.5-1 percent of world reservoir volume is lost to sedimentation annually. Silting tends to be a much worse problem in tropical climates than in temperate zones.

But how, one might ask, are developing countries to get cheap electricity?

Smaller and mid-sized hydro is less subject to cost overrun and construction delays, performs better and causes fewer environmental and social problems than big dams. Natural gas-fired generation is cheap and fairly clean. Within a few years “clean coal”-burning power stations should be economically viable. With new, increasingly affordable technology, the world—particularly the developing world—is going to witness a paradigm shift in the way electricity is generated and distributed.

Wind power in good locations is now comparable in price to conventional generation techniques. The price of photovoltaics (solar power), although still too expensive to be economically viable, has dropped by 80 percent over the last two decades and within a few years should be competitive, especially now that fuel-cell technology is increasingly affordable.

A number of farsighted, progressive companies, such as Ballard Power Systems of Canada, Siemens of Germany and Capstone Turbine of the US are making cheap micro-turbines of from 1kW to 10MW. Meanwhile, Swiss-Swedish firm ABB is working on developing “microgrids” that will electronically link together dozens of micro-power units, so doing away with the need for a National Grid.

Countries with poor electricity infrastructures such as Burma and Laos could benefit immensely from the technology leap, in the same manner that wireless telephony can benefit developing countries with farsighted leaderships. Unfortunately, as Burma proved with mobile phones, the problem isn’t the technology—it’s the leadership!