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Cover photo: Frame Stock Footage/Shutterstock 3 ACKNOWLEDGMENTS This toolkit was jointly prepared by a World Bank Group team led by Jade Shu Yu Wong, Mariana Carolina Silva Zuniga and Khafi Weekes, and composed of Philippe Neves, Carmel Lev, Helen Gall, Gisele Saralegui, and Guillermo Diaz Fanas, and a GRID Engineers team led by Rallis Kourkoulis and Fani Gelagoti, with contributions from Elena Bouzoni, Mariana Loli, and Diana Gkouzelou. The team would like to thank Pravin Karki, Ludovic Delplanque, Jia Li, and Ana Isabel Gren for their contributions and valuable peer review inputs. The team is also grateful to Fatouma Toure Ibrahima, Jane Jamieson, Imad Fakhoury and Emmanuel Nyirinkindi for their support and guidance. Charissa Sayson, Paula Garcia, Rose Mary Escano and Luningning Loyola Pablo provided excellent administrative support. The task team wishes to acknowledge the generous funding provided for this report by the Public-Private Infrastructure Advisory Facility (PPIAF) through the Climate Resilience and Environmental Sustainability Technical Advisory (CREST) funded by the Swedish International Development Cooperation Agency (SIDA), and by the Global Infrastructure Facility (GIF). About PPIAF PPIAF helps developing-country governments strengthen policy, regulations, and institutions that enable sustainable infrastructure with private-sector participation. As part of these efforts, PPIAF promotes knowledge transfer by capturing lessons while funding research and tools; builds capacity to scale infrastructure delivery; and assists sub- national entities in accessing financing without sovereign guarantees. Donor-supported and housed within the World Bank, PPIAF’s work helps generate hundreds of millions of dollars in infrastructure investment. While many initiatives focus on structuring and financing infrastructure projects with private participation, PPIAF sets the stage to make this possible. About the GIF The Global Infrastructure Facility, a G20 initiative, has the overarching goals of increasing private investment in sustainable infrastructure across emerging markets and developing economies, and improving services that contribute to poverty reduction and equitable growth aligned with the Sustainable Development Goals (SDGs). The GIF provides funding and hands-on technical support to client governments and multilateral development bank partners to build pipelines of bankable sustainable infrastructure. The GIF enables collective action among a wide range of partners— including donors, development finance institutions, and country governments, together with inputs of private sector investors and financiers—to leverage both resources and knowledge to find solutions to sustainable infrastructure financing challenges. About CTA IFC’s PPP Transaction Advisory (CTA) advises governments on designing and implementing public-private partnership (PPP) projects that provide or expand much needed access to and/or improved delivery of high-quality infrastructure services—such as power, transportation, health, water and sanitation— to people while being affordable for governments. In doing so, CTA assists on the technical, financial, contractual, and procurement aspects of PPP transactions. To date, CTA has signed over 400 projects in 87 countries, mobilizing over $30 billion of private investment in infrastructure, and demonstrating that well-structured PPPs can produce significant development gains even in challenging environments. 4 Table of Contents List of Abbreviations and Acronyms ............................................................................................................... 5 Introduction.................................................................................................................................................... 9 Executive Summary ...................................................................................................................................... 12 Toolkit Navigator .......................................................................................................................................... 13 Module 1 Project alignment with climate policies ........................................................................................ 18 Step 1 Map Climate Policies...................................................................................................................... 19 TOOL 1.1 Mapping climate policies and actors ..................................................................................... 19 Step 2 Screen Project’s Alignment with Climate Policies .......................................................................... 23 TOOL 1.2 Screening project’s alignment with climate policies ............................................................... 24 Module 2 Assess climate risks and plan adaptation strategies ..................................................................... 31 Step 1 ESS Climate Risks ........................................................................................................................... 32 TOOL 2.1 Mapping climate threats considering future projections ........................................................ 33 TOOL 2.2 Assessment of impact on major asset categories ................................................................... 39 TOOL 2.3 Assessment of climate risks ................................................................................................... 41 TOOL 2.4 Evaluation of climate-change-induced externalities and impacts ........................................... 43 Step 2 Screen Possible Adaptation Strategies To Reduce Climate Risks ................................................... 47 TOOL 2.5 High-level screening of climate adaptation strategies ............................................................ 48 Step 3 Integrate Climate Risks Into The Planning Of Hydropower Projects .............................................. 53 TOOL 2.6 A multi-criteria decision-making (MCDM) method................................................................. 54 Module 3 Assess GHG emissions and plan climate mitigation strategies ...................................................... 60 Step 1 Estimate the GHG footprint of the project ..................................................................................... 61 TOOL 3.1 A procedure for the life-cycle assessment (LCA) of net GHG emissions ................................... 62 Step 2 Identify Mitigation Measures ........................................................................................................ 66 TOOL 3.2 GHG reduction strategies applicable for hydropower projects ............................................... 67 Module 4 Climate considerations in assessing project’s economics and finances ........................................ 70 Step 1 Check Economic Soundness Of Alternative Climate Strategies ...................................................... 71 TOOL 4.1 Climate entry points for hydropower-specific CBA................................................................. 72 TOOL 4.2 Climate value drivers for VfM analysis ................................................................................... 74 Module 5 KPIs for climate-resilient and sustainable hydropower ................................................................ 79 TOOL 5.1 KPIs measuring climate adaptation objectives ....................................................................... 80 TOOL 5.2 KPIs measuring climate mitigation objectives ........................................................................ 81 Summary and Conclusions ............................................................................................................................ 84 5 List of Abbreviations and Acronyms AHP analytical hierarchy process CAPEX capital expenditures CBA cost-benefit analysis CBI Climate Bonds Initiative CMIP coupled model intercomparison project CO2 carbon dioxide CO2e carbon dioxide equivalent CTIP3 Climate Toolkits for Infrastructure PPPs DEM digital elevation map EI emission intensity EIRR economic internal rate of return EMDE emerging market and developing economy GCM general circulation model GHG greenhouse gas HESG Hydropower Sustainability Environmental, Social and Governance Gap Analysis HGIIP Hydropower Sustainability Guidelines on Good International Industry Practice HSAP Hydropower Sustainability Assessment Protocol IEA International Energy Agency IFC International Finance Corporation IHA International Hydropower Association IPCC International Panel on Climate Change IRENA International Renewable Energy Agency KPIs key performance indicators LC life cycle LCA life-cycle assessment LTS long-term strategy LULC land use/land cover MCDM multi-criteria decision-making MDB multilateral development bank MIGA Multilateral Investment Guarantee Agency NAP national adaptation plan NAPA national adaptation program of action NAS national adaptation strategy NBS nature-based solutions NDCs Nationally Determined Contributions NPV net present value O&M operation and maintenance OSM OpenStreetMap PD power density PPP public-private partnership RoR run-of-river SDGs Sustainable Development Goals SC stakeholder council VfM value for money WBG World Bank Group 6 Foreword The time for action to build a better future and green recovery has never been stronger as we navigate the uncertainty of a world dealing with multiple crisis on top of climate change. As governments across the globe face fiscal constraints, it has become imperative to crowd in private sector solutions, innovation, and finance to create new solutions and pathways to meet Paris Agreement goals on climate change and UN Sustainable Development Goal (SDG) commitments. Participation of the private sector in Paris-Aligned infrastructure investments is critical and public-private partnerships (PPPs) are among the key solutions. PPPs are critical in supporting governments to bridge the infrastructure gap not only for the additional capital they bring but sector expertise and innovation as well. However, the PPP model is not without challenges, climate change creates uncertainty that can be difficult to account for in the framework of PPPs, which require a certain degree of predictability to attract investment and finance. This sector-specific toolkit on the hydropower aims to address this challenge by embedding a climate approach into upstream PPP structuring. If structured correctly, PPPs in hydropower can increase climate resilience offering market-based solutions to address both mitigation and adaptation challenges. PPPs are able to provide well-informed and well-balanced risk allocation between partners— offering long-term visibility and stability for the duration of a contract (typically 20 to 30 years)- compensating climate change uncertainty through contractual predictability. The toolkit attempts to address questions like: • In what ways—in terms of likelihood and impact—does climate change affect hydropower projects, and what measures can be taken to alleviate these impacts through a PPP structure? • How can we innovate to allow for optimal risk allocation and contractual predictability in an environment marked by uncertainty and the need for resilience to unpredictable scenarios? The Global Infrastructure Facility (GIF), The Public Private Infrastructure Advisory Facility (PPIAF) and International Finance Corporation, Transaction Advisory, Public-Private Partnership and Corporate Finance Advisory Services in collaboration with sector specialists across the World Bank Group (WBG) —have joined forces to build upon best practice on a topic at the cross-roads of climate change, infrastructure, and private sector participation. It is a field in evolution where there will be a great deal of innovation ahead of us. Currently an insufficient focus is given to considering climate change in the framework of PPPs. For instance, the PPP tender selection criteria are currently ultimately based on the least cost approach, which may promote assets not resilient enough to withstand climate impacts. This may in turn result in total asset loss with devastating effects on the economy and society. This toolkit is indeed about providing solutions to public officials and their advisors on how to better align interests and incentives towards climate-smart investments and tap into private sector financing capacity. The hydropower sector toolkit as part of the Climate Toolkits for Infrastructure PPPs (CTIP3) suite is ultimately a call for action for decision makers, to push for bold initiatives so that infrastructure investments become a critical and steady pathway to achieve Paris Agreement and SDG commitments. Emmanuel B. Nyirinkindi Vice President, Cross-Cutting Solutions, International Finance Corporation 7 Imad Najib Ayed Fakhoury Global Director, Infrastructure Finance, PPPs and Guarantees Global Practice, World Bank 8 9 Introduction Combating climate change through Shifting towards green and resilient projects investments in hydropower Hydropower holds a two-fold relationship with Hydropower is the world's largest source of climate change. Under certain conditions, reservoir- renewable energy, supplying, according to the based hydropower projects can be sources of International Hydropower Association (IHA), nearly substantial GHG emissions, adding more stress to an 16 percent of global electricity demand. Global already fragile climatic equilibrium. At the same capacity has been growing at an average rate of 2.1 time, hydropower assets may be vulnerable to percent per year since 2015,1 and the International many types of stressors exacerbated by climate Renewable Energy Agency (IRENA)2 suggests that change: extreme heat, droughts, and fires; extreme 850 gigawatts (GW) of new hydropower capacity rainfall and floods; and avalanches. will be needed by 2050 to limit the global It is obvious that failure to adequately and promptly temperature increase to 2°C above pre-industrial consider the climate when planning new levels. This number would have to rise to 1,300 GW hydropower projects (as well as in the upgrading of to achieve the goal of 1.5°C set by the Paris existing plants) may lead to significant shortcomings Agreement (PA). Indeed, numerous countries in in projects’ technical and financial performance. By South America, Africa, and Asia have committed to contrast, embedding climate mitigation and hydropower to supply affordable energy with net- resilience against climate risks into the life-cycle zero emissions by 2050. planning of a hydropower project enables Hydropower projects offer some of the lowest life- hydropower to serve its role as a clean energy cycle greenhouse gas (GHG) emissions per unit of source that can simultaneously provide valuable energy generated. Yet their design characteristics adaptation capabilities, minimizing the impact of greatly affect not only their ability to produce climate change on local communities and on the electricity, but also their impact on the environment environment. and local communities. Consideration of climate resilience and sustainability is at the core of Climate considerations reflect on project hydropower development and must be embedded economics in the pre-transactional and structuring phase of The decision to invest upfront in climate adaptation relevant public-private partnerships (PPPs), in line and mitigation should depend on many criteria, with national climate policies and global good including the current and future exposure of the practices. project to climate risks, the consequences of failure, and the overall social benefits to the community. 1IHA (International Hydropower Association). 2020. 2IEA (International Energy Agency). 2020. Global Energy Hydropower Status Report. IHA. Review 2020. Paris: IEA. https://www.hydropower.org/statusreport. https://www.iea.org/reports/global-energy-review-2020. 10 Delivering a hydropower project as a PPP could in by-step instructions on how to apply its provisions certain cases endow it with certain benefits (e.g., to PPPs related to hydropower infrastructure. potentially more effective use of its flood control The toolkit is intended to familiarize non-experts capabilities for broader, catchment-scale with the potential effects of climate change on the adaptation) compared to traditional procurement. project and the resulting considerations for climate On the other hand, financing climate-resilient mitigation, adaptation, and resilience, so that these designs by the private sector can be challenging, can be adequately appraised as early as possible especially when adaptation options are limited. when pursuing such projects. As such, the toolkit Therefore, the costs, benefits, and economic focuses on preliminary steps aiming to help users viability of projects when taking climate risks into understand how climate change could affect their account, as well as the value for money (VfM) hydropower infrastructu re project, the potential aspect of the project as a PPP, should be checked at consequences, and what measures can be taken to the early stages of project selection, to identify any alleviate the project’s impact. (Note that this toolkit potential weaknesses and to make the necessary is not intended for the design to structuring and adjustments. tendering phases, but should be consulted as a Well-defined, measurable indicators are complementary tool to the Umbrella Toolkit.) essential For stakeholders involved in hydropower project planning, meeting the mitigation and adaptation goals may be a long process, including iterative assessments, adequate monitoring, sustainable operations, and efficient maintenance. To ensure that all strategic climate objectives are fully addressed, it is recommended that agencies provide strict specifications and output requirements in the form of clear and measurable indicators. The hydropower sector toolkit and its intended users The present document is intended for use by emerging market and developing economy (EMDE) government agencies to assist them in incorporating climate-related risks and opportunities in the pre-structuring phase of water supply infrastructure projects procured through PPPs. The toolkit complements the World Bank Group’s Climate Toolkits for Infrastructure PPPs (CTIP3) (the “Umbrella Toolkit3”) by providing step- 3 World Bank, IFC (International Finance Corporation), and World Bank. Referred to as the Umbrella Toolkit in this MIGA (Multilateral Investment Guarantee Agency). 