Handbook of Renewable Energy

DOI 10.1007/978-3-642-39487-4_5-1
# Springer-Verlag Berlin Heidelberg 2014

Risk Assessment in Hydroenergy Projects: Learning from Experts and

Data
Serhat Kucukali*
Department of Civil Engineering, Çankaya University, Ankara, Turkey

Abstract
The purpose of this chapter is to assess the potential risks of hydroenergy project by using expert
judgments and multi-criteria scoring technique. The risk assessment tool analyzes technical, economic,
environmental, social, and regulatory risks. The risk assessment framework includes three activities:
(i) identification of potential risks and determination of their relative importance, (ii) risk analysis, and (iii)
risk evaluation by using a evidence-based multi-criteria scoring technique. A survey was conducted with
the experts with over than 10 years’ experience in the planning and construction of hydroenergy projects
in order to determine the relative importance of external risks. The most concerned risks are identified as
site geology and environmental issues. Applicability of the proposed tool is tested on multiple
hydroenergy projects in Turkey. The findings of case studies showed that the perception of inadequate
understanding of the potential risks can lead to cost overrun or project failure. The risk assessment tool can
give a competitive advantage in the field of hydroenergy system deployment and it can reduce
predevelopment time and costs.

Keywords
Hydroenergy; Risk assessment; Expert judgments

Introduction
Hydropower, as a capital-intensive and site-specific technology, involves various external risks such as
economic, environmental, social, and regulatory. These risk factors can have a negative effect on project
outcome or can lead to failure in projects. Investors and project developers need to understand these
challenges in order for their businesses to be successful (Kucukali 2011). As there is no way to eliminate
all those risks, they have to be assessed and mitigated as much as possible.
Hydropower plant (HPP) project life cycle includes three main phases: planning, construction, and
operation (Fig. 1). Each phase has different risk-reward characteristics. The first two phases do not
generate revenue; in contrast they bring about many costs and uncertainties (Lawrence and Dickson
2010). Gordon (1983) identified the main factors which may lead to cost overrun as the rate of inflation
and site geology. The International Energy Agency (IEA) (2012) reported that depending on the nature of
the project, the main risks potentially affecting hydroplant financing may include construction risk,
hydrologic risk, off-taker risk, regulatory risk, and life cycle risk. Accordingly, Binquet (2010), based
on his 35 years of experience in the design and construction of hydropower projects worldwide, pointed
out that the hydropower projects that did not involve tunnels and caverns like Birecik in Turkey and Ita in

*Email: kucukali@cankaya.edu.tr

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Handbook of Renewable Energy
DOI 10.1007/978-3-642-39487-4_5-1
# Springer-Verlag Berlin Heidelberg 2014

High
Risk

Planning Phase
Feasibility studies Construction Phase
Project appraisal and investment decision
Engineering design Operation Phase
Construction
Environmental Impact Assessment (EIA) Connection to grid
Licensing and permitting Plant operation
Testing and commissioning
Land leasing and acquisition Electricity generation
Low Financing
Risk
Speculative Return Reliable Return

Fig. 1 Hydropower project life cycle phases

Brazil completed on time and with budget identical to what was expected, whereas projects that involved
long tunnels or located near active faults experienced considerable cost overruns and delays like the Dul
Hasti hydropower project in India. Another expert from the World Bank, Palmieri (2012), noted that the
unforeseen geological conditions (unexpected rock types along tunnel alignment, fault areas, and karstic
cavities) are major contributors to cost and schedule overruns in hydropower projects worldwide.
Another important challenge for hydroenergy development is environmental issues. While standard
environmental impact assessments may have been enough in the past, more detailed guidelines on the
evidence required are now provided by international financial institutions such as the World Bank (2013),
European Bank for Reconstruction and Development (EBRD 2013), and European Investment Bank (EIB
2013). Mitigating the various negative environmental impacts of hydroschemes is vital to complete
licensing procedures promptly and to secure funding from international financial organizations (Ford
2008). Moreover, Gronbrekk et al. (2010) reported that investors and project developers are stressing the
importance of managing environmental risks in hydropower projects especially in developing countries.
The most common risk assessment models, such as Monte Carlo simulation and tornado chart, are
based on complex numerical calculations (Mund 2004). However, it is very difficult to deal with some
types of risks such as environmental and regulatory risks by using those numerical methods (Pike 2010;
Kucukali 2014a). So, using expert judgments and linguistic expressions can be a better way to cope with
such type of risk elements. For instance, Mermet and Gehant (2011) stated that the statistical treatment of
data cannot replace the expert judgments in the operational risk management process of hydropower
plants. Mermet and Gehant (2011) identified the major sources of risks for the operation and maintenance
of hydroelectric power plants by (i) making discussions with the operational staff, (ii) analyzing the
investment plans and technical and incident reports, and (iii) conducting technical visits to the hydro-
power schemes. Figure 2 presents another expert (senior engineer economist of Electricite de France) risk
assessment approach during the operation phase of hydropower plant, and their associated impacts. This
simple and action-oriented approach also provides adequate mitigation measures that may be offset major
risks (Branche 2011).
The objective of this study is to assess the potential risks of hydroenergy projects in an integrated
approach by using expert judgments and multi-criteria scoring technique based on measurable relevant
data and documented evidence. The methodology addressing the decision circumstances at a planning
phase of an investor investigates the risk-reward characteristics of alternative hydroenergy projects in
order to select the most appropriate one.

