Utility player

Climate change threatens hydropower's under-appreciated role in the energy transition

Hydropower is perhaps the most vulnerable form of energy generation to climate change.

In some of my earliest articles for Carbon Risk (here and here), I highlighted how drought conditions in Europe were something that carbon market participants needed to keep an eye on. Last summer, European utilities were forced to reduce hydropower output in the face of very low reservoir levels. Together with French nuclear outages, hydro’s weak performance was one of the most important factors that contributed to the surge in power prices, and a switch towards more carbon intensive forms of energy generation.

Hydropower generated 15% of global electricity production in 2022, producing almost one-quarter more electricity than solar and wind together, according to data from Ember. Despite an overall increase in power generation over the past two decades, hydropower has not been able to keep up with the underlying growth in global electricity demand, and as such, it has seen its share of the global generation mix gradually decline from 18% in 2000.¹

The global hydroelectric capacity factor (the amount of electricity produced per year divided by the installed capacity) has declined from an average of 38% during the period 1990-2016 to about 36% during 2020-2022, according to the International Energy Agency (IEA). That two percentage point drop in the capacity factor might not sound very much, but overall it means that some 240 TWh less zero carbon electricity is generated each year than would otherwise be the case.²