This study assessed the impacts of various investment portfolios for catchment management activities on the cost-benefits of small hydropower schemes, in two case study catchments in Kenya and Tanzania, and analyzes the return-on-investment for the hydropower developers. Catchment degradation trends, climate change impacts and socio-economic changes increasing competing water use were considered. Overall, the return-on-investment analysis shows that to ensure hydropower sustainability, it is needed to (i) implement long-term viable tariffs; (ii) accept long-term investment horizons, and (iii) accept sub-commercial discount rates for investments in the environment.
For the two study catchments, satellite imagery and field observations were combined to perform a land degradation assessment and to identify trends. Secondly, baseline hydrological conditions were assessed using a hydrological simulation model. Future changes in hydrology and hydropower generation were evaluated by running the biophysical model for a Business-as-Usual scenario, accounting for land degradation trends, changes in water use, and climate change.
Subsequently, the impacts of three catchment investment portfolios (low, medium, high) containing different catchment activities were quantified with respect to the BaU scenario. Benefits and costs were analysed for the hydropower developers to evaluate whether it makes sense for them to invest in improved catchment activities. For one of the catchments this is clearly the case (Kiwira, Tanzania).
The analysis shows that the impacts of climate change on revenue from hydropower are in the same order of magnitude as the other negative anthropogenic factors: increased domestic water use demand in the catchment and land degradation due to poor conservation of natural areas and poor agricultural practices.
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