Sunday, August 24, 2014

Head in the Sand on Dams and Hydropower

The popular (untrue) image of the ostrich as a bird that puts its head in the sand came to mind as a I read a recent NY Times article titled "Large Dams Just Aren't Worth the Cost". This article describes the usual culprits that plague dam construction:

1. Cost overruns
2. Dams take much longer to construct than originally planned
3. Dams displace local residents (many in impoverished third world countries) who rarely thrive in their new locations
4. Dams that are paid for with foreign loans (for many years the World Bank provided funding) often do poorly because the dam revenues come back in local currency and the loans are denominated in dollars; thus even if they hit their "nominal" returns, they don't reach their "planned" returns when adjusted for currency depreciation

These are all true objections to dam construction. However, these same criteria can be applied to virtually any energy construction project, from coal plants to nuclear plants to major LNG efforts.

One key point that the article completely misses is that dams don't require spending for "fuel" once they are up and running, and often it is fuel and distribution of fuel that bankrupt energy companies in the third world. The dam requires rain / water to generate power, and if this changes significantly, it can change the amount of power provided, but this is still generally better than "nothing".

There simply would not be electricity in many areas of the third world without hydropower, and the choice really isn't between other alternatives and dams, it is a choice between power and no power. Once a dam is built they often can be run with a few individuals and if there are major problems you can bring someone in to fix them. You don't need to find coal or fuel oil (which moves in price and is denominated in dollars that the country often doesn't have). On the other hand, complex machinery and distribution systems can't be left in the hands of areas with revolutionary governments and broken economies because in short order they are often taken apart and destroyed.

Many of the problems with dams being unprofitable are actually the fault of the local un-functioning and corrupt economy. In third world countries ill-enforced laws encourage people to "steal" electricity and prices are often kept low to avoid unrest (who really cares if that loan to rich countries is repaid, anyways?). These problems are endemic to all of the alternatives and are "a feature, not a bug" of any of these local projects.

As far as the damage to locals and their livelihoods, this is true and absolutely sad. However, since Western companies have largely gotten out of the dam building business (due to environmentalist pressure), the actors that have come into this space have zero compunction about locals as long as they don't actively destroy the site with military tactics. From the article.
All this runs directly counter to the current international dam-building boom. Chinese, Brazilian and Indian construction companies are building hundreds of dams around the world, and the World Bank announced a year ago that it was reviving a moribund strategy to fund mega-dams.
Thus by forcing Western companies out of the act of building dams, all of this business just migrated to comparatively ruthless firms from China, Brazil and India. While these countries are nominally "non-aligned" and the left loves them for tweaking America, in practical terms they just partner with dictators, have little compunction about offenses that get Western firms in hot water (like bribery or displacing local tribes), and build the same exact dam, anyways. This compounds the economic model where Western firms can't compete in the third world because of our restrictive laws, and then the Chinese and other unchecked state sponsored or ruthless firms just fill the vacuum. As a result, the West goes from having SOME influence to having NO influence, and the same exact dam is built anyways.

The article should have focused on the advantages of dams which are:
1. They require little local skills once completed, which is often a big benefit in countries where experts leave or are replaced by political appointees
2. They require nothing for fuel to keep running, meaning that it will keep running even when the country runs out of dollars to purchase and transport fuel
3. They leverage local assets, which are the river, and turn them into something useful for the country, power, which is absolutely needed for everything from cell phones to modern medicine to the basics of a functioning economy

And finally, they should have noted that the "West" does not have a monopoly on construction skills or funding and as soon as we abdicate the field, any ability to impact the morality or processes involved with dam building exits and we hand it over to ruthless state sponsored and funded enterprises who will build that same dam.

The final impact of all this is that these third world economies are all enmeshed in the orbit of state actors from other countries that pay lip service to human rights in public (at the UN) but pay little respect to them in actual practice.

Cross posted at Chicago Boyz


Overload in Colorado said...

I've heard a similar argument in trans vs buses: Trains cost more up front, but their operating costs are less down the line. This actually makes it easier to get funding as it's hard to make maintenance sexy.

Carl from Chicago said...

Thanks. I don't know about trains vs. buses as much because I never worked in that industry. In Chicago I am near the "L" tracks built 120+ years ago and they are old and rusted which seems to show our level of maintenance.

Also there is a good comment thread on this in Chicago Boyz if anyone is interested.