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Handbook of Renewable Energy
DOI 10.1007/978-3-642-39487-4_5-1
# Springer-Verlag Berlin Heidelberg 2014

Fig. 2 An expert risk assessment approach for hydropower plants in operation (Branche 2011)

Identification of Potential Risks Analysis of Risks Evaluation of Risks

Case Studies Root-Cause Analysis Data-Based Scoring

Expert Judgments Risk Driven Factors Spider Diagrams
Literature Review Relevant Parameters Risk Index

Fig. 3 Risk assessment framework

Risk Assessment Framework

Every economic activity implies risks. A risk is defined as the uncertainty to reach objectives due to
unexpected events and regulations (Mermet and Gehant 2011). The proposed risk assessment framework
includes three activities: (i) identification of potential risks and determination of their relative importance,
(ii) risk analysis, and (iii) risk evaluation (Fig. 3). The framework is compatible with the ISO 3100 (2009)
risk management principles and guidelines in which communication and dialogue has an important role.
The risk assessment activities are described in the following sections.

Identification of Potential Risks

In the context of the study, a survey was conducted with the experts with over than 10 years’ experience in
the planning and construction of hydroenergy projects in order to determine the relative importance of
external risks. The external risks, which are partly under the control of companies, were considered in the
model. A total of ten classes of risk factors were determined based on the expert interviews, field studies,
and literature review as follows: site geology, land use, environmental issues, grid connection, social
acceptance, macroeconomic, natural hazards, regulatory uncertainties, access road, and revenue. The
survey was done based on a qualitative basis and 15 experts were asked to mark the level of identified risk
factors via e-mail as low, medium, high and very high (Table 1). The same risk identification approach was
also used by Ernst and Young (2010), Fraser (2010), Kucukali (2011), and Mermet and Gehant (2011).
Fraser (2010) stated that the success of this type risk identification process is a result of its simple
preparation and effectiveness of purpose and achieved good results with the application of this risk
assessment approach to Hydro One, which is the largest electricity delivery company in Ontario
since 1999.

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Handbook of Renewable Energy
DOI 10.1007/978-3-642-39487-4_5-1
# Springer-Verlag Berlin Heidelberg 2014

Table 1 The expert ratings on potential risks in hydroenergy projects. The survey was done based on a qualitative basis where
low = 1, medium = 2, high = 3, and very high = 4
Site Land use Environ. Grid Social Macro Natural Regulatory Access
geology and permits issues connection acceptance economic hazards uncertainties road Revenue
Exp. 1 2 1 2 1 3 2 2 2 2 3
Exp. 2 3 2 3 3 3 1 1 2 1 1
Exp. 3 3 2 3 3 3 3 2 3 2 3
Exp. 4 4 2 3 2 2 1 1 1 1 2
Exp. 5 3 3 3 2 3 2 2 2 2 3
Exp. 6 3 1 2 1 2 2 2 1 2 2
Exp. 7 3 4 3 2 3 4 3 3 2 4
Exp. 8 3 4 3 4 2 4 3 3 3 4
Exp. 9 2 4 3 2 2 2 2 3 2 4
Exp. 10 3 3 4 2 4 2 4 1 3 1
Exp. 11 3 3 3 1 2 1 2 2 1 4
Exp. 12 4 3 3 3 2 2 3 2 2 2
Exp. 13 3 3 3 1 2 2 1 1 1 1
Exp. 14 3 3 4 3 3 2 2 2 2 2
Exp. 15 2 3 4 3 4 3 2 3 2 3
Total 44 41 46 33 40 33 32 31 28 39
score
Relative 12.0 % 11.2 % 12.5 % 9.0 % 10.9 % 9.0 % 8.7 % 8.4 % 7.6 % 10.6 %
weight

