CrossBoundary Advisory
08.10.2024
Report
08.10.2024
Report

Leveraging capital markets to mobilize institutional capital into hydropower projects

Key insights
Investing in hydropower is critical for powering the energy transition
Hydropower provides essential baseload energy supply and long-duration energy storage, enabling greater integration of intermittent renewables into the grid
Despite hydropower's strengths, large projects face considerable challenges in attracting new pools of capital
Green Bonds can help mobilize institutional capital into hydropower projects, paving the way for a sustainable energy future

With the global push for decarbonization, hydropower has a critical role as a clean, reliable, and dispatchable energy source. Achieving the Paris Agreement's 1.5ºC temperature rise limit will require doubling the installed hydropower capacity, representing an additional 1,300 GW.

Despite its immense potential, financing large hydropower projects remains a significant hurdle. Our latest report explores innovative solutions to mobilize institutional capital and accelerate hydropower development.

The power of hydropower

Hydropower provides essential baseload energy supply and long-duration energy storage, enabling greater integration of intermittent renewables into the grid:

  • It accounts for over 94% of installed global energy storage capacity
  • Its share as a baseload energy source is projected to increase from 17% of dispatchable power in 2021 to 26% in 2050

Share of global electricity by dispatchable energy sources

Challenges and opportunities

Despite hydropower’s strengths, large projects face considerable headwinds due to:

  • Long development timelines
  • High upfront costs
  • Extensive environmental and social (E&S) mitigation requirements

In Africa, for example, although the hydropower capacity grew by 2GW in 2023, less than 10% of the continent’s potential is being realized (World Hydropower Outlook, 2024). This vast, untapped resource represents a critical opportunity to accelerate the path toward achieving energy transition goals.

Installed, pipeline and potential hydropower capacity

A financing shortfall

Historically, governments have been the main funders of large hydropower projects. However, with public budgets under strain, particularly in emerging markets, unlocking private capital is becoming increasingly important for hydropower development.

Throughout 2024, the CrossBoundary Power & Infrastructure team has worked across various asset classes and instruments in the energy transition sector. Our experience has highlighted the persistent challenge of attracting new pools of capital into large hydropower projects.

Green bonds: a promising solution

Green Bonds offer a significant opportunity to mobilize institutional capital into hydropower projects. This financing mechanism is especially appealing for investing in post-construction hydropower assets that have been de-risked and provide stable, long-term cash flows. While these instruments have not historically been used due to unclear regulation, the release of the CBI Hydropower Criteria in December 2021 means that access to this tool for the hydropower sector is now open.

Achieving the Paris Agreement’s 1.5ºC temperature rise limit will require the installed hydropower capacity to be doubled- which is estimated to require USD $1.7 trillion in new investment into the sector, far outstripping governments’ capacity to invest.

We believe the building blocks are now in place for capital markets to play a pivotal role in mobilizing capital from large institutional investors into this sector and donors and development organizations can play a key role in accelerating the uptake.

Download the full white paper