Should We Build More Large Dams? The Actual Costs of Hydropower Megaproject Development
Saïd Business School
University of Oxford - Said Business School
University of Oxford - Saïd Business School
University of Oxford - Department of Statistics
March 10, 2014
Energy Policy, March 2014, pp.1-14.
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.
Number of Pages in PDF File: 14
Keywords: Large hydropower dams, Schedule & cost estimates, Cost benefit forecasting, Reference class forecasting, Outside view
Date posted: March 11, 2014 ; Last revised: March 24, 2014