Road Access 7.6%

Regulatory Risks 8.4%
Natural Hazards 8.7%
Type of Risk

Macroeconomic 9.0%
Grid Connection 9.0%
Revenue 10.6%
Social Acceptance 10.9%
Land Use and Permits 11.2%
Site Geology 12.0%
Environmental Issues 12.5%

0% 5% 10% 15%
Relative Importance

Fig. 4 Relative weights of potential risks in hydroenergy projects. Weights reflect the relative importance of each criteria and
the values obtained from the expert ratings

The participants to the survey have considerable experience in the hydro energy sector. For instance,
Expert 14 is the head of the project finance department of a well-known bank in Turkey that has
international awards for the implementation of sustainability principles successfully, and Expert 15 is
the chief risk manager in Europe’s largest renewable energy company. The survey was done based on a
qualitative basis, and 15 experts were asked to mark the level of 10 identified risk factors via e-mail as low,
medium, high, and very high (Table 1). The relative weight of each risk factor was obtained by dividing its
total score to overall score of total ten risk factors. The survey results are presented in Fig. 4 and the most

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Handbook of Renewable Energy
DOI 10.1007/978-3-642-39487-4_5-1
# Springer-Verlag Berlin Heidelberg 2014

important risks appeared to be environmental issues and site geology. The findings are consistent with the
findings of Gordon (1983) and survey results of Gronbrekk et al. (2010). Detailed information for the
identified risks is given below.

Site Geology
This parameter is related with the geotechnical properties of the construction site, and it also represents the
geological risks in the construction site. Rock Quality Designation (RQD) is used to represent the quality
of site geology (Waltham 2009). The geological risks that are taken into account in the study are distance
from active faults, large-scale fault and fractured zones, and large-scale landslide area (Kucukali 2014b).
In order to avoid delays and extra costs during the construction phase, favorable geological conditions at
the potential site are desirable.

Grid Connection Distance

Construction of a new transmission line is costly and could be complicated since it involves obtaining
appropriate permits and may also require land acquisition (Kucukali 2014b). Therefore, the closer the
hydropower plant is located in the existing transmission lines, the lower the costs of integration to the grid
will be. So, the distance to the grid connection should be short, and the risk score is directly proportional
with the grid connection distance.

Access Road
A successful hydropower project is dependent on topographic and suitable site conditions which permit
proper sizing and better arrangement of the principal features (Zipparro and Hasen 1993). Once the
hydroturbines are delivered to the site, the access road has to be able to bear heavy trucks with trailers and
a heavy mobile crane. The demand to the access road depends on the installed capacity of the power plant
and sizes of the hydroturbine.

Environmental Issues
The hydropower scheme’s possible impacts on the natural environment through habitat destruction and
biodiversity loss must be taken into account. Sensitivity regarding environmental aspects must be
ensured, so that critical habitats, threatened species, and spawning areas can be protected. Since, most
of the developing countries have weaker regulatory regimes and institutional frameworks, it can be a good
strategy to use internationally acknowledged guidelines to ensure environmentally sustainable hydro-
power projects (Gronbrekk et al. 2010). For example, the European Bank Reconstruction and Develop-
ment (EBRD) (2013) follows five environmental criteria during the Environmental Impact Assessment
(EIA) of small hydropower (SHP) projects. Those criteria are environmental flow, water quality, fish
passage and protection, watershed protection, and threatened and endangered species (Ford 2008).
EBRD’s document is a kind of guideline that enables one to develop SHP plant with respect to natural
environment (Kucukali 2014a).

Social Acceptance
Social acceptability is regarded as a key aspect to be considered in addressing the potential for deployment
of hydroenergy. The project should not stop or reduce local communities’ ability to use either the river or
surrounding lands to provide a livelihood, i.e., by fishing, as leisure amenity or to utilize the land around
the river where they may rely on the river for irrigation purposes (EBRD 2013). A public consultation
process should be carried out before the development of any project. Furthermore, Social Risks can be
mitigated by establishing cooperation with local community and sharing the project benefits.