2022. document. Climate Toolkits for Infrastructure PPPs. Washington, DC, 11 Essential complementary resources and outcomes constituting good practices in the sector. Performance against the guidelines Agencies involved in the development of can be measured through two complementary hydropower projects should be familiar with the tools: the Hydropower Sustainability following tools and frameworks supporting Assessment Protocol (HSAP) and the hydropower resilience and sustainability: Hydropower Sustainability Environmental, • The Hydropower Sector Climate Resilience Social and Governance Gap Analysis (HESG) Guide, which has been developed by the IHA, tool: with support from the European Bank for ▪ The HSAP is a performance measurement Reconstruction and Development (EBRD), the tool addressing environmental, technical, World Bank Group (WBG), and the Korea Green and economic aspects, applicable to all the Growth Trust Fund, to help hydropower stages of a project's life cycle. practitioners identify, assess, and manage the ▪ The HESG can be used to identify where the risks of climate change to safeguard the project might be falling short of good resilience of hydropower projects under practices on relevant environmental, social variable, uncertain climate conditions. and governance topics. It includes a gap management plan for how to improve • The Hydropower Sustainability Guidelines on Good International Industry Practice (HGIIP), a processes and outcomes. normative document that defines the processes 12 EXECUTIVE EXECUTIVE SUMMARY SUMMARY This toolkit contains a set of tools covering the major climate entry points (identification of risks, incorporation of climate considerations in the project’s selection, and appraisal of climate effects in the project’s economics). It uses as inputs preliminary project data, readily available climate-related resources, and tools produced by the World Bank Group and international organizations. The outcome should be a project-specific collection of considerations that will need to be further evaluated and quantified during the subsequent phases of implementation of the Umbrella Toolkit.. The toolkit is divided into five modules: Module 1 (Project alignment with climate policies) aims to assist users with mapping climate policies and screening the project’s alignment with them to identify corrective actions. Module 2 (Assess climate risk and plan adaptation actions) guides users in estimating climate risks and reducing their impact on the project to acceptable levels. Module 3 (Assess GHG emissions and plan climate mitigation strategies) assists users in the process of appraising the project’s carbon footprint and identifying potential mitigation measures. Module 4 (Climate considerations for assessing project’s economics and finances) guides users in checking climate strategies’ economic soundness and putting them into action. Module 5 (Key performance indicators for climate-resilient and sustainable hydropower) presents a set of key performance indicators (KPIs) for hydropower projects; these KPIs serve as entry points for relevant activities. The interconnections between the modules and their tools are explained schematically in the Toolkit Navigator provided on the next page. Module 1 13 Toolkit Navigator Module 1 14 Module 1 15 Module 1 16 Module 1 17 MODULE 1 Module 1 18 Module 1 PROJECT ALIGNMENT WITH CLIMATE POLICIES This module is analyzed in two steps. Step 1 maps climate ambitions and national (or regional) policies detailing the specific strategies and action plans of the government regarding adaptation to and mitigation of climate change, and characteristics that are relevant to hydropower infrastructure. Step 2 provides a methodology for assessing the strategic fit of a hydropower project with these characteristics. This exercise will define the periphery of climate considerations that will be identified, detailed, and appraised in Modules 2 and 3. Module 1 – Step 1 19 Step11Map Climate Policies Step Map Climate Policies This step supports the systematic documentation of global and national SCOPE climate strategies, policies, and action plans that set the framework for developing hydropower infrastructure. By understanding underlying principles, targets and commitments, the relevant agencies will be better prepared and equipped to design and deliver sustainable hydroelectricity projects that align with the climate mitigation vision of the PA and strengthen the capacity of communities to adapt to the adverse effects of climate change. The process starts with a quick scan of the country’s Nationally Determined Contributions (NDCs), national adaptation plans (NAPs), PROCESS national adaptation strategies (NAS), and long-term strategies (LTS), which are the main national guidance documents for achieving the goals of the PA. It continues with a compilation of all the important documents that constitute the national climate policy landscape, whether climate laws/policies or other official governance documents on climate change. TOOLS TOOL 1.1 Mapping climate policies and actors A country-specific inventory of the most important policy documents on climate change with specific references to the renewable energy sector, OUTPUT and more specifically to hydropower TOOL 1.1 MAPPING CLIMATE POLICIES AND ACTORS TOOL 1.1 Mapping climate policies and actors This tool is designed to facilitate a desk study of the landscape of climate policies and frameworks governing the planning and delivery of new hydropower projects and the sustainability assessment and upgrade of existing plants, based on the mapping methodology presented in the Umbrella Toolkit (Introductory Phase and Module 1.1), while focusing on priorities and provisions that are specific to hydropower projects. For a more in-depth analysis of the country-specific policies and governance mechanisms, agencies are encouraged to seek support: ▪ From the PPP unit of the country/agency/ministry (which is expected to have a general mapping exercise for the country's completed PPP portfolio). Module 1 – Step 1 20 ▪ Within relevant ministries (e.g., Ministry of the Environment and Energy, Ministry of Infrastructure, Ministry of Industry and Trade) and their corresponding departments (e.g., Department of New and Renewable Energy, Department of Climate Change). ▪ Within municipalities and other sub-national agencies, which are better informed about the climate adaptation activities that happen locally and that may not necessarily be reflected in national policy documents (outlined below). INPUT This mapping exercise requires users to gather and consult the following sources of climate policy documents, including provisions and guidance on the climate mitigation and adaptation potential of hydropower plants and their components. Each source is accompanied by a list of prompt questions meant to shape the respective focus areas. 1. National documents describing the country’s strategic development vision Focus areas: • Is the development of new hydropower infrastructure recognized as a strategic vision? • How does it relate to PA, NDCs, and Sustainable Development Goals (SDGs)? • Is there a national energy generation plan? What are its specified goals? • Is there a commitment to increase renewable energy capacity? • Has the country developed a plan for integrated water resources management? • Are there any relevant agreements for transboundary developments? • Is the project to be developed within the jurisdiction of a river basin organization, which may have its own institutional structure, plans and guidelines? • Are dams favored as infrastructure systems that can enhance climate adaptation and mitigation of water scarcity? 2. Hydropower investment strategy or renewable energy investment strategy (if available in the country-specific context) Focus areas: • What is the strategic role of hydropower investment, and how does it address the current needs for water and energy services? • What are the emissions intensity thresholds driving the decarbonization pathway of the power sector? • What is described as clean and sustainable hydropower? • According to the strategic document, is there a recognized preference in the scheme of hydropower? For example, run-of-river (RoR) hydropower may be preferred over reservoir-based facilities, due to the reduced environmental impact. Alternatively, pumped storage plants may be prioritized because of their high energy storage capacity, which facilitates the generation of wind and solar power. • What are the recognized priorities for future investment in the water sector that can be linked to hydropower development (e.g., a priority investment that foresees the construction of dams for climate adaptation and water management)? • Does the strategic document include a description of relevant investment plans or a pipeline of bankable hydropower projects (e.g., a dedicated budget to support an early transition to clean energy generation)? • Does the document set specific environmental targets? For example, is there a target to achieve no net loss of biodiversity through initiatives for leveraging of ecosystems and Module 1 – Step 1 21 ecosystem services (e.g., floodplain maintenance, connectivity for migratory species, maintenance of wetlands, nutrient and sediment balance, delta sediment replenishment)? 3. Nationally Determined Contributions outlining short and mid-term climate action plans Focus areas: • What is the emissions reduction target, and what are the adaptation goals described in the NDC? • What is the contribution of power generation in the national GHG inventory? • Does it mention hydropower? What are the exact priorities and measures for the sector? 4. Long-term strategy (if available) outlining a country’s long-term climate change vision Focus areas: • Does the LTS describe a long-term emissions reduction goal? What is the horizon? • Does it specify measures to achieve this goal? How do these measures relate to the power sector? For example, is the need for transformation of the sector explicitly stated? What are the energy targets, both in terms of additional renewable installed capacity and in investment needed? 5. National adaptation plans (or National Adaptation Programmes of Action or national adaptation strategies) providing a clear framework of how climate-change adaptation actions can be integrated into the development planning of all economic sectors Focus areas: • Does the NAP address hydropower-specific climate vulnerabilities? What are the most prominent climate risks identified? • Does the NAP include an action plan to enhance climate adaptation and resilience? How is this related to the management of water resources and especially hydropower-related infrastructure? Example The NAP of Laos identifies the need to address climate resilience through improved dam safety regulations and guidelines. It highlights the intention to take advantage of reservoirs, through a multipurpose use of dams and associated infrastructure, to tackle climate adaptation and enhance the resilience of surrounding communities. 6. Climate and environmental legislation (enforced at either the national or sub- national or state level) Focus areas: • Does the legislation specify a “net zero” emissions target? Is this a cross-sectoral target or does it include specific provisions for the energy sector? • Which ministries are responsible for the implementation of the law? Is it the responsibility of a single ministry, or are several ministries involved? • What policy measures does the legislation entail, and how are these translated into national action plans and programs? For example, does the law promote the Module 1 – Step 1 22 development of sustainable renewable energy, and what are the action plans that have been developed in that respect? • Is climate adaptation incorporated into climate legislation? What are the main areas of focus? • Is there a national disaster risk management policy? Does it prescribe actions to enhance resilience against climate-induced impacts? Are there specific provisions for dams? 7. National (or regional) energy master plan or renewable energy master plan Focus areas: • Which entities (i.e., ministries) are responsible for the implementation of the plans? • Have they identified potential hydropower developments at specific river basins? • Do they mention specific sustainability, environmental, or social considerations? • Have they estimated projected energy demands and socioeconomic variables that can affect the development of hydropower projects? 8. Bilateral (or multilateral) agreements with neighboring or other countries outlining the regime for the use of transboundary water resources Focus areas: • Are there aspects of the project with implications that cross state or provincial boundaries? • What are the applicable policy and planning requirements? • Are there existing provisions for transboundary environmental and social impact assessments? Are they based on universally approved criteria? 9. Good practices and climate-related guidelines describing opportunities and entry points for integrating green attributes/practices in hydropower projects. Details for major climate taxonomies and the definition of eligible activities may be found in the Umbrella Toolkit (Insights 1.3 and 1.4). OUTPUT The results of the mapping need to be reported in a systematic and comprehensive way to support the subsequent steps. IMPORTANT NOTE Effort and Resources The more detailed the answers to the aforementioned prompt questions, the easier it will be to identify project-specific entry points and eventually to achieve the highest alignment level with climate policies and targets. For further reading on the importance and benefits of alignment with climate policies, users are referred to the Umbrella Toolkit (Insight 1.5 and Phase 0). Module 1 – Step 2 23 Step 2 Screen Project’s Alignment with Climate Policies Step 2 Screen Project’s Alignment with Climate Policies This step examines the project’s scope and description vis-à-vis the mapped climate policies and the country’s national development goals SCOPE (outcome of Tool 1.1). In case of misalignment, specific actions are proposed to re-adjust the project scope towards a more sustainable and climate-resilient pathway. The alignment process is performed in two stages, which are implemented during different phases of the project preparation: PROCESS The preliminary screening may be performed immediately after the project inception phase (when the only available information is the outline of the project scope and the need it addresses). This first-level screening is meant to confirm that the project’s scope aligns with (or at least does not deviate from) the national vision for climate mitigation and adaptation. The second-level screening may be performed towards the end of the project selection, and prior to the appraisal of the economic value of the project. At this stage, the project's risk profile has been qualitatively assessed, and a preliminary discussion on adaptation/mitigation measures is underway. This is the right time to re-evaluate the project’s alignment with the national climate agenda (focusing now on specific project attributes) and re-adjust where necessary. TOOLS TOOL 1.2 Screening project’s alignment with climate policies ▪ Decision on climate alignment (preliminary and final) ▪ Actions to enhance the level of alignment (if deemed necessary) OUTPUT Module 1 – Step 2 24 TOOL 1.2 SCREENING PROJECT’S ALIGNMENT WITH CLIMATE POLICIES TOOL 1.2 Screening project’s alignment with climate policies The tool may be used to qualitatively assess the project's climate profile and its alignment with the policy framework defined by Tool 1.1. It is intended as a complementary attribute of the relevant module of the Umbrella Toolkit (Module 1.1). Therefore, it is structured in the form of a checklist made up of four pillars: • Overall alignment of the project’s scope with the country’s SDGs and the Paris Agreement (Pillar 1, or P1) • Overall alignment of the project’s scope with the national (or regional) climate agenda (NDCs, NAPs, LTS, the energy master plan and renewable energy plans) (P2) • Specific interventions contributing to climate mitigation (P3) • Specific interventions contributing to climate adaptation and resilience of the project and the broader community (P4) INSTRUCTIONS 1 Define the type of screening For a high-level screening (performed during the very early stages of the project), users may focus on the first two pillars (P1 and P2) only. During the second-level screening (implemented towards the end of the project selection), it is recommended to use the entire checklist (P1 to P4). 2 Use the input module of the tool to assess the performance of the project against each of the four pillars. 3 Use the output module of the tool to appraise the alignment status of the project. 