Integrating Climate Change in the Value Assessment of Hydropower Assets
Any stakeholder interested in hydroelectric asset valuation in the context of climate change now has access to a guide, validated by experts in the field, to help in carrying out rigorous assessments. The methods proposed in the Guidebook and the documented case studies will contribute to improving the consideration of climate change impacts in the valuation of hydroelectric assets.
Climate change modifies the hydrological cycle and affects the hydroelectric power production and lifespan of dams. To adapt to climate change, it becomes necessary to make changes in operations (i.e. operational adaptation measures) or physical adjustments to the assets themselves (i.e. structural adaptation measures).
At present, expected changes and the necessary adaptation measures are not systematically taken into account by hydropower asset operators, owners and investors. A value assessment that incorporates climate change will allow for its better integration into decision making.
Establish and apply a methodological framework that can be used to integrate climate change in the value assessment of hydropower assets.
Conduct a review of scientific and grey literature on the different methodologies used for calculating asset value; Interview user partners and other potential users of these methodologies;
Develop a new methodological framework that will allow for consideration of climate change;
Review available climate and hydroclimate databases for selected areas of interest and identify data availability profiles;
Apply the methodological framework to specific scenarios in order to test the methodologies and adjust them to make them operational.
Two results emerge from the Guidebook to Integrate Climate Data in Energy Production for Value Modelling.
First, it provides a framework illustrating potential links between hydropower production asset valuation and climate change, intended for all industry stakeholders. This framework describes, in non-technical terms, various ways to integrate the physical impacts of climate change into asset valuation, along with the importance of doing so.
Second, it presents detailed methods to integrate climate change data into hydrology and energy production for the purposes of hydropower asset value modelling. Intended primarily for hydropower industry technical staff, these methods seek to address a common need expressed by project partners and other industry stakeholders during semi-structured interviews and are the main focus of the Guidebook.
The methods proposed in the Guidebook follow three main steps:
Selection and development of the baseline(s),
Selection of climate change data,
Integration of the baseline(s) and climate change data in the modelling chain.
Each step includes several options along with their advantages, disadvantages and specific challenges (Figure 1).
Figure 1: Framework for the integration of climate change into the valuation of hydropower assets
The methods proposed are informed by climate science and climate change studies and, in some cases, identify scientific limitations. They are also informed by industry practice through the use of case studies conducted jointly with the project’s hydroelectric partners.
However, these methods have certain limitations. Focusing more specifically on hydrology, they do not take into account the impacts of climate change on electricity costs and demand, the impacts of other natural processes on asset value, and a variety of assumptions and complexities in energy and value modelling.
These limitations highlight the need for further efforts to develop methods for integrating climate change impacts into climate-sensitive subcomponents other than energy and revenues in asset valuation, such as the provision of power and ancillary services, electricity demand, the costs of adopting adaptation measures, the costs of inaction, external costs, and the useful life of assets.
Benefits for adaptation
Benefits for adaptation
Any stakeholder interested in hydroelectric asset valuation in the context of climate change now has access to a guide, validated by experts in the field, to help in carrying out rigorous assessments.
The methods proposed in the Guidebook and the documented case studies will contribute to improving the consideration of climate change impacts in the valuation of hydroelectric assets.
The project also helped mobilize hydropower partners to integrate climate change in the valuation of the assets they own or wish to acquire.
The Guidebook presents guidance for integrating the physical impacts of climate change into the valuation of hydropower assets. It has two objectives:
illustrate potential links between hydropower production asset valuation and climate change physical impacts,
propose methods to integrate climate change data into energy production for value modelling.
The case studies have been developed with hydroelectric partner (Brookfield Renewable, Hydro-Quebec, Manitoba Hydro, Ontario Power Generation) to identify and test the method to integrate climate data into the valuation of its assets.
Ontario Power Generation