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Land Use and Permits

The hydropower projects must have all the necessary permits that are defined under national laws and
regulations. Water Utilization Right Agreement, Land Use Permits and Acquisition, Grid Connection
Agreement, Construction Permit, etc. are the main approvals which a hydropower plant must obtain
during the project planning phase. Private lands involve more complex permitting procedure, and
therefore, they have higher risk scores compared to forestlands (Table 2).

Macroeconomic Risks
Macroeconomic risks are not related to the project in particular, but to the economic environment in which
it operates such as interest rate, inflation, and currency exchange rates (Yescombe 2002). In this chapter,
macroeconomic risks are considered in relation with the macroeconomic issues and country-specific
conditions. Some national banks use local currency as a strategy to finance construction costs of the
hydropower projects. Increase in exchange and interest rates can have negative effects on project
economic performance. Many economists stated that there is a link between the price instability and
current account deficit of a country (Fratzscher et al. 2010). Accordingly, current account balance of a
country as a percentage of gross domestic product (GDP), which reflects the price stability of a country, is
selected as the relevant parameter to evaluate macroeconomic risks.

Regulatory Uncertainties
The surveys conducted by Gronbrekk et al. (2010) identified the highest risk as political and regulatory
changes for renewable energy projects in developing countries. Similarly, Ernst and Young (2010)
identified the most important business risk for 2010 as regulation and compliance. For hydropower
development, regulatory issues include: the rules of the electricity market where the project will operate,
the track record of the regulating agency, mechanisms in place for feed in tariffs, changes in laws and
regulations, enactment of new laws and regulations, and predictability of policy framework (IEA 2012).
The hydroelectric generation is influenced by the actions of regulators. The rules under which regulators
operate will likely change as the past experiences shows. The hydropower projects which may be exposed
to regulatory risk can result in revenue loss and O&M cost increase. Methods for mitigating the risk
include increased and more effective communications with the responsible government agencies. Reg-
ulatory uncertainties are related to the level of political stability of a country. If the country has robust
legislation for hydroenergy and environmental issues, the risk is regarded as minimum and has low-risk
score (Table 2).

Natural Hazards
The natural hazards considered in this study are earthquake, climate change, and flooding. Those natural
hazards can cause widespread damage and interruption of hydroelectricity generation. The probability of
each natural hazard is evaluated. The highest risk of the natural hazards is assessed in the tool. For
example, in Turkey, there are various types of active faults: the North Anatolian Fault is the biggest active
fault, and the East Anatolian Fault is the second biggest. So the earthquake is always a natural hazard risk
for all projects.

Revenue
In the case of hydroenergy, revenue result from the electricity sold and electric generation (E) is
proportional with the discharge and effective head as follows:

E ¼ r  g  Q  He 
 t (1)

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Table 2 Scoring procedure of the potential risks in hydroenergy projects

Risk factor Score = 1 Score = 2 Score = 3 Score = 4
1. Site geology There is no underground Rock Quality Designation RQD is fair: RQD = % RQD is poor–very
works (i.e., tunnels and (RQD) is good–very 40–60 poor: RQD = %0–50
caverns) good: RQD = %60–100 or the project is
located near an active
fault or landslide
areas
2. Grid connection The distance of the The distance of facility to The distance of facility to The distance of
facility to grid connection grid connection is grid connection is facility to grid
is less than 5 km between 5 and 15 km between 15 and 25 km connection is higher
than 25 km
3. Access road Access road is able to Access road is partially Access road is not able to A new road must be
bear heavy lorries with able to bear heavy lorries bear heavy lorries with built that is higher
trailers and a heavy with trailers and a heavy trailers and a heavy than 5 km in length
mobile crane mobile crane mobile crane under the scope of the
project
4. Environmental The project has a detailed The project has an The project has no The project is located
issues Environmental Impact Environmental Impact Environmental Impact close to an
Assessment Report. Assessment Report Assessment Report or the environmentally
Biodiversity issues are report does not evaluate protected area (i.e.,
investigated with field relevant parameters natural parks, Natura
measurements sites)
5. Social A robust public A public consultation A public consultation The facility limits
acceptance consultation process has process has been carried process has been not local communities’
been carried out. No out. The locally affected carried out ability to utilize the
major objections from community has been surrounding lands
local communities were notified and adequate provide a livelihood
raised mitigation measures have
been taken
6. Land use and Forest Property of treasury Private property: Private property:
permits Agricultural land Residential land
7. Macroeconomic The country’s current The country’s current The country’s current The country’s current
account balance (% of account balance (% of account balance (% of account balance (% of
GDP) is > %3 GDP) is between 0 % and GDP) is between 3 % GDP) is < %3
3% and 0 %
8. Regulatory The country has stable The country has legal The country has instable The country has no
uncertainties and mature legal framework for and immature legal regulation for
framework for deployment of framework for hydroenergy
deployment of hydroenergy. The deployment of deployment
hydroenergy. The frequency of annual hydroenergy. The
frequency of annual legislation change is frequency of annual
legislation change is between 0.25 and 0.5 legislation change is
<0.25 >0.50
9. Natural hazards Natural hazard Occurrence probability is Occurrence probability is Occurrence
(earthquake and flood) between 1 % and 10 % between 10 % and 50 % probability is higher
occurrence probability is than 50 %
less than 1 %
10. Revenue Design discharge Design discharge Design discharge Design discharge
occurrence probability is occurrence probability is occurrence probability is occurrence
more than 80 % between 60 % and 80 % between 40 % and 60 % probability is less
than 40 %