4 Propose an action plan to re-align the project’s scope towards a more sustainable and climate-resilient pathway. The action plan should be targeted to those pillars that have received relatively low scores. INPUT The following checklist compiles in P1 to P4 the criteria that can be used to judge the alignment of a hydropower project with the policy framework defined by Tool 1.1. Users are prompted to consider all the sub-criteria listed. The goal is to be able to identify areas of poor alignment and seek Module 1 – Step 2 25 improvements at an early stage, acknowledging that poor alignment may undermine the project’s eligibility for funding by several sources including the multilateral development banks (MDBs). Four Pillars for Appraising Alignment PROJECT’S ALIGNMENT WITH THE P1 SUSTAINABLE DEVELOPMENT GOALS AND THE PARIS AGREEMENT FRAMEWORK Sub-criteria Characteristics/actions enhancing the project’s alignment (non-exhaustive list of examples) What is the project's primary purpose, and • Ensure alignment with the goal for affordable and how does it support the country’s SDGs? clean energy (SDG7) and identify contribution to achieving additional goals through the rational management of the water resource: e.g., poverty reduction (SDG1), zero hunger (SDG2), and sustainable communities (SDG11). See example in Box 1.1. Does the project support the country’s • Ensure that the project’s GHG emissions are effort to reduce carbon dioxide (CO2) estimated thoroughly (considering its entire life emissions? cycle), and that they are consistent with mitigating carbon emissions. Is climate adaptation an objective of the • Ensure that there are plans for deploying the project? project’s potential for water storage and supply, and (if applicable) for flood risk mitigation in the region. • Incorporate the changing climate trends into the planning decisions and into risk and vulnerability assessments of the planned hydropower infrastructure components and investments. • Leverage opportunities in disaster response and prevention (e.g., through the improvement of contingency planning and the implementation of early warning systems). Does the project address greater overall • Ensure that consultations with stakeholders inclusion, gender equality, and does it (especially local communities’ representatives) are consider vulnerable groups? carried out in a respectful and inclusive way, such as following the approaches of free, prior, and informed consent,4 and that they are tailored to the needs of disadvantaged and vulnerable groups.5 4 United Nations. 2018. “Consultation and free, prior and informed consent (FPIC).” https://www.ohchr.org/en/indigenous-peoples/consultation-and-free-prior-and-informed-consent-fpic. 5 The World Bank Group’s 2021 document “Green, Resilient and Inclusive Development (GRID) ” provides further guidance on gender aspects https://thedocs.worldbank.org/en/doc/9385bfef1c330ed6ed972dd9e70d0fb7- 0200022021/green-resilient-and-inclusive-development-grid. Module 1 – Step 2 26 P2 DOES THE PROJECT ALIGN WITH NATIONAL CLIMATE POLICIES? Sub-criteria Characteristics/actions enhancing the project’s alignment (non-exhaustive list of examples) How does the project support the • Consider the degree to which the project satisfies implementation of the country’s NDCs and the overall target for decarbonization of the power energy transformation agenda? sector, as determined in the country’s NDC. • Use a site-specific estimate of net GHG emissions that will incorporate the carbon footprint of the reservoir (if there is one), the construction activities, and the operation of associated facilities and power lines. • Ensure that the emissions/energy production balance complies with the vision for sustainable hydropower. How does the project comply with • Ensure that the project will not undermine plans for adaptation priorities? adaptation in the other priority sectors, such as food security, water supply and sanitation, and protection of biodiversity and ecosystems. Note that cross- sectoral cooperation facilitates a balanced water- food-energy nexus. • Develop a good understanding of the future conditions (e.g., seasonal variations of the water cycle) in which the plant will operate. • Set up climatic and hydro-meteorological scenarios for the dam site. • Prioritize adaptation measures in zones where vulnerabilities are highest and where there is the greatest need for resilience and safety. Has the country’s NDC or NAP diagnosed • If yes, ensure that associated risks have been vulnerabilities of hydropower addressed in a thorough manner, considering infrastructure? uncertainties (see Module 2), and that sufficient mitigation solutions have been planned. PROJECT’S POTENTIAL TO REDUCE GHG P3 EMISSIONS AND BENEFIT THE ENVIRONMENT Sub-criteria Characteristics enhancing the project’s alignment (non-exhaustive list of examples) Will the project include activities to Such activities may include: avoid/reduce GHG emissions? Module 1 – Step 2 27 Sub-criteria Characteristics enhancing the project’s alignment (non-exhaustive list of examples) • Use of green construction materials and processes. • Revegetation and catchment treatment. • Implementation of a monitoring program. Take the above into account in the assessment of the project’s carbon footprint. Will the project facilitate the installation of • Energy storage capacity can be beneficial for the grid alternative renewables and contribute to a integration of intermittent wind and solar energy resilient energy grid? generation. What are the associated impacts on the • Ensure that an environmental impact assessment environment? has been conducted. • Ensure that the current and projected water footprint of the project is in alignment with overall water security and competing uses. • Ensure rational management of sediment flows, to minimize impact on downstream wetlands and ensure that anti-erosion solutions will be implemented, where needed, to mitigate watershed degradation. PROJECT’S ROLE IN CLIMATE ADAPTATION P4 AND PROTECTION OF LOCAL COMMUNITIES Sub-criteria Actions enhancing the project’s alignment (non-exhaustive list of examples) Does the project incorporate methods to • Ensure that a climate risk assessment has been reduce its exposure/vulnerability to climatic performed (for current and future climate risks? conditions) considering all the possible types of climate hazards (see Tool 2.1) applicable to the specific site as well as cascading hazards (e.g., land/mud slides, fires). • The risk assessment accounts for hazards that may directly or indirectly impact the performance of the hydropower plant. For example, extreme precipitation events may provoke overtopping, outages, damage to equipment, and adverse downstream impacts but may also trigger landslides or excessive silting, which can reduce the volume available for water within a reservoir and/or clog the water discharge system. How will the project adapt to the adverse • Ensure that adaptation strategies have been defined impacts of climate change? to safeguard the project’s resilience for the entire spectrum of climate hazards and their possible future escalation (e.g., extreme flooding events will be managed with the use of proper engineering Module 1 – Step 2 28 Sub-criteria Actions enhancing the project’s alignment (non-exhaustive list of examples) options such as spillways, gated systems, and fuse plugs). Does the project’s design include measures • Ensure deployment of the project’s capacity (for to enhance climate resilience at a regional example, plans to increase the water provided for scale and to protect the well-being and agriculture in the downstream environments during livelihoods of the indigenous people? dry seasons) and infrastructure to provide climate adaptation for the surrounding environment and communities. This is often possible, especially regarding hazards linked to extremes in water discharges, e.g., floods and droughts. • Installation of fire protection mechanisms (e.g., warnings and suppression systems) can substantially reduce the wildfire risk in the region. Will the project include emergency • Install smart information systems for disaster risk procedures/equipment to enable management during extreme events. preparation ahead of extreme events? • Prepare/update disaster response plans. Does the project’s design incorporate • Ensure that emergency plans consider the needs of measures to protect the specific needs of vulnerable groups and that they are communicated women and vulnerable populations from to them in the most efficient ways (e.g., information the impacts of climate change? in the local languages, communication to illiterate populations). • Ensure adaptation measures are gender inclusive. • Put together a gender action plan that will ensure that all activities implemented during the development include a gender perspective and promote the considerations of gender issues and vulnerabilities.6 OUTPUT Following the above process, users are expected to have identified the areas where the project is well aligned with the Paris Agreement goals, as well as areas where further improvement is necessary. Users should keep in mind that the World Bank will not be supporting projects which are not fully aligned with the Paris Agreement, according to the Joint MDB Assessment Framework for Paris Alignment for Direct Investment Operations. 6The World Bank Group’s 2021 document “Green, Resilient and Inclusive Development (GRID)” provides further guidance on gender aspects https://thedocs.worldbank.org/en/doc/9385bfef1c330ed6ed972dd9e70d0fb7- 0200022021/green-resilient-and-inclusive-development-grid. Module 1 – Step 2 29 BOX 1.1 TRADE-OFFS CAN BE TURNED INTO SYNERGETIC OPPORTUNITIES: THE EXAMPLE OF THE MEKONG RIVER The Mekong is the largest transboundary river in Southeast Asia and one of the world’s most actively developed regions for hydropower. Its main stream and tributaries offer about 235,000 gigawatt- hours (GWh) per year in hydroelectric potential. At the same time, agriculture is an essential pillar for economic activity and food security: Cambodia's Tonle Sap lake is home to the world's largest freshwater fishery, with more than 2 million tons of annual harvest (valued at approximately $2 billion). Intensive reservoir development for hydropower production naturally raised concerns over the trade-offs between water supply, food, and energy. Yet, a recent analysis of extensive data from hydrometeorological monitoring, irrigated crop production measurements, and fish yields indicates that trade-offs are mainly a result of release timing rather than consumptive use. The optimization of dam design, reservoir operations, and water storage using an integrated hydro-economic optimization model leads to multiple benefits across the sectors: • During droughts, water release from reservoirs in the Mekong can mitigate up to 30 percent of crop loss if irrigation is prioritized over hydropower during the months of peak irrigation demand. This is possible without severe impacts to energy generation. • Management of water releases from reservoirs can shift the annual lows in river flows, thereby raising irrigated crop revenue by up to 49 percent. • Applying eco-friendly flow patterns can improve fishing yields in the basin by up to 75 percent (accepting a 17 percent reduction in energy production). It is possible to manage reservoir operation fairly and efficiently, in a way that will benefit the whole basin, mitigating the effects of flow fluctuations on the livelihoods of farmers and fishers living downstream. The key is a rationally balanced use of the water resource, facilitated by the development of basin-scale, cross-sectoral and transboundary partnerships. Leveraging new technologies allows for data sharing, real-time monitoring, and the use of a cooperative platform for efficient management and dynamically optimized decision-making. Source: Do, Pierre, Fuqiang Tian, Tingju Zhu, Bahtiyor Zohidov, Guangheng Ni, and Hui Lu. 2020. “Exploring synergies in the water-food-energy nexus by using an integrated hydro-economic optimization model for the Lancang-Mekong River basin.” Science of The Total Environment 728 (137996). Module 2 30 MODULE 2 Module 2 31 Module 2 ASSESS CLIMATE RISKS AND PLAN ADAPTATION STRATEGIES This module is divided into three steps. It begins with a mapping exercise intended to screen the possible sources of climate-related threats and evaluate their potential risks to the hydropower project (Step 1 - Assess climate risk). Next, users are guided in identifying ways to alleviate these impacts and understand the costs of the various adaptation options that can build resilience at the project scale and at the regional scale (Step 2 - Screen possible adaptation strategies to reduce climate risks ). Finally, climate considerations are incorporated into a multi-criteria decision-making framework that aims to assist users in excluding risky or technically unfeasible projects, instead prioritizing those projects that both receive the maximum consensus among stakeholders and that are less susceptible to changing climatic conditions (Step 3 - Integrate climate risks into the planning of hydropower projects). Note that implementation of the module’s principles in larger projects will require more extensive analyses by expert consultants. Module 2 – Step 1 32 Step 1 ESS Climate Risks Step 1 ESS Climate Risks To identify and qualitatively assess the climate risks affecting the project. The assessment will consider both internal risks (i.e., the risk of damage SCOPE affecting the hydropower plant’s assets, its availability, and its power - generating capacity) and external risks (i.e., a functional hydropower plant with reduced power demand or with conflicting water usages). The identification of these risks early in the planning stage will inform resilience and adaptation priorities and guide decisions in the next step. The methodology for assessing climate risks is described in detail in the Umbrella Toolkit (Modules 1.2 and 2.1). The underlying assumption is that PROCESS the risk of an infrastructure or a component may be defined as a combination of the potential impact of a threat/event and its likelihood of occurrence according to the fundamental risk equation: RISK = [HAZARD INTENSITY x LIKELIHOOD] x IMPACT The process begins with the identification of the climate threats (hazards) that may affect the project. Then, the intensity and likelihood of the identified threats are considered for a qualitative hazard evaluation on a scale from low to high. This is performed for different climatic futures (representing different climate projections). Next, the impacts of each hazard are assessed in a similar manner. Finally, the risk is estimated as the product of hazard and impact. The process is assisted by four tools (Tool 2.1 – Tool 2.4). TOOLS TOOL 2.1 Mapping climate threats considering future projections TOOL 2.2 Assessment of impact on major asset categories TOOL 2.3 Assessment of climate risks TOOL 2.4 Evaluation of climate-change-induced externalities and impacts Module 2 – Step 1 33 ▪ A qualitative risk matrix per hazard indicating the risk of physical damage and operational disruption of the hydropower project OUTPUT ▪ A prioritization/ranking of the most significant risks that will be passed on to Steps 2 and 3 TOOL 2.1 MAPPING CLIMATE THREATS CONSIDERING FUTURE PROJECTIONS TOOL 2.1 Mapping climate threats considering future projections This tool defines a threat as any climate-related circumstance, action, or event that might trigger the potential vulnerabilities of the project. Vulnerabilities would include the susceptibility or inability of the infrastructure assets to cope with climate variability and extremes, with the potential of adversely impacting infrastructure serviceability. Such a threat can be: ▪ An individual extreme event (acute hazard) that may damage or reduce the functionality of the infrastructure asset (e.g., a severe flood that may cause physical damage to the dam structure). ▪ A chronic change in a climate stressor impacting the energy production of the plant. For example, an increase in the duration or intensity of droughts which may aggravate fire risk. ▪ A combination of stressors (e.g., an increase in peak annual precipitation with a concurrent decrease in average annual precipitation, which may affect water uses and impact the energy generation capacity of the plant). ▪ A multiplier of a climate stressor to an already recognized external risk of the system (e.g., changing demographics associated with climate-change projections). This type of threat is separately covered in Tool 2.4. This tool assists users in identifying and mapping the climate stressors or hazards to which a hydropower facility may be exposed throughout its life cycle. The tool provides guidance on how to screen potential hazards, qualitatively assess their intensity, and estimate the likelihood of their occurrence. Preliminary hazard screening may be facilitated by the results of a global survey of the impact of climate change on existing and planned hydropower projects, as reported by Wasti et al. (2022) 7 and summarized in Box 2.1. INPUT 1 Decide on the timeframe of the assessment The minimum timeframe for assessing climate hazards will be the PPP life cycle. However, the government may wish to extend the timeframe of the study given 7 Wasti, A., P. Ray, S. Wi, C. Folch, M. Ubierna, and P. Karki.2022. “Climate change and the hydropower sector: A global review.” WIREs Climate Change 13(2), 1–29. Module 2 – Step 1 34 that the life cycle of the infrastructure may be longer than the duration of the PPP contract (e.g., infrastructure design life). 