Should we build more large dams? The actual costs of hydropower megaproject development

TL;DR

This study uses reference class forecasting to reveal that large hydropower dams are systematically underestimated in cost and time, often leading to unprofitable projects unless significant risk management measures are implemented.

Contribution

It applies the outside view and multilevel statistical models to accurately predict cost and schedule overruns for large dams, highlighting the need for better risk assessment.

Findings

Budgets are systematically biased below actual costs.

Most large dams are too costly and time-consuming for positive risk-adjusted returns.

Policymakers should favor agile energy options over megaprojects.

Abstract

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