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# Springer-Verlag Berlin Heidelberg 2014

where r is the density (kg/m3) of water, g is the acceleration due to gravity (m/s2), Q (m3/s) is the
discharge, He is the effective head (m),
is the sum of the turbine and generator efficiency, and t is the
working time of the turbine (hour). Assessing accurate and sufficient hydrologic data during the planning
phase of a development is necessary to estimate energy yield accurately.

Analyzing and Evaluating Identified Risks

Hall et al. (2003) determined the specific investment cost (total investment cost of a project divided by the
installed capacity) of river-type hydropower plants in the USA in the range of 2,000–4,000 $/kW. Also,
they reported that the civil works account for 65–75 % of the capital cost. The specific investment cost of a
hydropower plant is the function of the net head and installed capacity. It is well known from the literature
that the specific investment cost increases as the head and installed capacity decreases (IRENA 2012). The
investment cost of a hydropower plant can be classified as follows: project design, land use and permits,
financial, civil works, electro- and hydromechanical equipment, and grid connection.
In the proposed tool, weighted sum multi-criteria scoring method is used for the risk evaluation process.
This method is widely used in multi-criteria decision-making applications. For example, Williamson
et al. (2011) used the same procedure to select the most appropriate low-head hydroturbine alternatives by
using quantitative and qualitative scoring. This approach is also applied in the Hydropower Sustainability
Assessment Protocol in order to assess the sustainability of hydropower projects (IHA 2013). Moreover,
the Japan International Cooperation Agency (JICA 2011) uses a multi-criteria scoring system to assess the
environmental and social impacts of infrastructure projects around the world.
Suggested scales in the proposed methodology range from 1 to 4, with one being the most preferable
and four being the least preferable. The scores are assigned based on measured data and documented
evidence (Table 3). The scoring criteria are indented to be objective (Table 2) and are based on
documented evidence. A four-point scale system enables one to determine the level of the risk of the
each criterion. The overall project risk score (PRS) is calculated from

w1  S 1 þ w2  S 2 þ . . . wn  S n
PRS ¼ (2)
S max

where w1 denotes the relative weight of the first risk factor, S1 stands for the attained score value for the
first risk factor, n is the number of risk factors, and Smax is the maximum score value that can be attained to
each risk (for this study Smax = 4). PRS has values in the range of 0.25–1 and higher PRS values indicate
higher project risks which can cause significant revenue loss. It should be noted that, although the project
has a low PRS value, if one of the risks has a score of 4, the project is still risky. This one risky factor can
still lead to cost or time overrun alone. Hence, in order to achieve project success, each risk factor needs to
be analyzed separately and should have a value lower than four. Then, the project risk score (PRS) is
calculated by taking the arithmetic mean of the overall scores, and a three-grade evaluation system is
established as follows: PRS < 0.5 low risk, 0.5  PRS < 0.75 moderate risk, and PRS  0.75 high risk.
Spider charts are used to visualize the risk profile of alternative projects.
The project risk score (PRS) ranges between the minimum and maximum values that are calculated by
Eq. 2. The PRS value is linked to the specific investment cost of hydropower plants presented in Table 3.

