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

Abstract

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