Mega-dams Economically Unviable: Oxford Report

By Samual Mintz 12 March 2014

LONDON — Most large-scale dam projects do more economic harm than good due to poor or dishonest planning—and their skyrocketing costs could play a role in crippling the fragile economies of some developing countries, a study by Oxford University’s Saïd Business School charges.

By the time it is finished, the Belo Monte Dam being built in Brazil’s Amazon will cost $27.4 billion, and China’s Three Gorges Dam is set to cost the Asian superpower $26 billion over the next 10 years, the study predicted. In Pakistan, building the Tarbela Dam boosted the country’s external debt by 23 percent between 1968 and 1984, it said.

But Richard Taylor, executive director of the International Hydropower Association, said he disagreed with many of the report’s findings, calling its central claim “complete nonsense.”

Countries around the world, from Laos to Ethiopia, are pushing ahead with plans for mega-dam projects, after a 10-year hiatus in which such projects were seen as poor choices for solving problems and funding largely disappeared.

In part, the surge in dam building is designed to help produce “green” hydropower to meet growing energy demand and avoid boosting climate-changing emissions from growth in the use of fossil fuel energy plants. As climate change brings more irregular rainfall, dams in some regions also are seen as a way of storing water, controlling water flows and managing droughts and floods.

Taylor said four out of every five dams in the world are today used primarily for water management, with many also providing energy to nearby communities.

But the benefits of these projects are a matter of some debate. The Oxford report claims that the hard-to-measure results produced by big dams rarely make up for big costs and long timelines.

For the report, a group of researchers at Saïd Business School evaluated the viability of modern mega-dam projects. Led by Bent Flyvbjerg, a leading expert on megaprojects and economic decision-making, they studied 245 dams built between 1937 and 2007 for an article in the journal Energy Policy.

What they found is that in most situations, large hydropower dams are likely to be too expensive and take too long to build to deliver a “positive, risk-adjusted return.” This is something dam project planners should be able to predict if they compared their plans with historical records of dam construction, according to Flyvbjerg.

“Basically, what planners of dams today do not do is to benchmark their plans against the actual outcomes of already completed dams,” he said.  If they did, they would see that large dams almost always overrun their projected costs and schedules, sometimes by considerable amounts, he said.

An example is Brazil’s controversial Belo Monte dam, which was initially given a $14.4 billion price tag but is currently projected to cost $27.4 billion by the time it is finished.

Dam planners’ projected budgets have not gotten any more accurate in the last 80 years, the report said – something Flyvbjerg called a “surprising result.”

“You would expect professionals in the field to improve their predictions. Our data go back 80 years for dams and 70 years for transport projects, and show very clearly no improvement,” he said.

Taylor, the hydropower association executive director, said that he is certain predictions have in fact gotten better. “The scope of expectation around project development, the knowledge and understanding that exists today, is way in advance of what it was in the last century, where a lot of this data was taken from,” he said. “It would be really erroneous to imply that no learning has taken place.”

‘Fools and Liars’

Where and how do project planners go wrong, as they supposedly have been doing since the 1930s? According to the study, they make two main errors in their predictions: they either succumb to over-optimism, which Flyvbjerg says is a natural human tendency, or they deliberately and strategically misrepresent their project in order to gain approval or funding.

There is “strong evidence that misplaced political incentives and agency problems lead to flawed decision-making,” the report said. The dual problems of “delusion” and “deception” often complement and exacerbate each other, the report said.

In a press release issued by the authors, Flyvbjerg said that the two categories of inaccurate predictors can be divided into “fools” and “liars.”

“Fools are the reckless optimists who see the future with rose-tinted glasses,” he said. “These forecasting fools ignore hard facts and uncertainty, betting the family silver on gambles with very low probability of success. Liars deliberately mislead the public for private gain, fiscal or political, by painting overly-positive prospects of an investment, just to get it going.”

Taylor, of the dam industry, said that he found that implication “incredibly offensive,” and cited the report as making a common mistake about evaluating project planners’ estimations.

“In their data analysis, they’ve assumed that the construction engineers’ estimate for construction is the project cost. It’s not,” he said. According to Taylor, the project cost includes consideration of all associated programs, including social programs and environmental management.

“To look at the total cost of the project at the end of the process and compare the difference is not comparing apples with apples,” he said.

Smaller Is Better?

The Oxford report suggests that governments and companies look into smaller, more flexible projects to replace the role of mega-dams in supplying what Flyvbjerg called a “power-hungry world.”

He said that projects like those in Norway, which feature small dams or turbines in tunnels, can be much more efficient and, importantly, deliver needed energy much more quickly compared to mega-dam projects which can take decades to complete.

Large dam projects also often lead to displacement of communities, and can provoke protests, as has happened with indigenous communities in Brazil who will lose some of their territory to the Belo Monte dam.

Taylor, however, said there is no direct correlation between the scale of dam projects and sustainability, and said that a “concentrated, centralised solution” is often the most efficient way to deliver energy.

In the year 2000, the World Commission on Dams released a comprehensive 350-page report about the role of dams around the world, highlighting suggestions for creating more efficient hydropower projects. The damaging report caused a long lull in mega-dam building. However, that trend has turned around recently and construction has picked up again.

Flyvbjerg said that he hopes his team’s work can have the same effect as the World Commission on Dams report did almost 15 years ago.

“We wanted to see, is there any new evidence that would actually justify this re-emergence of the large number of large-scale dams being constructed around the world? What we find is that there is no evidence to support doing that. The evidence shows the exact opposite, just as we saw 20 years ago,” he said.

“We do hope that things can change; we don’t take it as a given that mega-dams have to continue, and we do hope that our study may help change things for the better.”

Peter Bosshard, the policy director of a U.S.-based organization called International Rivers, said that the report, which he referred to as the “most thorough independent evaluation of large dams ever,” is a “damning indictment” of the dam building sector.

“Even after following large dam projects for the past 20 years, I was stunned by its findings,” he said.

“Their evaluation also refutes the frequent assertion that dam builders have learned from past mistakes. Fortunately, renewable energy alternatives are readily available, and governments are well advised to prioritize them in their future energy strategies,” Bosshard added.

However, Taylor said that he believes final costs and even cost overruns do not necessarily dictate the wisdom of a project. “It’s a risk that has to be managed, and I believe that the sector is getting better at doing that,” he said.

“The wisdom of the investment is to take the life cycle of that project, and (look at), ‘Is that going to be putting society in a better place to manage the future?’ Dams, and particularly hydropower projects, provide a very … prudent way to manage our future, working with nature best as we can to make sure that we can provide the vital services of energy and water.”