Can the World Bank Lead by Example in Moving Away from Large Dams?

Since his election in 2012, World Bank President Jim Kim has trumpeted the Bank’s return to large hydropower including so-called “transformational” mega-dams. Kim himself championed the controversial Inga 3 Dam, the first phase of an extremely ambitious suite of dams envisioned on the Congo River. This marked a new chapter in the Bank’s support for mega-dams after an extended hiatus from the sector. Indeed, Jim Kim’s presidency saw a major jump in new lending for dams, which reached to some of its highest levels in decades. As then-World Bank Vice President Rachel Kyte told the Washington Post in 2013, getting out of hydro “was the wrong message…That was then. This is now. We are back.”

Ouarzazate CSP plant in Morocco
Ouarzazate CSP plant in Morocco

But now, the World Bank’s appetite for large dams appears to have diminished. As documented in a new fact sheet we launched during the World Bank’s Annual Meetings last week, the Bank’s lending for large hydro has dropped precipitously in the past two years, while its investment in new renewables has picked up. In the past two years, the Bank has invested $1 billion in solar power, surpassing hydropower for the first time ever. The Bank poured $500 million investments into two main projects: rooftop solar in India and a first-of-its-kind concentrated solar plant in Morocco– a demonstration project with strong replicability.

This is long overdue. The Bank appears to be playing catch-up or reacting to some important new developments:

  • The past few years have seen the commercial breakthrough of wind and solar. These technologies are becoming cheaper and quicker to deploy every day, and their growth is astronomic. As grids become smarter and the cost of battery storage drops, new hydropower projects are no longer needed to balance intermittent sources of renewable energy.
  • New installed capacity and investment in large hydropower are declining globally. Definitive research shows that the true economic costs of large hydro projects far exceed projections, and hydropower is suffering from dwindling output in the face of climate change. Together, these forces are wreaking havoc on the economics of large dams.
Hydro's share of the World Bank's renewable energy lending has shrunk significantly compared to new renewables
Hydro's share of the World Bank's renewable energy lending has shrunk significantly compared to new renewables

Indeed, some of the World Bank’s flagship hydro projects have failed spectacularly. The Bank was forced to withdraw from the Inga 3 Dam in July over governance concerns. Meanwhile, in Niger, a looming humanitarian crisisand the impending suspension of the Kandadji Dam clearly illustrate the reputational and real-world harms of the Bank’s dams agenda. Most recently, community groups in Uganda filed a complaint with the World Bank’s independent Inspection Panel over the Bank’s failure to protect critical biodiversity areas set aside under the Bujagali Dam project.

The Bank is still financing studies to prepare hugely controversial dams on the Niger and Zambezi rivers, while its private sector arm, IFC, is still backing the Alto Maipo hydro project in Chile in the face of widespread popular protests. Even more controversially, the IFC is promoting “sustainable hydropower” in Myanmar, even as ethnic violence around the Hat Gyi Dam site displaces thousands. But the Bank does appear to be reconsidering its enthusiasm for large hydro, and we may be at the beginning of a much-needed shift away from destructive dams in favor of real energy solutions. This comes at a particularly critical time as other financiers have big decisions to make:

  • The African Development Bank (AfDB) remains involved in Inga 3 after the World Bank’s withdrawal, and by all indications plans to stay in Kandadji. The AfDB has always seen itself as being closer to its borrowing governments than the World Bank, but now risks becoming a bad actor. The AfDB’s highly publicized New Deal for Energy in Africa includes a key pillar on energy access, but its steadfast focus on large hydro will not deliver on this goal.
  • The Asian Infrastructure Investment Bank (AIIB), which approved its first large hydro project in just the past couple of weeks (it’s actually co-financed with the World Bank), is preparing an Energy Strategy that will orient the new institution’s energy lending for several years to come. Some observers fear that AIIB could back destructive dams on the Mekong River, for example, which other multilateral financiers have avoided.
  • The Green Climate Fund (GCF), which is the primary financing vehicle under the UN climate agreement, hopes to approve two large hydro projects in December (also co-financed with the World Bank). This would be done over the objections of over 500 CSOs that called on governments to exclude large hydro from climate finance initiatives, including the GCF.

It’s still too early to say whether the Bank has learned its lessons and turned the page on large dams, but its recent lending serves as an encouraging sign that could set a positive example to other financiers. These institutions would much better serve their borrowers and citizens by assisting the transition to new renewable energy. Now is a critical moment to ensure that financiers don’t fall back into old habits of backing destructive dams.

Thursday, October 13, 2016