A recent study by Oxford University found that the vast majority of mega dams around the globe are unprofitable undertakings as a result of exorbitant cost overruns.
As many as three-quarters of mega-dam projects in the Oxford University survey suffered from cost overruns. Analyzing 245 dam projects in 65 countries over a seven-decade time period (from 1934 to 2007), the report found that large projects routinely come in late and over budget. This paints a dismal picture for large scale projects. Why does this happen? Various misrepresentations contribute to this problem and a few are worth noting.
I like the term used in the study --“optimism bias” -- describing when politicians (most frequently in democracies) make far fetched estimates of the time in which projects can be completed. “Strategic misrepresentation,” another new term I am sure we’ll hear more of, occurs in relation to project promoters, who intentionally underestimate costs in order to increase the likelihood of approval.
Though the study reviewed hydro projects, I can tell you this problem also applies to other large scale power plant projects including nuclear and carbon capture and sequestration power plants.
What's the solution? Smaller, more flexible hydroelectric projects that can be built and go online quicker, and can be more easily adapted to social and environmental concerns are less likely to fall prey to the “optimism bias” of project promoters. One country doing this well is Norway. The government encourages small hydro development (plants with an installed capacity of 10 megawatts or less) typically using low head and run-of-the-river technologies. Its flexible approach has yielded substantial payoffs -- 99% of its electricity is produced from water and is highly successful in the country.
Emerging economies as Brazil, China, Indonesia and Pakistan need to take note -- China especially, with its plans to almost double its current hydropower capacity of 250,000 megawatts through a huge dam-building effort. A more flexible approach, with smaller plants and investment can help a developing country from drowning in debt as a result of mega projects.
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