2 Identify the climate-related hazards that can affect hydropower development. A generic list of hazards/climate stressors affecting hydropower projects is provided in Table 2.1. All hazards/stressors are classified into four variables— temperature, precipitation, sea-level rise, and wind—that can be retrieved from climate models. Due to climate change, these climate variables change at a global and regional scale, affecting chronic and acute weather patterns. In addition to the information provided in Box 2.1, country- and region-specific climate-related hazards can be found in the following (indicative) sources: ▪ Climate Change Knowledge Portal (World Bank Group) ▪ Think Hazard! (Global Facility for Disaster Reduction and Recovery (GFDRR) - World Bank Group) ▪ Climate links (United States Agency for International Development (USAID)) ▪ The Global Risk Data Platform (GRDP) ▪ Global Assessment Report on Disaster Risk Reduction ▪ Forty-Eighth Session of the Intergovernmental Panel on Climate Change (IPCC-48) 3 Leverage local knowledge and experience to confirm/revise hazard findings This may include already available regional impact maps and previous hazard studies. Past experience in the area can also provide a foundation for identifying the most frequently encountered weather events or characterizing high-risk regions (e.g., recent glacial lake outburst floods). Advice on regional risks may also be sought from local contractors or district engineers. 4 Use the scoring system provided in the graphic below to estimate the current hazard level as a function of the intensity (and duration) of the hazard and its likelihood of occurrence (or frequency of the event). Gradually evolving hazards or chronic stressors (e.g., changes in annual precipitation/temperature), can be scored as “low” if the rate of change with respect to today’s values is predicted to be minor during the timeframe of the assessment. If a long-term but notable change is expected, the hazard is scored as “medium.” If the change is significant and/or the time-horizon of the projected change is short (i.e., in the case of a rapidly evolving phenomenon), the hazard is scored as “high.” 5 Understand the future trend of hazards due to climate change and uncertainty (i.e., increasing, decreasing or stable) Observe the global and (if available) the regional future projections of the corresponding controlling variable (as listed in the second column of Table 2.1) and make reasonable estimates about the future trend of the hazard under Module 2 – Step 1 35 consideration. For example, if the project region is showing an increasing trend in average precipitation (and if no other data are available), it is reasonable to anticipate an increase in extreme rainfall and flood events. It is generally considered good practice to use different climatic projections representing different Representative Concentration Pathways (RCP) scenarios (see the following note). Country-level information on future climate trends may be retrieved from the Climate Change Knowledge Portal (World Bank Group). Additional resources, providing downloadable datasets of projected precipitation and temperature, are freely available through online platforms, such as the KNMI Climate Explorer of the World Meteorological Organization, and the WorldClim portal. Assess the future hazard level by combining the current hazard intensity and the 7 future trend For example: for a “medium” current hazard level with an “increasing” trend, the future hazard level will be set equal to “high.” Screen climate predictions and estimate how much the likelihood and intensity 8 of climate stressors will change in the future Users are advised to focus on primary climate stressors and de-prioritize stressors that have subordinate impacts on the project’s performance. 6 Use the scoring system provided below to assess climate stressor variability based on the rate of anticipated change of the primary stressor. OUTPUT The result of the above process will be a preliminary profile of climate hazards affecting the project. Such hazard data need to be reported in order to be used as an input in the subsequent risk estimates. Module 2 – Step 1 36 IMPORTANT NOTE Future Climate Projections RCPs and SSPs It is common practice to project future climate conditions based on the Representative Concentration Pathways (RCPs), to represent different trajectories of radiative forcing levels over time. Out of the four RCP scenarios, RCP 8.5 represents the highest emissions scenario, whereas RCP 2.6 represents the lowest emissions scenario. RCP 2.6 should be generally avoided when making projections because it is overly optimistic compared to recent emissions trends. In 2016, the Shared Socioeconomic Pathways (SSPs) were introduced as an update and a substantial expansion over the RCPs. Available through Phase 6 of the Coupled Model Intercomparison Project (CMIP6), the SSP framework contains a total of eight different multi-model climate trajectories based on alternative/plausible scenarios of future emissions and land-use changes by which society and ecosystems will evolve in the 21st century. Global scale predictions of climate parameters for different SSPs are available in the WorldClim database. BOX 2.1 GLOBAL MAPPING OF CLIMATE CHANGE IMPACTS ON HYDROPOWER Figure B2.1.1 summarizes the results of a global survey on the effect of climate change on hydropower. Symbols are used to illustrate the category of the hazard, considering glacier melt, early snowmelt, extreme precipitation, streamflow, flooding, drought, and glacier lake outburst floods. The direction of the arrows (up/down) indicates the rising/decreasing trend in the magnitude and frequency of the associated weather phenomenon. FIGURE B2.1.1 Dominant climate-change-originated hazards for global hydropower projects considering historical observations and near-future projections from the Coupled Model Intercomparison Project Phase 5 (CMIP5). Source: “Climate change and the hydropower sector: A global review.” Module 2 – Step 1 37 TABLE 2.1 Climate change threats and their potential impacts on hydropower plants Controlling Climate Threats Impacts on Hydropower Plants Variable CHRONIC STRESSORS (affected by climate change) Changes in annual Precipitation • Variations in precipitation modify the hydrological precipitation regime, leading to streamflow variations that patterns unavoidably affect the availability and durability of water and, thereby, the energy generation capacity. • Reduced precipitation leads to more intense and longer periods of drought, causing water scarcity and increased competition between different sectors over the deployment of water resources. Such competition may lead to reduction of the water used for energy generation as well as to conflict with local communities and stakeholders. • On the other hand, increased precipitation is associated with higher risk of failure due to flooding (excess hydraulic actions), and may lead to increased scouring and erosion of earthworks and foundations, undermining the stability of infrastructure supported on erodible soils. Furthermore, increased debris flows are expected due to the increased streamflow, which can obstruct the operation of the spillways because of partial or total blockages and amplify sedimentation rates (impacting reservoir serviceability and lifetime). • Either way, climate-change-induced variations in precipitation reduce the predictability of the hydrologic and hydromechanical models employed for the design and assessment of the infrastructure, threatening the safety and operability of certain critical components (e.g., spillways, turbines). Changes in mean Temperature Warming can adversely impact hydropower generation temperature through several interrelated climate phenomena: • In addition to aggravating droughts and the associated water scarcity (discussed above), it leads to increased risk of fire. • The associated vegetation loss can impact the plant infrastructure either directly, through debris flows and accumulation of organic matter in the reservoir, or indirectly, due to the increased surface run-off leading to more frequent and intense flooding during rainfall events. • In high-altitude mountainous regions, additional adverse effects must be considered, discussed in the following in more detail: degradation of permafrost, reduction of seasonal snow storage, and avalanche risk. Degradation of Temperature • Glacier degradation leads to increased streamflow and, permanent glacier thus, an opportunity for increased energy production in and ice storage the short term, but it may reduce streamflow in the long term. Module 2 – Step 1 38 Controlling Climate Threats Impacts on Hydropower Plants Variable • It is also a multiplier of flood risk and a hazard for hydropower infrastructure, which may be impacted by flowing masses of ice and catastrophic avalanches. Reduction in Temperature • Reduced snow storage may occur due to warming of seasonal snow winters, i.e., shift of minimum temperatures and storage shortening of cold days. It affects the hydrologic regime of rivers and likely reduces the stream flows during springs and summers. • The impact may be severe for RoR projects and projects with relatively small reservoir capacities. ACUTE HAZARDS (affected by climate change) Floods caused by Precipitation • Floods of extreme magnitude may exhaust the design extreme rainfall capacity of the infrastructure to accommodate hydraulic loads, causing dam overtopping, followed by erosion and/or scour. • Overtopping is an important failure mode for most dams, in particular for embankment dams where it may result in catastrophic collapses. • Furthermore, erosion and scour lead to differential displacements of foundations and embankments, causing significant damage to the supported infrastructure. • Extreme floods also threaten the energy generation potential of a plant, in addition to its safety, due to the release of water that usually takes place at the beginning of a flood (lowering of the reservoir water table). Inadequate reservoir management strategies or misprediction of incoming flows may result in misuse of the available storage. Glacial lake Temperature • Warming causes degradation of glaciers, often followed outbursts by development of new glacial lakes or enlargement of existing ones. These are precarious formations held in place by debris blockages or unstable barriers (moraines). Abrupt failure of the latter can cause destructive dam-break floods involving excessive discharges of water and torrential flows. The impact can be harsh for any type of infrastructure located downstream. Landslides Precipitation • Landslides are geohazards that are often driven by excess precipitation. As pore pressures accumulate in the masses of sloping grounds, they reduce the capacity of soil or rock to resist the movement/sliding of precariously standing masses. • Failures may be abrupt and lead to the detachment of vast amounts of soil/rock. These movements have the capacity to carry away any type of infrastructure (roads, Module 2 – Step 1 39 Controlling Climate Threats Impacts on Hydropower Plants Variable pipelines, foundations) that may be partially or fully embedded in them, causing significant failures. • Landslides can cause overtopping or dam breakage if the failure mechanism occurs in the vicinity of a dam or if the detached masses end up in the reservoir. Avalanches Temperature • Similar to landslides, avalanches can impact infrastructure and reservoirs existing in their vicinity. • Warming air temperatures are a driver of avalanche risk due to their impact on the quality and bearing resistance of snow. Fires Temperature • Fires cause physical damage to the power facilities and the equipment of transmission and distribution lines. Wildfires may significantly alter the land cover in the catchment, resulting in increased erosion and sedimentation rates. TOOL 2.2 ASSESSMENT OF IMPACT ON MAJOR ASSET CATEGORIES TOOL 2.2 Assessment of impact on major asset categories The tool may be used to assess the impact of expected variations in the climatic stressors (as identified using Tool 2.1) on the hydropower project. In this assessment, the user should consider the impact in terms of ▪ Infrastructure safety: assess the potential of physical damage to a component of the infrastructure which can result in reduced capacity, in comparison to design, or failure (e.g., deformations due to overtopping). ▪ Serviceability loss: assess the potential of hindered access or blocked use of critical infrastructure components (e.g., spillways blocked by debris). ▪ Energy generation: assess the potential of reduced availability or misuse of the water resource leading to decreased energy production or missed opportunities for higher energy production. INPUT 1 Define the ways that the hydropower facility can be impacted by climate stressors Use the information provided in Table 2.1 to identify possible impacts for each one of the hazards identified in Tool 2.1. Module 2 – Step 1 40 Shortlist the most relevant impacts according to the regional setting and the characteristics of the project, complementing the list with any additional, case-specific vulnerabilities. The size of the hydropower facility will also have a direct impact on the extent of analysis required. Whenever possible, highlight critically vulnerable elements (i.e., impacted components/processes that are essential for the operation of the facility) as key points for consideration during the development of adaptation strategies (Tool 2.5). 2 Assess the potential losses associated with negative impacts. Assessments should include: • Number of days per year that the facility is out of service or is underperforming (e.g., due to reduced streamflow or damage to critical asset components). • Expected reduction in power generation (e.g., an x% reduction of annual precipitation will result in a y% reduction in power generation capacity). • Indicative cost of repairs, maintenance, and replacing damaged components (e.g., increased cost due to more frequent need for sediment removal actions). Appraise impact severity 3 Use the qualitative scale provided in the graphic below to characterize the criticality of each potential impact on the operability and energy generation capacity of the facility. OUTPUT A comprehensive list of potential climate stressor impacts on the project and its assets, to be input in the subsequent climate risk assessment (Tool 2.3). Module 2 – Step 1 41 TOOL 2.3 ASSESSMENT OF CLIMATE RISKS TOOL 2.3 Assessment of climate risks Following the definitions provided in the Umbrella Toolkit (Modules 1.2 and 2.1), internal climate risks originate from hazards/stressors that directly affect the project; such internal risks describe the likelihood of a project experiencing an impact of a given severity. In preliminary climate assessments, the term “likelihood” is schematically used to encapsulate two factors: ▪ The frequency of the climate event (i.e., how often is the facility expected to experience such impacts). This parameter is primarily a function of the intensity of the event, so that the stronger the event, the lower the frequency. ▪ The uncertainty of the evolution of climatic factors. This tool may be used for a qualitative assessment of internal climate-induced risks for hydropower projects. It may be combined with Tool 2.4, which estimates external risks (i.e., indirect impacts due to hazards affecting the project’s socioeconomic environment) for an appraisal of the total (internal and external) climate risk. INPUT 1 Assign likelihoods to hazards/stressors potentially affecting the project. For acute hazards: As a rule of thumb, set likelihood equal to “low” for events that take place once or twice in the life cycle of the project (e.g., a flood that may induce overtopping, if overtopping has been allowed for in the design of the dam), and “high” for events recurring in one to five years. For chronic stressors: For conservative estimates, consider setting likelihood equal to “high” for all climate projections. Alternatively, set likelihood equal to “low-medium” for climate projections made under the RCP 8.5, and assign “high” likelihood to climate projections that are consistent with RCP 4.5 or 6.0. Note: Before setting probabilities to RCPs, it is recommended users consult national adaptation documents to guarantee compliance with the prescribed risk assessment framework. 2 Calculate the climate risk level of each hazard/stressor as a product of hazard (input from Tool 2.1), likelihood (as determined in the previous step), and impact (input from Tool 2.3): [HAZARD x LIKELIHOOD] x IMPACT Module 2 – Step 1 42 For a qualitative assessment, use the color-coded, two-dimensional matrix provided below. First, combine HAZARD/STRESSOR with LIKELIHOOD to assess the THREAT. Then, combine THREAT with IMPACT to deduce the RISK level. Low Medium High Low LOW LOW MEDIUM Medium LOW MEDIUM HIGH High MEDIUM HIGH HIGH In the first iteration, read the hazard severity in the first column (vertical direction of the matrix) and combine it with the likelihood level in the first row of the table (horizontal direction of the matrix). In the second iteration, the threat scales vertically, and the impact scales horizontally. Example calculation: [low x medium] x high = low x high = medium 3 Build the risk matrix of the project combining risks stemming from all potential threats and considering climate scenarios. 4 Describe consequences and, where possible, provide cost estimates for the level of operational disruption. As displayed in the graph below low climate risks are associated with minimal disruptions to the facility and the broader community, whereas high climate risks may cause service unavailability for several days and significant revenue loss (that can be catastrophic for the investment). In extreme cases, a prolonged water crisis can create social outrage and distrust. Module 2 – Step 1 43 OUTPUT A systematic description of all potential climate risks affecting the hydropower project and associated rough cost estimates. TOOL 2.4 EVALUATION OF CLIMATE-CHANGE-INDUCED EXTERNALITIES AND IMPACTS TOOL 2.4 Evaluation of climate-change-induced externalities and impacts External risks originate from hazards/stressors affecting either the infrastructure of the hydropower plant or its broader socioeconomic system, thus indirectly impacting the project’s operations and energy generation capacity. As external risks are beyond the control of the project, it is important to identify them early in the project selection process, estimate the severity of their impacts, and plan for contingencies when possible. It may be advisable to restructure or even abandon projects that experience high external risks which cannot be mitigated. INPUT This tool may be used to perform a preliminary screening of the broader socioeconomic impacts of climate change and their interactions with the project underway. 