Table 3 Project risk score and its relation with unit investment cost
Project risk score Unit investment cost ($/kW)
Low risk: PRS < 0.5 1,000–2,000
Moderate risk: 0.5  PRS < 0.75 2,000–3,000
High risk: PRS  0.75 >3,000

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For example, if the PRS value of a hydropower project falls into high-risk category, the project is expected
to have unit investment cost higher than 3,000 $/kW.

Application of the Proposed Methodology: Case Studies from Turkey

Hydropower Plants in Turkey
Turkey is situated through a mountainous topography (average altitude = 1,132 m) and owns an annual
average runoff value of 186 billion m3 which favors ideal locations for hydropower development
(Kucukali 2014b). By September 2013, 69 storage-type and 365 run-of-river-type hydropower plants
have been in operation in the country with a total installed capacity of 15.5 and 5.6 GW, respectively
(TEIAS 2013). Hydropower has the highest share with 93.8 % among renewable energy sources in
Turkey in terms of installed capacity. Turkey has been divided into 26 river basins (Fig. 5); however, 97 %
of its economically feasible hydropower potential is distributed into 14 river basins (Table 4) which are

Fig. 5 River basins of Turkey

Table 4 Economically feasible hydropower potential of Turkey’s major river basins

River basin Energy potential (GWh/year) Power potential (MW) Drainage area (km2) Runoff (Tm3/year)
Euphrates 37,823 9,555 120,917 33.48
Tigris 16,562 4,890 51,489 21.81
East Black Sea 13,194 3,900 24,022 14
Coruh 10,973 3,247 19,894 6.46
Seyhan 6,957 1,788 20,731 7.06
East Mediterranean 6,749 1,856 22,484 12.27
Kizilirmak 6,420 2,116 78,646 6.28
Ceyhan 5,996 1,779 21,222 7.21
Antalya 5,345 1,437 22,615 7.76
Yesilirmak 4,984 1,257 36,129 5.54
West Mediterranean 3,240 881 14,518 11.24
Sakarya 2,585 1,191 56,504 6.03
West Black Sea 2,149 642 29,682 10.04
Aras 2,692 868 27,548 5.54
Total 125,669 35,407 546,401 155

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mostly situated in the mountainous areas. Euphrates River, with its 127,304 km2 of drainage area and
elevation range between 500 and 5,000 m, itself is responsible for 30 % of the country’s hydropower
potential. Turkey’s largest hydropower plants were constructed on the Euphrates River, namely, Ataturk
(P = 2,400 MW), Karakaya (P = 1,800 MW), and Keban (P = 1,330 MW). Moreover, the Black Sea
region, which has steep and rocky mountains that extend along the coastline, has a considerable
hydropower potential. The Eastern Black Sea region is of particular importance in terms of hydropower
potential due to its higher capacity factor, which is the ratio of actual operating hour per year to that of the
total. The projects developed by private sector for this basin account for 20 % of the total projects in the
country.
The Turkish Renewable Energy Law (Law No.5346), which comes into force in May 2005, defines a
reservoir area less than 15 km2 for hydropower plants and does not have a limit for installed capacity. Even
though it accelerated hydropower plant investments to an extent, these features specified in Law No.5346
cause private sector to shift their investments from small hydropower plants (SHP) to large hydropower
plants. For example, Koprubasi Dam, which is situated on the Western Black Sea Basin, having a height
of 108 m, a reservoir area of 5.9 km2, and a 79 MW of installed capacity, lies within the frame of Law
No. 5346. However, this creates a conflict between Turkey and the EU policy. In European Union member
states, countries limit the installed capacity and give the sector extra payments if they build SHP plant
(Kucukali and Baris 2009). For example, in Clean Development Mechanism, for hydropower projects
above 20 MW, member states must ensure that relevant international criteria and guidelines will be
respected during the development of such project activity (Branche 2010).
In Turkey, a company that intends to have an SHP license must sign the Water Usage Rights Act with
the General Directorate of State Hydropower Works (DSI). In this context, the company must meet the
requirements stated in this act. In applications to get an SHP license, river basin plan prepared by DSI is
taken into account. In Turkey, the Environmental Impact Assessment (EIA) report was not required for
hydropower plants with less than 50 MW installed capacity before 17 July 2008. However, a regulation
was issued on this date stating that hydropower plants having an installed capacity between 0.5 and
25 MW have to undertake an EIA. However, this regulation did not have an expected effect since many of
licenses for hydropower plants were granted before the enactment of this regulation.
After the enactment of Turkish Renewable Energy Law in May 2005, hydropower plant operators
received a guaranteed price of 73 $/MWh for the generated electricity under the scope of the law for
10 years without a limitation for the installed capacity. Table 5 clearly shows the influence of the
Renewable Energy Law on the development of small hydropower plants in Turkey. The hydropower
potential increased 15 % in 2007 as compared to 2006. Moreover, the construction of hydropower plants
increased by a factor of four in 2007 as compared to 2006, and the planned plants are almost doubled. By
June 2012, hydropower has the highest share with 89 % among renewable energy sources in Turkey in
terms of installed capacity. 290 hydropower plants have been in operation with a total installed capacity of
16,265 MW, and 589 power plants have been in the construction stage under the scope of the Renewable
Energy Law (EMRA 2012).

