The Economics and Governance of Multipurpose Hydropower Reservoirs
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The Economics and Governance of Multipurpose Hydropower Reservoirs Paul Robert Wyrwoll A thesis submitted for the degree of Doctor of Philosophy The Australian National University © Copyright by Paul Robert Wyrwoll 2019 All Rights Reserved Declaration I declare that the research presented in this thesis represents original work that I carried out during my PhD candidature at the Australian National University. I confirm that no material included in this thesis has been previously submitted by me for the purpose of obtaining a degree from any university or tertiary educational institution. This thesis is my independent work, except for Chapter 3 which was previously published as: Wyrwoll, P.R., R.Q. Grafton, K.A. Daniell, L. Chu, C. Ringler, L.T.H. Lien, D.K. Khoi, T.N. Do & N.D.A. Tuan. 2018. “Decision-Making for Systemic Water Risks: Insights from a Participatory Process in Vietnam.” Earth’s Future 6(3): 543-564. doi.org/10.1002/2017EF000777. The Chair of my PhD supervisory panel is the second author on the above paper. He has agreed to the following description of the roles that myself and my co-authors played in (i) the authorship of the paper, and (ii) the design, coordination, and implementation of the underlying project: Wyrwoll prepared the first, second, and third draft of the paper, as well as the final version accepted by the journal that incorporated referees’ comments. Grafton, Daniell, Chu, and Do provided comments and revisions on the first draft. Ringler, Grafton, Daniell, Chu, Lien, Khoi, and Tuan provided comments and revisions on the second draft. Grafton provided comments on referees’ responses and the final version of the paper accepted by the journal. Wyrwoll, Grafton, and Daniell designed the project. Wyrwoll, Lien, and Grafton designed the participatory workshop which was facilitated by Lien. Wyrwoll coordinated and revised analysis of workshop participants’ policy options by Chu, Daniell, Grafton, Ringler, and Wyrwoll. Lien and Khoi coordinated and conducted field surveys of farmers designed by Wyrwoll, Lien, and Khoi. Lien, Khoi, and Tuan coordinated access to the project site and workshop participants. Paul Wyrwoll 10 May 2019 i Acknowledgements A 19th century economist observed that “philosophers have only interpreted the world, in various ways. The point, however, is to change it”. I thank all of the people mentioned below for helping me take this first step towards doing precisely that. Firstly, I am very grateful for the guidance and support of Quentin Grafton. My PhD has been a full apprenticeship because of the opportunities you have given me, and the broad skill-set (and confidence) you have helped me to develop will provide the foundation for an exciting, interdisciplinary research career. I am also grateful for: the patience and encouragement of Long Chu as I have taken my first steps in the world of economic modelling; the guidance of Jamie Pittock who helped initiate the events that led to me working in the Mekong and on hydropower governance; and the insights of Helen Locher who provided access to Hydro Tasmania and generously shared the extensive industry experience that has greatly enriched my research. I couldn’t have asked for a better PhD Supervisory Panel. I first arrived at the Crawford School in early 2010, an underemployed groundwater technician and bartender. In the first semester I failed my Masters microeconomics mid-term exam and felt completely out of my depth. My progress over the last 9 years of studying and working at the ANU owes much to the support of many people. I’m particularly thankful to: Julia Talbot-Jones, Katherine Daniell, Vivienne Seedsman, Stephen Howes, Caroline McFarlane, and Chris White. I received financial and in-kind support from a range of sources during the course of my PhD. Greg Carson and his Hydro Tasmania colleagues generously provided me with data, access, and insights into hydropower operations. Financial support from Kevin Fox at UNSW through Australian Research Council (DP170103223) is gratefully acknowledged. I have also benefited from an Australian Government Research Training Program Scholarship and financial support from the ANU-UNESCO Chair in Water Economics and Transboundary Water Governance. My PhD research was preceded by work at the International Centre for Environmental Management, Hanoi through the Australian Volunteers International program. In this placement I acquired knowledge, skills, and networks that contributed to the applied focus of my PhD research. iii The application of the Risks and Options Assessment for Decision-Making (ROAD) process in Chapter 3 received financial support from IDH – The Sustainable Trade Initiative and the Rockefeller Foundation. I am very grateful for the engagement of colleagues who worked on that project and the development of the ROAD process, particularly: Claudia Ringler, Dang Kim Khoi, Le Thi Ha Lien, Do Thanh Huyen, Dustin Garrick, Nate Matthews, Dennis Wichelns, Do Nam Thang, Nazmun Ratna, and