Global climate change is one of the greatest challenges of the twenty-first century. Rising temperatures and alteration of weather patterns are anticipated to result from increased atmospheric concentrations of greenhouse gases, caused, in part, by the use of fossil fuels for electricity generation.
Climate change is predicted to have major impacts on many aspects of human society from agriculture to water supply. The process of limiting the extent of climatic change began with the Kyoto Protocol, committing industrialised nations to modest cuts in their emissions. To achieve these and in the longer term, much greater cuts, electricity production must reduce its reliance on fossil fuels, by the increased use of renewable resources. Hydropower is currently the only major renewable source contributing to energy supply, and its future contribution is anticipated to increase significantly. However, the successful expansion of hydropower is dependent on the availability of the resource and the perceptions of those financing it.
Increased evaporation, as a result of higher temperatures, together with changes in precipitation patterns may alter the timing and magnitude of river flows. This will affect the ability of hydropower stations to harness the resource, and may result in reduced energy production, implying lower revenues and poorer financial returns. The continuing liberalisation of the electricity industry implies that, increasingly, profitability and the level of risk will drive investment decision-making. As such, investors will be concerned with processes, such as climatic change, that have the potential to alter the balance of risk and reward.
This thesis describes a methodology to assess the potential impact of climatic change on hydropower investment, and details the implementation of a technique for quantifying changes in profitability and risk. A case study is presented as an illustration, the results of which are analysed with respect to the implications for future provision of hydropower, as well as our ability to limit the extent of climatic change
