5. Cost Reduction Potentials

Hydropower is a mature, commercially proven technology and there is little scope for significant cost reductions in the short-to-medium term. Technological innovation could lower the costs in the future, although this will mainly be driven by the development of more efficient, lower cost techniques in civil engineering and works. These improvements and cost reductions in major civil engineering techniques (tunnelling, construction, etc.) could help to reduce hydropower investment costs below what they otherwise would be.

However, analysis of cost reduction potentials in the literature does not provide a clear picture of any likely trends. Some studies expect slight increases in the range of installed costs, while others expect slight decreases when looking out to 2030 or 2050 (EREC/ Greenpeace, 2010; IEA, 2008a; IEA, 2008b; IEA, 2010c; and Krewitt et al., 2009). Part of the problem is that it is difficult to separate out improvements in civil engineering techniques that may reduce costs (which would lower the supply curve) and the fact that the best and cheapest hydropower sites have typically already been exploited (i.e. we are moving up and along the supply curve). As a consequence of these difficulties, the inconclusive evidence from the literature and the fact that hydropower is a mature technology; no material cost reductions for hydropower are assumed in the period to 2020 in the analysis presented in this paper.