John Williams. My family has played an important role in my development as a researcher and person. My father Karl-Heinz has always encouraged me to aim for the best, and made a life of learning feel normail from the very beginning. My mother Karen has helped me develop the strength and belief to overcome any adversity. My big sister Caitlin gave me an important head-start by teaching me how to read and do maths at an early age, and continues to set an example of how to be a scholar and a high-quality human being. In an immediate family containing a number of academics and researchers, the most senior is my grandmother Greta whose dedication to her historical research on the life of Solomon Cook is something I have always admired. I’m lucky to have many old and more recent friends with whom I have shared fun and adventure during my PhD. In addition to always bringing the dance moves, Hannah Overheu has shown me how to have the guts to make a long-term plan and work hard to execute it. Jason Bayly-Stark has always reminded me of the importance of spontaneous fun, and graciously tolerated my inconsistent engagement with our entrepreneurial venture. I have always appreciated occasions for happy times and stimulating discussion with Phil Baker, Ben Hanrahan, Jack Gregory, and Cam McLennan. I’m especially grateful to my wife Olivia. You are my partner in love, life, fun, and learning. I don’t know what I would have done without being able to test and contest my ideas with you. Your knowledge on energy and regulation has been so valuable; your love and support has been invaluable; and your patience and interest have always been appreciated. Finally, I must acknowledge and appreciate my writing and modelling comrade, Batfink, who sat, slept, and miaowed next to me throughout much of the work that produced this thesis. A cat’s devotion and affection are precious because you are not entitled to them, they have to be earned and deserved iv Abstract Hydropower reservoirs can provide a range of energy and water services. Proponents of multipurpose reservoirs as a climate change and water security ‘solution’ often neglect an important detail: the technical capacity for infrastructure to provide water services and social benefits is a necessary but not sufficient condition for their actual provision. Multipurpose operations constrain electricity generation and hydropower companies’ revenues. The opportunity costs of providing non-energy services are changing under the global transition to renewable energy systems. The value of water services shifts as water demand and supply change under short- term shocks, such as extreme weather events, and long-term trends, such as climate change and population growth. Under dynamic risks and trade-offs, profit-motivated hydropower companies do not have the discretion nor information to efficiently and equitably provide water services. The potential social benefits of multipurpose hydropower operations are not automatic; they need to be secured through flexible regulation and economic incentives. This thesis considers the governance of multipurpose hydropower reservoirs and the dynamic trade-offs between the profits of hydropower companies and the welfare of water users. First, I review existing hydropower governance instruments to propose three reforms: (1) period relicensing of reservoir operations, (2) pricing water services to reflect the value of foregone hydroelectricity generation, and (3) climate/green performance bonds with a conditional interest rate. Second, I consider how economic and institutional analyses could be incorporated into the governance of water systems under complex risks. Insights are drawn from a participatory risk assessment process in Vietnam where local government officials are piloting irrigation water pricing reforms. Third, I use hydro- economic modelling of a multipurpose reservoir in Tasmania, Australia to examine the conditions under which irrigation water pricing could be an appropriate reform in other locations. Finally, I consider a major practical barrier to pricing water services from hydropower reservoirs: the transmission of price spikes in electricity markets to water prices. I estimate the cost of price stability controls by modelling an alternative water tariff which incorporates the intertemporal opportunity costs of irrigation water extractions. I conclude by outlining future research on regulating hydropower reservoirs to support the resilience of social-ecological systems to water insecurity. v Contents Declaration i Acknowledgements iii Abstract v List of Tables xi List of Figures xiii 1. Introduction 1 2. Reforms for Resilience: How to Make ‘Multipurpose Hydropower a Sustainable Outcome 7 2.1. Introduction 7 2.2. The Governance of Multipurpose Hydropower Operations Under Risks 9 2.2.1. Multipurpose Hydropower Operations 9 2.2.2. Instruments for Hydropower Governance 13 2.2.3. Water Security Risks and Energy Market Risks 18 2.3. Water Allocation and Resilience 25 2.3.1. Water Allocation and Hydropower Governance 25 2.3.2. Resilience of Multipurpose Hydropower Systems 27 2.4.