As the world strives to meet net-zero emissions goals amid geopolitical and supply chain disruptions that threaten energy imports, emerging markets are turning to hydropower investment and storage to facilitate their energy transitions.

In the latest sign of commitment to the world’s largest low-cost, low-carbon electricity source, India pledged $2.4bn in August 2022 to develop the West Seti and Seti River Hydropower Projects in Nepal, which have a combined capacity of 1.2 GW. Two Chinese companies had signed memoranda of understanding to finance the projects but pulled out of these commitments in 2018.

According to the International Energy Agency (IEA), emerging economies have only tapped 40% of their potential to generate hydropower.

By harnessing new technologies and smaller-scale projects, emerging markets are generating new momentum for hydropower to reduce imports of coal or natural gas and supply more power domestically or regionally through cross-border trade.

Building out hydropower capacity

In 2021 hydropower capacity stood at roughly 1360 GW, generating 16% of the electricity used globally. It generated two times as much electricity as wind and four times that of solar, although the growth rates of the latter should close this gap over time.

The IEA forecasts a decline in hydropower capacity in China, Latin America and Europe – regions that have long powered the sector through large-scale reservoir projects – but also projects that new projects in Asia Pacific, Africa and the Middle East will fuel 17% annual growth in global capacity between 2021 and 2030.

Indeed, the IEA expects 75% of new hydropower capacity to come from large-scale projects in Asia and Africa.

Among the new hydropower capacity additions in 2021, India (803 MW), Nepal (684 MW), Laos (600 MW), Turkey (513 MW), Indonesia (481 MW) and Vietnam (222 GW) were all in the top 10, according to the “2022 Hydropower Status Report” published by the International Hydropower Association.

Overall, new capacity additions for hydropower have slowed since 2017, with 22 GW of new capacity being added annually compared to the 45 GW needed to align with global net-zero goals.

Financial and environmental headwinds

China has dominated the uptake of hydropower over the last decade and accounted for 20.8 GW of new capacity in 2021.

However, drought – brought on by a month-long heatwave – has prompted China to take emergency measures to ease pressure on the power grid, such as cutting electricity to industry, which may make the country reticent to invest further in hydropower.

Another concern is financing. Many hydropower projects in recent years have been financed through China’s Belt and Road Initiative (BRI), but BRI funding levels have been slowing in recent years for state-financed projects abroad.

Two major run-of-river projects – the 456-MW Upper Tamakoshi project in Nepal connected to the grid in 2021 and the 720-MW Karot project in Pakistan completed in 2022 – were financed by China.

Environmental considerations have also led some countries to question whether to launch new projects. For instance, the Chinese-financed 90-MW Erdenburen plant in Mongolia has faced opposition from groups concerned about the mega-project’s potential to damage the Ramsar wetlands and disrupt indigenous communities.

New cross-border energy connections

Despite these concerns, countries are exploring other financing avenues for continued hydropower development, with the India-Nepal deal being a prime example.

India brought the 180-MW Bajoli Holi run-of-river project in the Chamba district online in July 2022. Commissioned by GE Renewable Energy, the three 60-MW units will supply 94% of the required electricity for Delhi’s Indira Gandhi International Airport, with the remaining 6% coming from solar panels.

In a similar vein to the India-Nepal deal, countries are looking to increase cross-border trade in hydropower. In August 2022 Kenya agreed to import 200 MW of electricity from Ethiopia as part of the Kenya-Ethiopia Highway Project. The plan is to double this amount, which will be sent through a 500-KV interconnector line, in the future.

One of the most ambitious attempts to increase cross-border trade in hydropower is taking place in Central Asia, in the form of the IEA’s roadmap for Tajikistan, which is supported by a five-year, $39m annual grant from the US Agency for International Development.

Tajikistan ranks eighth in the world for hydropower potential, and the $1.2bn, 1.3-GW Central Asia-South Asia power project, or CASA-1000, seeks to transport excess hydropower from Tajikistan and Kyrgyzstan to Afghanistan and then Pakistan. Partially financed by the World Bank, Japan’s Hitachi Energy and Spain’s Cobra Group are constructing the 800-km connector lines and two high-voltage converter stations for the project.

Meanwhile, the second phase of the Lesotho Highlands Project aims to provide water to South Africa and energy security for Lesotho. In 2021 the project received an $86.7m loan from the African Development Bank.

Pumped hydropower storage

Building out hydropower’s footprint in emerging markets will require embracing pumped storage hydropower (PSH), which accounts for over 90% of the world’s total energy storage capacity.

PSH plants pump water from a lower reservoir to an upper reservoir and then release the power as needed, acting like a giant underground battery.

The IEA forecasts that PSH will account for 30%, or 65 GW, of global hydropower capacity expansion between 2021 and 2030, significantly outpacing the storage capacity of traditional batteries.

China aims to produce 62 MW of pumped storage by 2025 and 120 GW by 2030, according to goals publicly set in September 2021. In its “Draft National Electricity Policy 2021”, India noted that it has 96.5 GW of potential for PSH, significantly greater than the 4.8 GW developed thus far.

Elsewhere, Switzerland launched the Nant de Drance underground PSH plant in Valais in August, which features six turbines located in a cavern 600 metres underground with 900 MW of capacity.

Among the many PSH projects under construction are the 250-MW Hatta PSH plant in Dubai, which is considered the first of its kind in the GCC; the 1.2-GW Kobong Pumped Storage project in Lesotho, which is slated for completion in 2024; and a planned 200-MW project in Jamaica, which could increase the country’s clean energy generation in its overall portfolio from 13% to 50%.