Economic viability is informed by financial analysis but takes a broader approach to costs and benefits than just financial considerations. The economic analysis typically encompasses a larger geographic scale, examining the national or regional implications of the project and social and environmental externalities.
The main method for assessment of economic viability of a project is a Cost-Benefit Analysis (CBA). Costs and benefits are expressed as far as possible in monetary terms so that they can be compared on an equal level. A project is assessed as economically viable if the project benefits exceed the project costs.
Conducting economic viability assessments can help to confirm a rationale for public investment, to fulfil regulatory requirements, or to demonstrate to project stakeholders that the project will provide an overall economic benefit to a region.
Understanding good practice
International industry good practice in economic viability for hydropower projects is defined in the Hydropower Sustainability Guidelines on Good International Industry Practice (HGIIP).
The guidelines were published by the International Hydropower Association and are governed by the Hydropower Sustainability Assessment Council, a multi-stakeholder group of representatives of civil society, industry, governments and financial institutions.
Assessing project performance
Two assessment tools are available to measure hydropower project performance:
The Hydropower Sustainability Assessment Protocol (HSAP) is used by independent accredited assessors to consider whether a project has achieved good and best practice at different stages of its life cycle. Economic Viability is addressed in P-11 for the preparation stage.
The Hydropower Sustainability ESG Gap Analysis Tool is used by independent accredited assessors to help project teams address any gaps against good practice in environmental, social and governance topics across 12 assessment sections. Economic Viability is not addressed in the HESG Tool.