Financial viability, in this context, is the ability of an entity to continue to achieve its operating objectives and fulfill its mission from a financial perspective over the long-term.
Financial assessments at the project preparation stage have a number of aspects, including project costs, revenue estimates, project funding mechanisms, and financial risks. These inputs inform financial modelling, which provides a determination on overall financial viability and allows different scenarios and assumptions to be tested.
Adhering to good practice in financial viability assessment can help a project developer, owner or operator ensure that a project can manage financial issues under a range of scenarios, service its debt, and pay for all plans and commitments including those concerned with social and environmental impacts.
Understanding good practice
International industry good practice in financial 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. Financial Viability is addressed in P-9 for the preparation stage, I-6 for the implementation stage and O-7 for the operation 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. Financial Viability is addressed in Section 1.