MINI -HYDROPOWER Climate friendly but not devoid of environmental and social risk

Introduction Here we share the experience of three banks with three different mini hydro-power projects. Mini hydro-power schemes are a climate friendly renewable energy source. However they have attracted controversy over their environmental and social impact. The impacts are determined by the size, type, operating mode and location of the project. Locations can be sensitive due to the steep terrain, biodiversity and socio-economic value. The cumulative impact of mini hydro-power projects also needs to be considered particularly if there are similar developments in the same catchment and ecological zone. In Sri Lanka, several projects have been completed and approved within the “wet zone” which has caused concern among local communities, ecologists and interest groups.

Environmental Issues Social Issues Conversion of aquatic and terrestrial habitats; Changes in in-stream flows, including water, sediment and aquatic biota flows and impact on ecosystem services to local communities; Connectivity and fish entrainment; Stream morphology and sediment management; Watershed management aspects; General pollution prevention and control and reservoir management, which covers water quality and reservoir erosion, slope stability and sedimentation. Climate change risk and more extreme weather events. Land and water use conflicts and associated physical and/or economic displacement; Community health and safety; Cultural heritage loss; Occupational health and safety; Labour and working conditions; Community acceptance.

The three projects Project A Project B Project C 4.5MW LKR 360m Village located upstream of the weir site Stream diversion to power house Project B LKR 100m Site location bordering the Sinharaja Forest Buffer Zone Sinharaja is country’s last viable area of primary tropical rainforest Project C 1.5MW Site located on a waterfall of a stream originating from the Sinharaja Forest Zone. Waterfall a known tourist destination

All three projects had received approvals from the Central Environmental Authority (CEA) and the Sustainable Energy Authority (SEA) However, not every bank had E&S risk assessment processes in place to check that the regulatory approvals had considered all potential E&S risks E&S risk assessment

THE THREE Approaches Project A Project B Project C No E&S risk assessment process at Bank Bank comfortable with the company Directors, project engineers & contractors EPL and local authority approvals were considered adequate Project A E&S assessment process in place CEA letter of approval, SEA energy permit & Forest Dept letter of no objection all obtained Financing granted with condition that project complied with national laws Project B Bank had well established links with environmental groups, including the Wildlife Conservation Society This network alerted the Bank to several E&S concerns not raised by the regulatory authorities Financing was declined Project C

Project A Soon after commencement the area received unexpected high rainfall. The village upstream of the weir flooded & water levels took longer to recede than previously experienced. Community protested both in response to this event but also over other issues that the developer had ignored. Protests triggered intervention of the authorities and it was discovered that the weir wall had been constructed to a height higher than the one approved. Commercial operations were stopped. No power generation, no revenues, project proponent defaulted.

Project B This project is facing two cases filed by a group of environmentalists challenging the approvals granted by government authorities. The group claims that the site is located inside the Sinharaja Forest Buffer Zone and not outside it. Until the court case is resolved construction is on hold and plant commissioning has been delayed. As no revenue is being generated the project proponent is unable to service the monthly installments now due.

Project C This project has also hit the media headlines. Interested and affected parties are fiercely protesting the development raising several concerns over the project’s impact on a site of cultural heritage, local livelihoods, aquatic biodiversity and water availability. The bank’s E&S risk assessment systems and access to new networks of sources of advice has probably protected it from the credit risks experienced by the other banks.

Reflections Mini-hydropower can make a positive contribution to a country’s power supply and mix. However they do have other significant E&S impacts. A bank’s E&S risk assessment system is there to ensure that the E&S risk of client’s operation is understood, particularly the sensitivities associated with its location. Government approvals are not a guarantee that all potential E&S risk have been identified and adequately addressed. Stakeholder engagement is critical for deepening an understanding of these potential E&S risks.