1 Identify external risks that are pertinent to the regional setting of the project. A list of commonly encountered climate-induced external risks impacting hydropower projects is provided in Table 2.2. The listing is indicative, describing conditions that may introduce positive or negative externalities to the project due to climate change. The user is encouraged to customize the list as appropriate to make it relevant to the project specifics. Score the “external risk level” as “low,” “medium,” or “high” (specifying risk sources that are particular to the project under consideration) and add the results to the climate risk matrix of the project (output of Tool 2.3). Module 2 – Step 1 44 For each externality, estimate potential losses (or gains) and think of ways to 3 remediate their negative consequences. Although in principle external risks lie outside the responsibility of the facility owner, unmitigated risks can negatively impact investor appetite and the bankability of the project. Users should make sure due diligence is practiced when assessing the climate externalities of the project. Note: Mitigation of external risks is rarely solved through better (or more expensive) adaptation plans. It commonly requires the structuring of adequate risk allocation clauses that specifically describe the responsibility boundaries of the facility owner and provide for the compensation/negotiation mechanics to manage losses. External risk mitigation may also require the addition of contractual provisions that specify strategies/plans to be implemented in parallel with the hydropower project to reduce its vulnerability to external factors. This requires coordination with the local stakeholders and adaptation to the local context. Module 2 – Step 1 45 TABLE 2.2 External climate-induced risks and consequences for hydropower projects External Factors that Can Be Example Consequences Impacted by Climate Change for Hydropower Projects Land use/land cover (LULC) LULC changes can be very consequential for hydropower changes, whereby a specific area of projects, affecting them in multiple ways. The most land is converted from one significant are related to: use/cover to another • Considerable changes in land use, especially if associated with increasing water demands for irrigation, can increase competition for water use, resulting in policy-enforced limitations that can affect the energy generation capacity of the project. • Changes in the amount of water infiltration across the catchment and hence the surface runoff contribution to the stream flow, which is directly related to the energy generation capacity of the project. • If significant, streamflow changes can have an important effect on flood risk. • Increased erodibility of lands at the periphery of the reservoir causes a greater amount of sedimentation, which diminishes a reservoir’s lifetime. • The sediment and vegetation content of the inflow affects the degree of GHG emissions produced by the reservoir. Demographic changes to the Demographic changes may affect the project through: human population and population • Changes in energy demand and prices. segments. These may refer to • Changes in water demand and competing uses. population distribution, age, marital status, occupation, income, education level, and other statistical measures that may influence the project. Geomorphological and Wildfires may pose a significant threat to a project’s environmental changes: Climate- operation due to its dependency on power lines. related hazards may affect the Furthermore, wildfires occurring in a reservoir’s catchment surrounding environment, have a very detrimental impact on sedimentation levels morphology and/or surrounding and increase long-term GHG emissions. infrastructure and, consequently, affect the operation and even the exposure and vulnerability of the project. Module 2 – Step 1 46 External Factors that Can Be Example Consequences Impacted by Climate Change for Hydropower Projects Associated infrastructure: Climate- Thawing of permafrost ground (due to warming change-induced hazards (e.g., environmental conditions) can cause large-scale permafrost thawing, landslides, settlements along roads that connect the plant to the mudflows, erosion, and scour) may surrounding communities and external resources. disrupt the operation of associated Rainfall-induced slope deformations may cause failures of infrastructure systems. transmission lines leading to long operational disruptions. Damages to buildings can be disastrous for the safety of the staff and the local community. Particular attention must be paid to enhancing the safety and sustainability of resettlement houses and host communities. Technological changes: Invention Technological advancements may provide opportunities and practice of new technologies for the project to adopt innovative techniques which may and innovative fields that may be enhance the project’s resilience and its potential to operate impactful for the development and as a means for adaptation to climate change impacts. operation of hydropower projects. Such an example is the incorporation of monitoring and early warning systems that can be installed along the river. In addition to monitoring floods, such systems can be useful for accurate monitoring of environmental flows and water uses. Policy and regulation changes: Government policy changes, and national or regional Evolution of national and actions protecting the use of water in the catchment of worldwide guidelines and interest can have major implications for the project’s regulations on sustainability and viability. climate change. OUTPUT A ranked list of climate externalities for the project, including a description of consequences and possible remediation measures. Module 2 – Step 2 47 Step 2 Screen Possible Adaptation Strategies To Reduce Step 2 Risks Climate Screen Possible Adaptation Strategies To Reduce Climate Risks To identify adaptation measures and compose alternative strategies that build climate resilience into the hydropower project by reducing SCOPE the project-specific climate risks while maximizing the positive socio- environmental impact of the project. If deemed necessary, the climate adaptation strategies determined here may be combined with climate mitigation measures, as detailed in Module 3 (Tool 3.2), to form a long- term climate plan for the hydropower project. The process starts with a detailed mapping of all possible adaptation solutions relevant to the project's climate risks (Tool 2.3). Users are then PROCESS asked to build alternative adaptation strategies combining different adaptation measures. The alternative strategies may differ in terms of capital costs and may offer different protections within the multi-hazard environment of the project. Finally, a pre-selection of the preferred adaption strategies will be performed in Step 3 using a multi-criteria decision framework. TOOLS TOOL 2.5 High-level screening of climate adaptation strategies A list of possible adaptation strategies for further consideration (in Step 3) OUTPUT Module 2 – Step 2 48 TOOL 2.5 HIGH-LEVEL SCREENING OF CLIMATE ADAPTATION STRATEGIES TOOL 2.5 High-level screening of climate adaptation strategies This tool will guide users through the process of identifying effective climate adaptation strategies that are proportionate to the level of anticipated climate risk. The user is encouraged to become familiar with the concepts of adaptive planning and the relevant existing methodologies, namely adaptive policy making, adaptation pathways, and dynamic policy pathways, as described in the Umbrella Toolkit. Adaptation strategies are grouped into four categories: ▪ Changes in the planning of the project, including changes in the location or changes in the installed capacity. For example, the agency may wish to consider expanding the intended capacity of the plant to benefit from the projected higher potential for power generation or to consider integrating a potential expansion in the planning process for the future. ▪ Changes in the design through hard-engineering solutions (i.e., structural interventions) aiming at increasing the robustness of the design against identified climate risks (e.g., alter the dam height, type and/or construction material; make allowances for overtopping; modify turbine types/sizes; reinforce banks with anti-erosion protections). ▪ Green engineering solutions aiming to protect the hydropower project and safeguard its operational efficiency without building structural interventions and usually at a significantly lower cost. Such solutions typically simultaneously serve the purpose of climate mitigation and may also offer biodiversity benefits. In this category, we may find nature-based solutions (NbS) that work with natural processes to reduce risks (e.g., the use of vegetation for landslide protection and/or on-site soil stabilization, as discussed in Box 2.2). ▪ Smart operation solutions aiming at optimizing the operational costs, maintenance, and risk management strategies at the project scale or, preferably, at a regional scale. This can be accomplished through the installation of a monitoring system (including weather recording stations and instrumentation of rivers and streams to measure discharges and environmental flows) and the development of a customized decision-support platform to optimize water uses/releases, turbine operation, emergency flooding protocols, etc. INPUT 1 Select adaptation measures. Identify threats that, based on the preceding analysis, introduce medium to high risk to the project. For each considerable threat, identify applicable mitigation actions based on Module 2 – Step 2 49 the catalogue of possible solutions provided in Table 2.3 as well as engineering judgment and local experience. Note that adaptation measures can be devised for both internal and external risks. 2 Build an adaptation strategy by combining different adaptation measures. Define a comfortable level of risk and combine adaptation options that can reduce the risk below this threshold. It should be noted that comprehensive adaptation strategies usually involve combinations of more than one intervention, including planning, operational, and (hard/green) engineering solutions. It is likely that different strategies may be appropriate to adapt to different intensities of threats. For example, a certain operational strategy coupled with NbS may be enough to safeguard operation against flooding of medium intensity, but hard-engineering solutions may be required if an event of greater severity is to be expected. Nevertheless, it is recommended to prioritize practices that have been successfully applied in a project of similar scale (in similar regional settings). 3 Conceptualize alternative adaptation strategies. Review adaptation strategies and, where possible, generate alternatives that generate co-benefits (e.g., by also reducing the project’s carbon footprint). It is generally considered good practice to come up with more than one strategy to be further evaluated in Step 3 (Tool 2.6). 4 Provide rough cost estimates for each adaptation strategy. Cost estimates should aggregate the capital expenditure required for the implementation of the strategy and the cost of residual risk projected over the lifetime of the facility. Benefits should describe the reduced maintenance/operational cost of the facility after the implementation of the strategy (projected over the facility's lifetime). Where possible, apply benchmarking to validate cost estimates. When benchmarking does not work (e.g., when historic market data are not enough), apply small-scale market testing to corroborate cost estimates. 5 Repeat the process for other climate hazards to come up with a complete strategy for the project (or the project alternatives). OUTPUT A list of alternative adaptation strategies to be analyzed in the following step (Tool 2.6). Module 2 – Step 2 50 TABLE 2.3 Example climate adaptation measures for hydropower projects Climate Threats Impacts Adaptation Measures Increase in • Increased peak river • Consider future flood risk maps in the streamflow discharges and water heights design. Apply stringent design discharges (due to • Increased risk of overtopping, considerations for critical assets, especially variations in which may destabilize the dams and spillways. infrastructure • Build flood defenses upstream of the plant precipitation or ice • Increased hydraulic and to minimize the intensity of flood impacts storage) hydrodynamic impacts acting (flow velocity) on the infrastructure. on the plant equipment • Enhance the flood protection of the • Increased erosion rates and powerhouse to avoid shortages during scouring of foundations flooding. • Increased landslide risk • Design the dam to sustain overtopping impacts during extreme flooding. • Make provisions for increased reservoir storage in the future. • Plan for additional space to facilitate future installation of turbines/generators. • In the case of existing dams: increase height and/or relocate the spillways and, if deemed necessary, increase their capacity. • Monitor foundation scouring of critical structural components, including transmission towers. • Design fish passages and environmental flow capacity for varying discharge rates and water heights. Decrease in • More intense and longer • Prepare drought contingency plans and streamflow periods of drought include relevant provisions in the contract discharges (due to • Water scarcity and increased documentation of the PPP. variations in competition between • Engage with local communities and other different sectors over the use stakeholders and establish an inclusive, precipitation or ice of the water resource participatory method for decision-making storage) • Reduction of generated regarding water use. energy • Monitor the impact of the agreement terms and assess/renegotiate on a regular basis. Erosion and • Reduced water storage • Employ sediment monitoring and sedimentation capacity, energy generation management operations. potential, and lifetime of the • Update the flushing plan accordingly. project • Implement anti-erosion protection • Increased operational costs measures in the catchment. for debris removal works • Use barriers upstream of the plant, along • Failures of equipment due to river margins, to minimize the ingress of impact with floating debris debris. • Monitor the possible deterioration of land cover in the catchment, and preserve or restore vegetated land covers to manage stormwater runoff and reduce soil erosion. Module 2 – Step 2 51 Climate Threats Impacts Adaptation Measures Warming • Increased risk of fire • Develop fire models and set provisions for temperatures • Glacier degradation hazards fire management plans (e.g., controlled (impacts, outbursts) burning). • Avalanches • Monitor the condition of glaciers and implement mitigation measures (e.g., controlled breaching, pumping of water) in cases of high risk. • Snow-pack observation and active/passive avalanche risk mitigation (e.g., protection barriers, controlled explosions, etc.) Landslides • Failure of infrastructure due to • Carry out a comprehensive geotechnical detachment or interaction investigation to evaluate landslide risk. with moving soil masses • Monitor movements of precarious slopes. • Overtopping • Implement slope stabilization measures • Increased sedimentation where necessary. Considerable uses in • Changes in water uses • Prepare contingency plans and include the region’s LULC/ • Changes in risk estimates relevant provisions in the contract demographic (flooding, sedimentation, documentation of the PPP. changes drought) • Include relevant provisions in the agreement with local stakeholders. • Diversify options in energy supply plans. Policy and regulation • Changes in water uses • Prepare contingency plans and include changes • Changes in energy generation relevant provisions in the contract capacity documentation of the PPP. • Increase in costs Module 2 – Step 2 52 BOX 2.2 VEGETATION CAN REDUCE RISK OF SLOPE FAILURES AND SOIL EROSION In the context of climate change, landslide risk management faces the challenges of varying rainfall duration and intensity, often causing slope stabilization issues and increased soil erosion. In recent years, there has been an increasing focus on the use of NbS for eco-friendly landslide risk management and control of the run-off mechanisms that lead to erosion. Vegetation (Photo 2.2.1 2.5) has become a popular method in areas where ground instability is concentrated on the surface layers of the ground (shallow mechanism). The stabilizing effect of vegetation is thanks to the plant roots acting as soil reinforcement that binds soil layers together and increases the confinement of loose soil masses. What is more, plants provide a partial relief against excessive water pressures, which constitute a common failure factor. Nevertheless, research findings8 point out that the effect of vegetation can be detrimental if involving tall trees subjected to lateral loading due to high wind speeds (storm surges). It is recommended that the effect of vegetation as a climate adaptation measure be investigated and quantified by use of numerical modelling (expert geotechnical analysis) that can capture the physical, mechanical, and hydraulic properties of the soil and soil-root interaction. PHOTO 2.2.1 Shrubs and other vegetation can provide slope stabilization and anti-erosion protection Source: World Bank. 2018. “Can Nature Help Us Manage Risk in a Time of Growing Climate Extremes?.” 