• Energy Research

A brisk building boom of hydropower mega-dams is underway from China to Brazil. Whether benefits of new dams will outweigh costs remains unresolved despite contentious debates. We investigate this question with the "outside view" or "reference class forecasting" based on literature on decision-making under uncertainty in psychology. We find overwhelming evidence that budgets are systematically biased below actual costs of large hydropower dams - excluding inflation, substantial debt servicing, environmental, and social costs. Using the largest and most reliable reference data of its kind and multilevel statistical techniques applied to large dams for the first time, we were successful in fitting parsimonious models to predict cost and schedule overruns. The outside view suggests that in most countries large hydropower dams will be too costly in absolute terms and take too long to build to deliver a positive risk-adjusted return unless suitable risk management measures outlined in this paper can be affordably provided. Policymakers, particularly in developing countries, are advised to prefer agile energy alternatives that can be built over shorter time horizons to energy megaprojects.

Achieving ambitious net-zero targets will involve executing large, often interdependent, capital projects across multiple value chains at unprecedented speed. We use a mixed methods approach to explore potential risks associated with speeding up deployment. Like in other sectors, we find that energy transition projects have a history of underperformance in terms of cost and time. Such underperformance can arise due to a variety of unforeseen challenges affecting supply chains, community opposition, regulations, and scope changes, among others. Engaging with experienced clean energy practitioners suggests that recent efforts to accelerate the transition and aggressive time-limited incentives may result in less accurate estimates of expected performance and lead to more frequent delays, cost overruns, and even project failures for clean energy infrastructure. To limit underperformance, there is a need to strengthen capabilities within public institutions to assure value through robust selection and oversight of projects, manage expectations so specific successes do not create unrealistic expectations and specific failures do not erode public support, and capture and disseminate lessons learned and adapt plans in response to learnings.