Hydropower's role in achieving a clean energy transition and in supporting the faster expansion of solar and wind generation capacity, is undervalued, the International Energy Agency's (IEA's) inaugural 'Hydropower Special Market' report states.

Hydropower has a key role in the transition to clean energy not only through the massive quantities of low-carbon electricity it produces, but also because of its unmatched capabilities for providing flexibility and storage. Many hydropower plants can ramp their electricity generation up and down very rapidly compared with other power plants such as nuclear, coal and natural gas, the IEA says.

The special report is the first study to provide detailed global forecasts to 2030 for the three main types of hydropower – reservoir, run-of-river and pumped storage facilities.

About half of hydropower’s economically viable potential worldwide is untapped and that potential is particularly high in emerging economies and developing economies, where it reaches almost 60%.

“Hydropower is the forgotten giant of clean electricity and it needs to be put squarely back on the energy and climate agenda if countries are serious about meeting their net zero goals. It brings valuable scale and flexibility to help electricity systems adjust quickly to shifts in demand and to compensate for fluctuations in supply from other sources,” says IEA executive director Fatih Birol.

“Hydropower’s advantages can make it a natural enabler of secure transitions in many countries as they shift to higher and higher shares of solar and wind – provided that hydropower projects are developed in a sustainable and climate-resilient way,” he adds.

However, while hydropower remains economically attractive in many regions of the world, the report highlights a number of major challenges it faces. New hydropower projects often face long lead times, lengthy permitting processes, high costs, risks during environmental assessments and opposition from local communities.

These pressures result in higher investment risks and financing costs compared with other power generation and storage technologies, thereby discouraging investors.

Global hydropower capacity is expected to increase by 17% between this year and 2030, led by China, India, Turkey and Ethiopia, but the projected growth for this decade is nearly 25% slower than hydropower’s expansion in the previous decade.

Reversing the expected slowdown will require a range of strong policy actions from governments to address the major challenges that are hampering the faster deployment of hydropower.

These measures include providing long-term visibility on revenues to ensure hydropower projects are economically viable and sufficiently attractive to investors, while still ensuring robust sustainability standards, the IEA said in the report.

Strong sustainability standards are vital to unlock hydropower’s huge potential. Globally, about half of hydropower’s economically viable potential is untapped. The potential is particularly high in emerging economies and developing economies, reaching almost 60%.

Over the life cycle of a power plant, hydropower offers some of the lowest greenhouse-gas emissions per unit of energy generated, as well as multiple environmental benefits.

Governments have an important role in ensuring hydropower’s potential is realised sustainably. Robust sustainability standards and measures are needed to increase investor confidence and gain public acceptance.

Environmental assessments of hydropower plants can be very long, costly and risky, which can deter investment. Therefore, hydropower projects need to meet clear and widely accepted sustainability standards in order to make them viable.

Ensuring that hydropower projects adhere to strict guidelines and best practices can minimise sustainability risks while maximising social, economic and environmental advantages. This approach also reduces lead times for projects, the IEA says.

Reservoir hydropower plants, including dams that enable the storage of water for many months, account for half of net hydropower additions through 2030 in the forecast. Cost-effective electricity access, cross-border export opportunities and the multipurpose use of dams are the main drivers of the expansion of reservoir projects.

Pumped storage hydropower plants store electricity by pumping water up from a lower reservoir to an upper reservoir and then releasing it through turbines when power is needed, and represent 30% of net hydropower additions to 2030 in the IEA's forecast.

The increasing need in many markets for system flexibility and storage to facilitate the integration of larger shares of variable renewables is expected to drive record growth of pumped storage projects between this year and 2030.

Run-of-river hydropower, which generates electricity through natural water flow with limited storage capability, remains the smallest growth segment because it includes many small-scale projects below 10 MW.

“Hydropower’s flexibility is critical for integrating rising levels of wind and solar photovoltaic in electricity systems. The flexibility and storage capabilities of reservoir plants and pumped storage hydropower facilities are unmatched by any other technology. Higher shares of variable renewables will transform electricity systems and raise flexibility needs. With low operational costs and large storage capacities, existing reservoir hydropower plants are the most affordable source of flexibility.”

The IEA has estimated the energy value of water stored behind hydropower dams worldwide. The reservoirs of all existing conventional hydropower plants combined can store a total of 1 500 TWh of electrical energy in one full cycle, or the equivalent of almost half of the European Union’s current yearly electricity demand. This is about 170 times more energy than the global fleet of pumped storage hydropower plants can hold today, and almost 2 200 times more than all battery capacity, including electric vehicles (EVs).

Pumped storage hydropower plants will remain a key source of electricity storage capacity alongside batteries, the IEA forecasts.

Global pumped storage capacity from new projects is expected to increase by 7% to 9 TWh by 2030. With this growth, pumped storage capacity will remain significantly higher than the storage capacity of batteries, despite battery storage (including EVs) expanding more than tenfold by 2030. In addition to new pumped storage projects, an additional 3.3 TWh of storage capacity is set to come from adding pumping capabilities to existing plants.

The IEA’s seven priority areas for governments to accelerate hydropower growth include moving hydropower up the energy and climate policy agenda, enforcing robust sustainability standards for all hydropower development with streamlined rules and regulations and recognising the critical role of hydropower for electricity security and reflect its value through remuneration mechanisms.

Additionally, governments must aim to maximise the flexibility capabilities of existing hydropower plants through measures to incentivise their modernisation and support the expansion of pumped storage hydropower.

Further, governments should mobilise affordable financing for sustainable hydropower development in developing economies and take steps to ensure to price in the value of the multiple public benefits provided by hydropower plants.