8Kondrup, C., P. Mercogliano, F. Bosello, and J. Mysiak. 2022. Climate Adaptation Modelling . https://link.springer.com/10.1007/978-3-030-86211-4. Module 2 – Step 3 53 Step Step33Integrate Climate Risks Into The Planning Of Hydropower Projects Integrate Climate Risks Into The Planning Of Hydropower Projects To describe a multi-criteria analytical framework that will support users incorporating climate decisions into the planning of hydropower projects. SCOPE Once the user has completed the previous steps of this toolkit, there will be a dizzying array of data/requirements that need to be mainstreamed PROCESS into strategic decisions. Comparing alternative installations with respect to their power generation potential, cost of energy, and efficiency is just one side of the coin. On the other side, there are climate-related risks, vulnerabilities, and opportunities that can also influence planning decisions. Balancing competing objectives requires a multi-criteria approach that can best work within a participatory decision-making environment. The methodological framework of such an approach—called a multi-criteria decision-making framework—is described in Tool 2.6. The process starts with the selection of important variables, the establishment of a stakeholder council, and the definition of objectives. Following a scoring and weighting procedure, the preferred strategy is derived, which will be subsequently forwarded for a preliminary economic analysis (conducted in Module 3). TOOLS TOOL 2.6 Multi-criteria decision-making framework A climate-informed planning decision for a new hydropower project OUTPUT Module 2 – Step 3 54 TOOL 2.6 A MULTI-CRITERIA DECISION-MAKING (MCDM) METHOD TOOL 2.6 A multi-criteria decision-making (MCDM) method The MCDM method offers a scientifically sound decision framework, which can provide a comprehensive and transparent basis for any kind of assessment, including decisions on the planning of new hydropower projects. In the context of this guide, the MCDM method aims to assist users in planning for projects that, in addition to other objectives, are: ▪ Climate resilient (i.e., can sustain extreme climate hazards with minimal disruption). ▪ Climate insensitive (i.e., are minimally impacted by the variability of climate stressors). Users are referred to the Umbrella Toolkit (Module 2.1) for insights on how climate decisions may benefit from empirically based multi-criteria analysis (and other equivalent approaches). It must be acknowledged that MCDM-based methods rely on empirical, linear correlations. They do not model the actual physical processes. Although they can be very efficient in analyzing complex problems, they are prone to erroneous judgment. Therefore, it is recommended to carry out a validation of the MCDM framework against a known problem (e.g., another hydropower energy project in a similar environment, preferably in the same country). INPUT This tool describes the general framework for conducting an MCDM analysis to assist the preliminary planning decisions of a hydropower project (see example in Box 2.3). Depending on the input parameters and the specific objectives of the assessment, the MCDM can support any other type of decision, from risk assessments (where the aim is to minimize the climate-induced impacts) to operational decisions of power plants. Instances of MCDM may also vary in complexity, from purely qualitative formulations to mathematical formulations using fuzzy-logic theories for optimization. 1 Define the objective of the decision-making (i.e., the assessed variable), e.g., identification of optimum project location, identification of optimum hydropower scheme, estimation of climate risk. 2 Engage a council of experts (e.g., hydrologists, environmental scientists, dam engineers, community engagement experts) that will provide elicitation regarding the effect of different parameters on the output of the decision-making process. In preliminary assessments, elicitation is based on empirical evidence and involves qualitative comparison among parameters of relative importance (described below). Module 2 – Step 3 55 3 Collect input parameters (as traditionally done) Input variables should describe the general project set-up and reflect the dependence of the project’s energy potential on local environmental factors and constraints. Users are referred to IHA’s Hydropower Sector Climate Resilience Guide for a preliminary screening of key input parameters. Typical parameters to be considered: • Hydropower generation potential (e.g., precipitation, catchment hydrology, boundaries, fluctuation of stream discharges). • Geomorphology (e.g., topography, known geohazards and landslide zones, altitude, ice/snow cover seasonal variations). • Energy demand (e.g., demographic data, socioeconomic factors, national/regional policies). • Water and land uses (e.g., competitive uses, environmental factors, areas of conservation). • Operational factors (e.g., availability of road network, transmission lines). • Technical design parameters (e.g., hydropower scheme, reservoir size, power capacity). 4 Collect climate parameters affecting the power generation capacity, operations, and safety of the project. Information can be selected from the preceding tools and may involve: • Climate risks, including loss estimates (output of Tool 2.3). • Climate adaptation strategies and associated capital cost (as per Tool 2.5). • Benefits from undertaking a specific climate adaptation strategy (e.g., loss reduction, reduction of operational/maintenance cost, and broader socioeconomic benefits). 5 Ranking, classification, and rating of criteria Ask the council of experts to rank the criteria based on their importance in influencing the assessed variable. Ranking (i.e., weighting) of the criteria can be achieved through a pair-wise comparison of relative importance. Several approaches of varying sophistication can be employed at this step,9 however, the analytical hierarchy process (AHP) is the most widely adopted and easiest to navigate. It relies upon the construction of a paired comparison matrix, where the relative importance of one parameter in comparison to another is evaluated on a scale of 1 to 5. Synthesis 9See a detailed review written for water sector practitioners in: Bertule, M., L.R. Appelquist, J. Spensley, S.L.M. Trærup, and P. Naswa. 2018. Climate change adaptation technologies for water: A practitioner’s guide to adaptation technologies for increased water sector resilience. UNEP DTU Partnership. Module 2 – Step 3 56 of experts’ responses in one AHP matrix results in the identification of a weighting factor for each criterion. 6 Synthesis of criteria and consistency checks Perform a weighted linear combination of the criteria to produce a qualitative map of the assessed variable. Calculate the consistency index10 and make sure it is lower than a predetermined threshold (e.g., 10 percent). The winning solution is the solution that receives the higher score on the assessed variable. Users may also wish to repeat the process by changing the objective of the assessment to acquire a more holistic overview of the pros and cons of the different solutions. OUTPUT A decision for a new hydropower project that meets climate objectives and achieves stakeholders’ consensus. BOX 2.3 EXAMPLE OF MCDM ANALYSIS USED FOR PIORITIZATION OF HYDROPOWER DEVELOPMENT SITES IN THAILAND Researchers11 employed MCDM analysis to assist policy making for hydropower development in the Ping River Basin (Figure B2.3.1) in Thailand. Focusing on potential projects with electric power potential greater than 100 kilowatts (kW), they developed a set of criteria and sub-criteria, as summarized in Figure B2.3.1 and in the table below, to comparatively evaluate a total of 64 potential sites in the Ping River basin. Criteria weights for the purpose of the MCDM analysis were discussed and assigned by expert groups assembled to identify the controlling parameters and discuss their influence on hydropower development, considering the local contexts. A set of main criteria, comprised of several sub-criteria, were identified, and evaluated as summarized in the table below. According to the experts’ opinions, in this area the primary concern is the environment (weight: 0.355), which encompasses parameters relevant to flow patterns, loss of habitat and land, riverbank deterioration, and sedimentation. The experts also considered the social component very significant (0.234), followed by the electricity generation potential (0.181), the technical feasibility (0.141), and finally, stakeholder engagement (0.089). It should be highlighted that the comparative importance of the different parameters may vary significantly from one region to another. Therefore the weighting process must be carried out in view of the specific local context. − 10 The consistency ratio is defined as = −1, where λ is the principal eigenvector of the pairwise matrix and n is the number of the considered criteria. 11 Supriyasilp, T., K. Pongput, and T. Boonyasirikul. 2009. “Hydropower development priority using MCDM method.” Energy Policy 37 (5), 1866–1875. https://doi.org/10.1016/j.enpol.2009.01.023. Module 2 – Step 3 57 Table 2.3.1. Decision criteria for the prioritization of hydropower development sites Expert Main Criteria Subcriteria Weight Electricity generation (A) (0.181) A1 Installed capacity 0.288 A2 Annual energy production 0.421 A3 Load firm supply 0.121 A4 Length of transmission line 0.170 Engineering and economics (B) B1 Technology, engineering feasibility, 0.033 (0.141) and difficulty of construction B2 Channel alignment 0.039 B3 Slope of channel 0.081 B4 Annual flow 0.062 B5 Accessibility to project site 0.039 B6 Expected development period 0.052 B7 Benefit/sharing/multipurpose 0.044 B8 Project cost 0.154 B9 Internal rate of return (IRR) 0.101 B10 Net present value (NPV) 0.080 B11 Electricity generating cost 0.315 Socioeconomics (C) (0.234) C1 Safety in area 0.499 C2 Social conflict 0.165 C3 Water resource problems 0.126 C4 Land use problems 0.084 C5 Legal obstacles 0.071 C6 Available infrastructure and services 0.055 Environment (D) (0.355) D1 Flow pattern and amount of flow 0.626 D2 Loss of habitat and land utilization 0.125 D3 Collapse of river bank 0.090 D4 Sedimentation 0.090 D5 Dust and noise during site 0.069 construction Stakeholder involvement (E) E1 Shortage in electricity 0.380 (0.089) E2 Understanding level 0.290 E3 Acceptance level 0.190 E4 Informant 0.140 Note that the numbers in brackets refer to the weights of the main criteria (primary weights). Source: Supriyasilp et al. 2009. Module 2 – Step 3 58 FIGURE B2.3.1 Location of 64 potential hydropower plant sites in the Ping River basin and summary of the criteria used in the MCDM analysis (adapted from Supriyasilp et al. 2009) Module 3 59 MODULE 3 Module 3 60 Module 3 ASSESS GHG EMISSIONS AND PLAN CLIMATE MITIGATION STRATEGIES Certain reservoir systems may be an important source of GHG emissions.12 This module intends to assist users in reliably evaluating the GHG emissions of a hydropower project in relation to its energy output and identify appropriate actions toward the climate mitigation of projects that are likely to have a high carbon footprint. The module includes two steps: Step 1 describes procedures and available online resources for conducting a life-cycle GHG emissions estimation of hydropower facilities. Step 2 identifies opportunities for GHG reductions and helps users pre-assess the benefits (reduced GHG emissions and reduced carbon pricing) of alternative mitigation strategies. 12Prairie, Y.T., J. Alm, A. Harby, S. Mercier-Blais, and R. Nahas. 2017. The GHG Reservoir Tool (G-res) User Guide: UNESCO/IHA research project on the GHG status of freshwater reservoirs . Updated version 3.0 (27-10-2021). UNESCO Chair in Global Environmental Change and the International Hydropower Association. Module 3 – Step 1 61 Step 1 Estimate the GHG footprint of the project Step 1 Estimate The GHG Footprint Of The Project This step will assist users in assessing the GHG emissions of the project (or the project alternatives) to inform decisions towards their SCOPE minimization throughout the entire life cycle of the project. The exercise can be performed to (i) compare alternative schemes and designs (e.g., reservoir-based dams usually have much higher GHG emission rates than diversion dams); (ii) compare emissions due to different construction methods and materials (in run-of-river projects, the highest portion of the project’s GHG emissions is often due to the construction process and the footprint of materials); (iii) investigate the carbon footprint of operational decisions (e.g., the impact of water retention times); and (iv) guide decisions for mitigation measures. The process follows the outline for GHG emissions accounting described in the Umbrella Toolkit (Module 2.1), starting with the estimation of the PROCESS GHG footprint before any mitigation measures are implemented (upper-bound estimate). Widely established GHG emission intensity thresholds are indicated as references for the assessment of a project’s carbon footprint. TOOLS TOOL 3.1 A procedure for the life-cycle assessment (LCA) of net GHG emissions Assessment of the project’s carbon footprint OUTPUT Module 3 – Step 1 62 TOOL 3.1 A PROCEDURE FOR THE LIFE-CYCLE ASSESSMENT (LCA) OF NET GHG EMISSIONS TOOL 3.1 A procedure for the life-cycle assessment (LCA) of net GHG emissions This tool can be used to assess the GHG emissions of the baseline project (i.e., assuming the complete absence of mitigation measures). It may then be combined with Tool 3.2 to evaluate the benefit of different mitigation strategies in terms of GHG reduction to enable their comparative assessment. Following global good practice, it is suggested to base the assessment on the estimation/measurement of net GHG emissions. In multi-purpose projects, this is an estimate of emissions that can be allocated to hydropower only. A life-cycle (LC) averaged approach is adopted for estimating both emissions and power capacity. The recommended LC duration is 100 years. Due to this timeframe, the reservoir, which under certain circumstances can be a significant source of GHG emissions, is the primary concern. This tool focuses on GHG emissions by reservoirs, assuming negligible LC emission intensities in the case of diversion plants (in agreement with guidelines and the international literature). Calculation sub-modules of this tool make reference to the use of available predictive tools endorsed by the Intergovernmental Panel on Climate Change (IPCC). These are: (i) the GHG Reservoir Tool (also known as the G-res Tool),13 developed by the United Nations Educational, Scientific and Cultural Organization (UNESCO) and IHA; and (ii) the IEA Hydro,14 a data-collection and modelling approach developed by the International Energy Agency (IEA). INPUT 1 Review GHG emissions targets for the country’s hydropower projects in the national context (e.g., NDCs) and/or in the global good practice (e.g., criteria set by the Climate Bonds Initiative15). 2 Review available tools/methodologies for the estimation of GHG emissions in hydropower projects. Tools and guidelines to be advised may include: • World Bank, 2018: “Greenhouse Gases from Reservoirs Caused by Biogeochemical Processes.” • The G-res Tool. • IEA Hydro, 2012: International Energy Agency, Hydropower Annex XII: Guidelines for Quantitative Analysis of Net GHG Emissions from Reservoirs Volumes 1 - 3. • Climate Bonds Standards, 2021: “Hydropower Criteria: Background Paper.” 13 GHG Reservoir Tool. https://g-res.hydropower.org/. 14 IEA Hydro. https://www.ieahydro.org/annex-xii-hydropower-and-the-environment. 15 Climate Bonds Initiative. “The Hydropower Criteria.” https://www.climatebonds.net/standard/hydropower. Module 3 – Step 1 63 3 Predict the GHG emissions of the reservoir following the three-step approach summarized in Figure 3.1. The first step is qualitative, intended to screen out projects that may safely be assumed to have a low carbon footprint. The main criteria for this screening are listed in Table 3.1. The second step is quantitative, employing the G-res tool for a measurable estimation of GHG emissions. A third step, using IEA’s more detailed procedure, is foreseen for cases where the assessor lacks confidence in the result of the second step. 4 Assess emission intensity. A fair assessment of GHG emissions must consider them in comparison to the amount of the produced energy in the same time frame. A well-established assessment protocol has been issued in the framework of the certification scheme developed by the Climate Bonds Initiative (CBI) and is summarized in Figure 3.2. It adopts stricter criteria for the newer hydropower projects (those beginning operation after 2020) and relies in the calculation of two indexes: • The power density (PD) is defined as the area of the reservoir divided by its power capacity. • The emission intensity (EI) is defined as the average LC GHG emissions divided by the average LC power capacity. The framework suggests that the numerator be estimated using the G-res tool. New projects are expected to demonstrate a PD > 10 Watt per square meter W/m2 and/or an EI < 100 grams of CO2 equivalent per kilowatt-hour gCO2e/kWh to be certified by the Climate Bonds Initiative (CBI.) An additional requirement is in effect for pump storage facilities, which should be able to demonstrate their role in supporting grid decarbonization (e.g., through connection to intermittent renewables). OUTPUT The net LC GHG emissions of the “do nothing” case assessed as negligible, or compliant/non-compliant with the emissions thresholds. Module 3 – Step 1 64 FIGURE 3.1 Flow-chart of the GHG emissions prediction process TABLE 3.1. Conditions allowing assumption of negligible GHG emissions in the screening process Parameter Impact on GHG Emissions Run-of-river facilities can be assumed to be low-emissions projects. Global data Type of facility indicate that they are characterized by high PD (exceeding 100 W/m2) and low EI (typically lower than 1gCO2e/kWh). Cold climate disfavors the creation of GHG emissions. By contrast, recent research data indicate that tropical reservoir-based hydropower plants can have a high Climate emission rate, potentially exceeding that of fossil fuel.16 In cold regions, facilities with PD < 20 W/m2 can be assumed to be negligible sources of GHG. Carbon stock In cases of sparse vegetation in the catchment and/or deep reservoirs, the (vegetation/ threshold PD may be, as previously, taken as equal to 20 W/m2. depth) 16Song, C., K. Gardner, S. Klein, S. Pereira Souza, and W. Mo. 2018. “Cradle-to-grave greenhouse gas emissions from dams in the United States of America.” Renewable and Sustainable Energy Reviews 90 (July): 945-956. Module 3 – Step 1 65 FIGURE 3.2 GHG emissions assessment protocol issued by the Climate Bonds standard and certification scheme, adapted from the Climate Bonds Standard * Average net LC emissions estimated using the G-Res tool. ** Pumped storage facilities must also meet one of the following criteria: (i) The facility is demonstrably purposefully built in conjunction with intermittent renewables; and/or (ii) the facility is contributing to a grid which already has a share of intermittent renewables deployment of at least 20 percent or has credible evidence of programs in place that increase the share of intermittent renewables to this level within the next 10 years; and/or (iii) the facility can credibly demonstrate that the pumped storage will not be charged with an off-peak grid intensity that is higher than the intensity of the electricity that it will displace when it is discharged. For example, demonstrating that there is no combination of the following in the merit order: (i) mid-merit coal and (ii) gas used at times of peak demand. Module 3 – Step 2 66 Step 2 Identify Mitigation Measures Step 2 Identify Mitigation Measures To identify entry points for mitigation measures and highlight their corresponding co-benefits and trade-offs. The cost-effectiveness of SCOPE alternative mitigation strategies will be assessed in Module 3, considering the overall project economics and financial plan. The output of Tool 3.2 can be used to identify entry points for possible GHG emissions reduction in hydropower projects. Reduction of PROCESS emissions can be achieved in several ways, the most effective probably being the appropriate screening of locations for the development of the reservoir, but also through the adoption of eco-friendly construction methods, the management of the catchment area, and the targeted reforestation of the surrounding lands. The effectiveness of alternative climate mitigation strategies can be assessed through iterative running of the assessment process shown in Figure 3.2. TOOLS TOOL 3.2 High-level screening of GHG reduction strategies applicable to hydropower projects ▪ Alternative climate mitigation strategies and their associated costs and benefits OUTPUT ▪ (Optional) A ranking/prioritization of the different climate mitigation strategies based on the estimated reduction in EI Module 3 – Step 2 67 TOOL 3.2 GHG REDUCTION STRATEGIES APPLICABLE TO HYDROPOWER PROJECTS TOOL 3.2 GHG reduction strategies applicable for hydropower projects The IEA documents detail strategies for the reduction of GHG emissions from hydropower reservoirs, addressing all the different stages of a project’s life: planning, design, construction, operation and maintenance, and catchment management. This tool includes a brief checklist (Figure 3.3). For more details, the user is advised to look into Volume 3 of IEA Hydro (2012). INPUT 1 Retrieve the GHG emissions reduction goals reviewed within Tool 3.1 2 Consult the Figure 3.3 checklist to identify applicable mitigation strategies. 3 Synthesize as many as possible of the strategies identified in (2) to achieve the maximum possible reduction in GHG emissions throughout the project’s LC. 4 Provide a rough estimate for the cost of climate mitigation. If necessary, advise local construction contractors and/or engineers with experience in sustainable construction. Include land acquisition and resettlement costs if the envisaged mitigation strategies have additional space requirements. 5 Assess the GHG emissions of the project after the implementation of the climate mitigation strategies using the quantitative steps of Tool 3.1. 6 Confirm that the updated estimate of GHG emissions is below the set threshold. OUTPUT Re-evaluated estimation of the project’s emission intensity and cost-effectiveness of the selected GHG emissions reduction strategies. Module 3 – Step 2 68 FIGURE 3.3 Checklist of climate mitigation strategies to reduce GHG emissions in hydropower projects Module 4 69 MODULE 4 Module 4 70 Module 4 CLIMATE CONSIDERATIONS IN ASSESSING PROJECT’S ECONOMICS AND FINANCES This module is meant to support entities’ inclusion of the previous climate considerations in their traditional economic assessments of Phase 1 “Project Identification and PPP Screening” in the PPP project cycle. To this end, this module consists of a single step that provides tools and examples for: • Identifying all climate-related costs/benefits that should be integrated with an enhanced cost- benefit analysis (CBA) (Tool 3.1). • Performing a VfM assessment to determine whether the PPP should be preferred over traditional procurement after incorporation of climate considerations (Tool 3.2). Module 4 – Step 1 71 Step 1 Check Economic Soundness Of Alternative Climate Step 1 Strategies Check Economic Soundness of Alternative Climate Strategies To compare the climate strategies identified in the previous module in terms of cost-effectiveness, affordability, and suitability for a PPP. The SCOPE output will be a project that has been successfully screened from an economic perspective and can therefore be considered suitable for proceeding to a full technical and economic appraisal. Following the screening process presented in the Umbrella Toolkit, the economic analysis is performed in stages, starting with a preliminary CBA PROCESS (Tool 4.1) to identify the project that maximizes the benefit-over-cost ratio. For best results, all important climate-related costs (e.g., additional climate capital expenditures (CAPEX), costs of disruptions caused by extreme weather events) and benefits (e.g., risk reduction benefits, protection of human settlements, and biodiversity) should be synthesized and compared after monetary evaluation. Once the project has been identified, the affordability of the project is tested in view of the budgetary limits, constraints, and other concurrent investment plans of the public authority, following the general considerations described in the Umbrella Toolkit. The final check is to assess how climate-induced risks, costs, and opportunities may affect the suitability of a project as a PPP (Tool 4.2). The project that successfully passes all tests receives the green light to proceed to the Appraisal Phase. TOOLS TOOL 4.1 Climate entry points for CBA (specific for hydropower projects) TOOL 4.2 Climate value drivers for VfM analysis Module 4 – Step 1 72 A hydropower project with climate adaptation and mitigation measures OUTPUT that can be moved forward for appraisal TOOL 4.1 CLIMATE ENTRY POINTS FOR HYDROPOWER-SPECIFIC CBA TOOL 4.1 Climate entry points for hydropower-specific CBA The tool describes entry points for climate-related CBA analysis considerations that are relevant to hydropower projects. CBA analyses are customarily conducted for different scenarios accounting for changes in the financing scheme, electric prices, and downstream power generated. Prior to applying the tool, users are advised to review methodologies for estimating the monetary value of social- environmental benefits and the CBA Primer (2017)17 and consult the Umbrella Toolkit (Modules 1.3 and 2.3), where climate-related considerations for CBA (applicable to all sectors) are described in greater detail. INPUT TABLE 4.1 Hydropower-specific climate entry points for CBA CBA Process CBA Sub-Steps* Climate Entry Point Outline* Projecting Tax adjustment • If applicable in the country, include tax incentives that promote financial data climate mitigation and adaptation actions (e.g., use of the with hydropower infrastructure for flood protection within the conversion/ catchment, installation of early warning systems). • If applicable, include levies and environmental taxes in the “do adjustment nothing” option. Shadow prices and • Adjust costs and benefits as would otherwise be done following the opportunity costs 2017 WB Guidance Note on the shadow price of carbon.18 adjustment Construction of the • Include the cost of implementing adaptation measures (e.g., cost of model multi-level discharge system, cost of constructing flood protection measures upstream, cost of anti-erosion measures). • For nature-based solutions, the total cost should also include the cost of maintenance (which may be a significant portion of the initial investment). 17 Guzman, A., and F. Estrázulas. 2012. “Full Speed Ahead: Economic Cost-Benefit Analyses Pave the Way for Decision- Making.” Handshake (IFC quarterly journal of public-private partnership) 7 (October). 18 World Bank. 2017. “Shadow Price of Carbon in Economic Analysis.” Guidance Note, November 12, 2017. https://thedocs.worldbank.org/en/doc/911381516303509498- 0020022018/original/2017ShadowPriceofCarbonGuidanceNoteFINALCLEARED.pdf. Module 4 – Step 1 73 CBA Process CBA Sub-Steps* Climate Entry Point Outline* • Consider the cost of sustainable construction (e.g., cost of recycling demolition materials, investment in electrical construction machinery). Operational and • Consider the increase in the cost of operation (e.g., due to possible maintenance cost need to reduce water retention time, need to install additional turbines for operation during seasonally reduced water use, cost of possibly necessary repairs after intense storms and flood events). • Consider increase in maintenance costs (e.g., sediment management techniques, maintenance of vegetated slopes, fire- smart landscaping actions, cost of monitoring). Term and residual • Residual value estimates should be adjusted to include climate- value change impacts, for example: ▪ Reductions related to frequently failing slopes. ▪ Reductions caused by reduced power generation. Adding List of externalities • The cost of externalities may include: externalities • Cost of indirect damage caused by power generation loss due to damage to transmission lines, broken supply chains due to damage in the road network yielding to limited accessibility to the plant, increased travel times. • Cost of emergency services (e.g., use of aerial means to extinguish fire or evacuate personnel). • Permanent or temporary changes in LULC (see Table 2.2). • Disruption during construction (introduced by unfavorable weather conditions, e.g., extreme heat, frequent and intense rainfalls, cyclones). • The quality/reliability of the transmission grid. • Long-term effects on environmental flows in the watershed. • External benefits arising from the installation of monitoring systems and weather stations along the river, useful for early warning and protection of nearby communities. Adding Monetizing/inferring • Include an increase in private investment confidence (business, (other) value for relevant entrepreneurship, property). socioeconom benefits • Increase power generation downstream. ic benefits Considering/ • Include resilience benefits such as: qualifying other • Avoided loss to the network adjusted over the probability of the unvalued benefits event. • Avoided disaster to the broader ecosystem (e.g., if the plant infrastructure acts as anti-flood protection). • Environmental benefits of nature-based solutions (e.g., quality of air, better aesthetics). • Alignment with strategic climate objectives. • Increased agricultural productivity. Relative price Market imperfection • Apply as would otherwise have been done. adjustments and bias/risk Other opportunity • Consider alternative uses of the land and space that climate adjustments cost adjustments measures cover, if any, and apply such costs. Taxes • Same as above, apply only to the extent that tax advantages are applicable when a project exceeds its purpose in social benefits. • Consider the tax income gained from steady uninterrupted operations. Defining base Discount rate • Consider adjusting discount rate for valuation depending on levels case, definition and of certainty of cash flows (applies to projects that include climate defining and measures) and uncertainty of cash flows (applies to “do nothing” Module 4 – Step 1 74 CBA Process CBA Sub-Steps* Climate Entry Point Outline* calculating calculation of NPV and alternatives). This needs to be aligned with the probabilistic analysis economic EIRR of events occurring to avoid “hurting” a project with uncertainty internal rate twice (one with a high probability of costs occurring and one with a high discount rate because of uncertainty of cash flows). of return (EIRR) Incorporating Test the strength of • As would otherwise be conducted. uncertainty: the proposed business sensitivities plan and present the effect of variations *per APMG PPP Certfication guide OUTPUT The results of the analysis of climate entry points in the project’s CBA may be summarized in a screening report highlighting which climate mitigation and adaptation aspects have been considered and ensuring these have been adequately evaluated. A comparison of the project costs and benefits with and without climate mitigation and adaptation measures will ideally inform the decision-makers to support better project outcomes. IMPORTANT NOTE Choosing a Discount Rate The discount rate used in the economic analysis is particularly important when evaluating and comparing adaptation options because the associated benefits (or avoided costs) are unlikely to be realized for many decades. There is no consensus on the appropriate discount rate to use for resilience strategies. As a good practice, study teams may choose to explore the sensitivity of economic analysis findings to different discount rates or the possibility of applying a non- constant discount rate over the horizon of the assessment. TOOL 4.2 CLIMATE VALUE DRIVERS FOR VFM ANALYSIS TOOL 4.2 Climate value drivers for VfM analysis A VfM analysis is performed to identify whether (and to what extent) climate-related risks, opportunities, and uncertainties may affect the suitability of a project for PPP and non-PPP delivery. The tool describes entry points for climate-related considerations for VfM analysis that are relevant to Module 4 – Step 1 75 hydropower projects. It explains the rationale of these considerations; identifies conditions of positive, negative, or conditional performance; and, where applicable, provides specific references and examples. INPUT TABLE 4.2 Impacts of climate change on PPP suitability for hydropower projects PPP Suitability: Impact on PPP VfM Driver Climate Conditions Suitability Considerations Project size Is the project too big for Consideration of climate-change impacts Negative the market? Or is the in their full range of possibilities may result project too complex to be in a need for implementation in exhaustive delivered as a PPP? climate adaptation measures. Such a condition may be particularly problematic when the construction of the adaptation measures requires the cooperation of different PPP units, different government units outside of the PPP unit, or even authorities from different countries, e.g., in transboundary projects. Such conditions could impact the appetite of potential bidders or hinder the project’s financing. Market appetite Would there be private The identification of previously unknown Negative investor appetite? climate risks (e.g., the potentially increasing effect of droughts) could hamper investor appetite. A thorough CBA of climate Positive adaptation/mitigation works would provide visibility and hence increase private sector appetite. Engagement with local communities and Positive other stakeholders, and establishment of an inclusive, participatory method for decision-making regarding water use will provide confidence that possible water scarcity periods will not impact the project disproportionately. Precedent projects Are precedent transactions Climate risks are better understood in a Positive already developed as PPPs catchment where there is a legacy of for this type of project in hydropower development. The involved the country/region/similar stakeholders are better informed, and the countries? local communities are familiar with the services and benefits provided. Risk allocation Are there any significant Extreme weather events may under Negative climate risks within the certain circumstances cause extended project that are not losses to hydropower projects. The risk of manageable by a private sustaining such losses may be reduced by partner? proper design of climate adaptation works and insurance against any excess risks. In case costs for climate adaptation works are high or insurance is unavailable, the risk may not be manageable by the private partner (e.g., risk of dam failure due to extreme Module 4 – Step 1 76 PPP Suitability: Impact on PPP VfM Driver Climate Conditions Suitability Considerations hydraulic actions during flooding implies excessive restoration/replacement costs). Uncertainty in estimating climate risks Mostly negative costs (i.e., CAPEX and/or operation and (unless specific maintenance [O&M] costs) impact the measures to PPP suitability of hydropower projects. increase certainty are taken) Are there circumstances Private sector capital and innovation Positive where climate risks can be bring higher efficiency in disaster better assumed by the preparedness, response, and recovery. private party? Also, insurance coverage increases the capability of the private party to assume a certain level of climate risk. Is there a risk of non- Geophysical hazards (e.g., landslides, Mostly negative availability of the subsidence) may be intensified by climate (unless recognized land/right of way and land change; hence hydropower projects and proper acquisition cost overrun? interfering with landslide-prone areas, measures are thawing permafrost zones, or areas structured) impacted by coastal erosion could experience higher risks. Certainty of Is it possible that the Interdependencies between climate, land Mostly negative offtake/supply project will experience a use, and population render the change in demand due to hydropower development vulnerable to climate change? external factors that may not be under the control of the PPP and may have a negative impact on the demand for electricity and hence energy prices, thus compromising investment certainty. Increased growth of a region (partially Mostly positive affected by milder climate conditions) may positively impact the energy demand. Project quality Will the project quality In several cases, the private party may Mostly positive increase if the project is bring innovation and high standards. (provided that the developed through a PPP Examples of such innovation applicable to methods used are scheme? hydropower could indicatively include tested) contractors with experience in the development of integrated monitoring systems for adaptive management of hydropower generation, flood risk management, and early warning. As commercial lenders become more Positive informed on the climate change risk, they will demand higher climate-resilience standards to stimulate high performance in order to ensure repayment/returns. Is it possible to define The power purchase agreement could be Output-based clear output-based linked with financial incentives or Mostly positive contracting indictors describing the penalties, thereby enhancing faster as Module 4 – Step 1 77 PPP Suitability: Impact on PPP VfM Driver Climate Conditions Suitability Considerations performance of the plant well as better responses to climate- to weather events? related disruptions. Finance availability Are there any significant Climate-related events may be Negative (unless climate risks that may responsible for external risks (e.g., recognized and harm the availability of permanent or temporary changes in proper measures financing? LULC, water demand changes, are structured) geomorphological changes), which could be non-mitigable. Such risks may test the willingness of financiers to participate or could raise requests for higher guarantees. Legal or regulatory Has the country adopted Prior existence of a national framework Mostly positive framework national legislation on promoting green investments (defining climate change? other subsidies and incentives for private sector participation) would definitely boost the project. For example, existing legislation describing beneficial provisions for low-emissions hydropower would positively impact the development of RoR hydropower schemes. OUTPUT The results of the VfM may be summarized in a screening report highlighting which climate mitigation and resilience aspects have been considered and how they are impacting the suitability of the project as a PPP. Module 5 78 MODULE 4 Module 5 79 Module 5 KPIS FOR CLIMATE-RESILIENT AND SUSTAINABLE HYDROPOWER KPIs are customarily used in PPP hydropower projects to assess and evaluate a project’s performance during design, construction, and operation. KPIs are developed around specific government objectives, and the private partner will either be entitled to additional payments for good performance or to reduced payments for poor performance. Expanding this general notion to PPPs containing climate actions, the relevant KPIs can be used to measure: (i) the hydropower project’s alignment with specific climate mitigation objectives, and (ii) its climate resilience, i.e., the ability to prepare, respond to, and quickly recover from climatic hazards. The tools described in the ensuing provide indicative high-level examples of climate KPIs soliciting forward-looking information to be included in performance-based contracts. Based on the understanding that there is no one-size-fits-all for KPIs, the tools describe climate indicators that may be applicable to a broad range of hydropower projects. It is then the obligation of the entity in charge, with the assistance of experienced consultants, to derive project-specific KPIs that best describe the technical/operational challenges of the project and to take advantage of the expertise and innovation skills of the private sector. Module 5 80 TOOL 5.1 KPIS MEASURING CLIMATE ADAPTATION OBJECTIVES TOOL 5.1 KPIs measuring climate adaptation objectives Multi-purpose hydropower reservoirs often deliver several services relevant to climate adaptation, mainly through flood regulation and water storage. The relevant KPIs included in this section have a dual purpose: (i) to facilitate assessments of a project’s resilience to climate change (resilience of the project) and (ii) to track the effectiveness of the project’s contributions to climate change adaptation (resilience through the project). Table 5.1 provides a non-exhaustive list of climate-adaptation KPIs that can assist the public authorities and their advisors when structuring and preparing performance-based contracts for hydropower projects. As previously, this tool does not recommend specific threshold values for either the event intensity or the performance level of the hydropower project. These should be derived in consultation with the technical advisor in due consideration of the project’s risk profile, the frequency of the event, and the importance of the project for the management of risk at the broader catchment/regional scale. IMPORTANT NOTE Climate Thresholds and Performance Level One KPI may be related to one or more hazards. However, the climate thresholds that apply to different hazards will differ. Moreover, depending on the severity of the event, different performance levels will apply for the same hazard (e.g., longer response time will be tolerated for extreme versus normal- intensity events). TABLE 5.1 Indicative climate adaptation KPIs Performance Example Indicators Objective Project sustainability Existence and application of the Hydropower Sustainability ESG Gap analysis tool, addressing all three phases: preparation, implementation, and operation Existence of an environmental and social action plan Time period during which the identified gaps must be addressed and mitigated (months) Resilience of the Number of climate-related incidents causing disruptions or requiring significant project capital mobilization (number/year) Reaction time after a severe event (hours); time to complete adaptation actions following measurement of specific indicators characterizing chronic stresses such as river discharge or wind speed (months) Plant availability factor Unit forced outage rate Module 5 81 Performance Example Indicators Objective Existence of a flood storage buffer; time to discharge and time required to reduce reservoir level in order to achieve it (hours) Existence of redundancies for powerhouse (drainage, spillway relocation, redundancies) Frequency of serious dam safety violations (number of incidents/year) and time required to completely address them (hours) Time to repair damage due to climatic stressors (days) or to receive spare parts for damaged equipment (days) Frequency of benchmarking of emergency response plans against best practices Emergency response fleet (number of vehicles and operators) and emergency management exercises (number/year) Ratio of maintenance work completed/maintenance work planned (%) Frequency of anti-erosion maintenance actions (number of actions/year) Resilience through Emergency response plans communicated to local communities and organization of the project engagement and training workshops with informative material in the local language (considering also illiterate populations, if applicable). Assessment of the project’s impact on land uses at regional scale and likelihood of resettlement and its implications undertaken early in the project preparation stage. TOOL 5.2 KPIS MEASURING CLIMATE MITIGATION OBJECTIVES TOOL 5.2 KPIs measuring climate mitigation objectives This tool is designed to assist public authorities and their advisors in structuring and preparing performance-based contracts for hydropower. Table 5.2 provides a non-exhaustive list of climate mitigation KPIs that can be widely adaptable to hydropower projects and that have been recommended by internationally recognized frameworks. The KPIs are divided into themes representing core elements of a PPP contract: design, construction, and operation and maintenance. KPIs are described by a performance objective and an example measurement (i.e., how to measure compliance with the objective). It should be noted that the tool does not provide threshold values for the suggested KPIs. This is country- and project-specific information that the public authority should provide based on good-practice examples and applicable norms/rules. Typically, it is considered good practice to define two levels of achievement: a conserving level is one that has no negative impacts and an improved level is one that will benefit the overall project performance. Performance below the conserving level will usually lead to the application of penalties, whereas performance above the improved level may be tied to specific rewards/incentives for the private partner. Module 5 82 TABLE 5.2 Indicative climate mitigation KPIs DESIGN-RELATED KPIs Performance Example Indicators Objective Reduction of reservoir Existence of a plan for measuring emissions during the project’s operation. emissions Design requirements for power intake structures based on GHG emissions calculations. Existence and application of a specific plan for sediment management and anti- erosion protection including sediment treatment specifications. Existence of a concise plan for removal and disposal of organic matter existing in the area that will be inundated (applicable to reservoirs) specifying the process and frequency of removal/disposal operations. Improvement of Estimation of the energy efficiency of the project and assessment of its fit with energy efficiency national/regional policies and plans on mitigation. Optimization of water Existence of a plan for water use allocation considering both competing water use demands on cascading reservoir systems and also future climate projections for the intensity and duration of dry seasons. Minimize impact on Existence of environmental impact assessment including assessment of biodiversity, biodiversity plans for environmental flows, and particularly the passage of aquatic species and loss of habitat due to disruption of river connectivity. CONSTRUCTION-RELATED KPIs Performance Example Indicators Objective Reduce emissions in Total amount of embodied tons of carbon dioxide (CO2) and other GHG emissions of construction the construction materials: CO2 equivalent (CO2e). Net CO2 equivalent emissions of construction equipment per usage (tons tn of CO2e per kilometer (km) or cubic meter (m3). Promoting Percentage of materials used for construction/maintenance works that come from sustainable resource local and/or recycled or reclaimed sources (e.g., earthworks using local soil) management and compared to percentage of total materials used. circular economy Primary and secondary suppliers of plant machinery/equipment that have sustainable sourcing/procurement/management certification (% or number). Module 5 83 OPERATION AND MAINTENANCE-RELATED KPIs Performance Example Indicators Objective Reduction of Site-specific assessment of GHG emissions considering catchment management reservoir emissions practices. Numerical targets for GHG emissions (CO2e/year). Sedimentation (tons/year); sediment removal operations (number/year and tons/year). Erosion monitoring (number of operations/year). Annual water retention (e.g., in m3/years). Reduction of GHG Percentage of non-emissive gas insulated equipment (%). emissions from transmission lines Preventive loss indicator (PLIplan)—the ratio between estimated energy loss caused Efficiency of by planned interruptions and the maximum energy that can be produced during the maintenance reported period (%). operations 84 Summary and Conclusions CLIMATE ENTRY POINTS IN THE EARLY STAGES OF A HYDROPOWER PPP PROJECT PREPARATION After completion of all the steps described in this toolkit, users are expected to have shaped a clear view of how to incorporate climate considerations in the early stages of project preparation for a hydropower PPP project, using a set of practical tools that allow: • Identification and mapping of the national and international climate-related frameworks and commitments relevant to the hydropower project under consideration. To this end, the toolkit navigates users through the main documents defining such policies, while guiding them as to the specific focus areas that are important for a hydropower PPP project. • Screening of the hydropower PPP project’s alignment with the Paris Agreement and the regulations stemming from it. Screening is performed by means of four sets of questionnaires—each one referring to one pillar of the relevant considerations—through which users are able to identify areas where improvements may be necessary, recalling that all WBG-supported projects must be fully aligned with the Paris Agreement by 2025. • Estimation of the hydropower project’s carbon footprint, by performing a preliminary assessment of the GHG emissions associated with its construction and operation. The relevant tools provide step- by-step instructions on how to provide a preliminary life-cycle assessment (LCA) of such emissions, supported by a list of international resources for assessing emissions associated with each (construction- or operation-related) activity. • Appraisal of the climate-related risks that the specific project is exposed to, which are defined as the potential losses that could be either internal to the project (in the form of physical damage and loss of revenues due to a climate event immediately impacting the operability of the infrastructure) or external (in the form of economic losses due to an acute event or chronic hazard impacting the operation of the hydropower plant, which may remain physically intact). To this end, a set of readily available online resources are provided that allow users to understand which hazards may affect the project, given its location and the components of the plant. Based on such data, the potential effects of each hazard on specific assets of the hydropower project may be assessed. Hence, users will be able to form a preliminary opinion as to the vulnerability of each asset type, its appropriateness for the project/region, and the associated needs for risk reduction measures. • Preliminary exploration of climate adaptation and resilience strategies aimed at reducing the risks identified above and enhancing the project’s bankability. Users are guided through the relevant tools enabling identification of adaptation measures for their hydropower project, while at the same time providing a high-level indication regarding the costs and benefits of each option, so that users are able to design different resilience strategies, each with distinct costs and benefits. • Preliminary identification of climate entry points in the cost-benefit analysis of the project, using a step-by-step approach that supports users in understanding how climate risks, as well as adaptation and resilience plans, may reflect in the project economics by presenting the tradeoffs between climate-related risks and investments. • Preliminary appraisal of the project’s VfM and suitability as a PPP, using a set of tabulated instructions explaining the effects of various potential climate actions identified above, on parameters 85 such as project bankability, investor appetite, and project risk profile. It is also shown how failure to act—or invest—may negatively impact the project if investor risks remain unmitigated or if insufficient measures hamper the eligibility of the project to receive funding from multiple sources. • Preliminary identification of climate (mitigation or adaptation related) KPIs that could be used to trigger climate-related clauses of the payment mechanism in PPP contracts. It is shown that climate considerations are meant to be present in all phases of the PPP project—from project selection, design, and construction through project implementation. To this end, a non-exhaustive set of essential climate-related KPIs is presented as part of the relevant tools that describe hydropower- specific actions and quantifiers to allow them to be monitored. The present hydropower-specific toolkit, when used in conjunction with the WBG’s Umbrella Toolkit, is meant to support PPP agencies operating in EMDE countries to incorporate climate risks and opportunities in hydropower PPP projects, by providing detailed guidance applicable to the early stages of such projects’ preparation. Given the importance and complexity of incorporating climate change in PPP projects, all appraisals performed at the preliminary stages with the help of this toolkit will need to be reassessed in detail with the help of expert consultants on the basis of project-specific data that will become available in subsequent stages of the project. 86