Table 5 Progress in hydropower plants after the enactment of Renewable Energy Law in Turkey (DSI 2006; Tutus 2008)
In operation In operation Under construction Under construction Planned Planned
(2006) (2007) (2006) (2007) (2006) (2007)
Number of projects 142 148 40 158 573 977
Installed capacity 12,788 13,306 3,197 6,564 20,765 22,260
(MW)
Energy (GWh/yıl) 45,930 47,590 10,518 23,620 73,851 79,177

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Fig. 6 Locations of the Koknar, Sifrin, and Kulp IV hydropower schemes

Table 6 The design characteristics of assessed hydropower plantsa

Name Q (m3/s) H (m) P (MW) Lt (km) Lg (km) River basin
1. Koknar 2.50 373 8.20 Tunnel is absent 5 West Black Sea
2. Sifrin 3.40 224 6.74 1 33 Euphrates
3. Kulp IV 20 75 12.68 1.88 30 Tigris
a
Q design discharge, H effective head, P installed capacity, Lt tunnel length, Lg grid connection distance

Table 7 Cost breakdowns of Koknar, Sifrin, and Kulp IV hydropower projects

Cost item ($) 1. Koknar 2. Sifrin 3. Kulp IV
Project design 600,000.00 354,000.00 1,180,000
Civil works 13,000,000.00 16,865,500.00 25,700,000
Electromechanical equipment 3,800,000.00 5,013,806.00 7,490,000
Hydromechanical equipment 400,000.00 1,984,469.00 4,800,000
Grid connection 300,000.00 5,423,667.00 5,400,000
Land use and permits 3,600,000.00 600,000.00 2,600,000
Financial 1,300,000.00 6,120,000.00 5,700,000
Other – 845,500.00 –
Total cost 23,000,000.00 37,206,942.00 52,870,000
Unit investment cost ($/kW) 1,551 2,971 4,162

Case Studies from Turkey

The proposed risk assessment technique is applied to real-time hydropower projects in Turkey, namely,
Koknar, Sifrin, and Kulp IV. The locations of those projects are shown on map in Fig. 6 and the
characteristics are presented in Table 6. All of the assessed projects are diversion type where the river
flow is diverted into an artificial channel or a tunnel. Since the installed capacity of a hydropower plant is
linearly correlated with the discharge and head, hydropower operators in Turkey have a tendency to
maximize those parameters by reducing the amount of environmental flow and increasing the head by
selecting diversion-type HPP (Kucukali 2014a).

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Table 8 Analysis of the investment cost of Kulp IV hydropower plant (P = 12.7 MW, unit investment cost = 4,163 $/kW)
Estimated Actual Cost Share of total
Description cost ($) cost ($) increase (%) cost (%) Reason
Project design 1,090,000 1,180,000 8.3 2.2 Additional project designs
Civil works 12,500,000 25,700,000 105.6 48.6 Poor geology (serpentine) at the tunneling site
Electromechanical 6,790,000 7,490,000 10.3 14.2 Under estimated costs of Technical equipment
equipment demand
Hydromechanical 8,900,000 4,800,000 46.1 9.1 The prices of DSI are very high compared to the
equipment market
Grid connection 2,600,000 5,400,000 107.7 10.2 Technical demands by TEIAS and length of the
power supply line were increased
Land use and 2,200,000 2,600,000 18.2 4.9 The cost of the forest usage permit was not taken
permits into account
Financial 3,100,000 5,700,000 83.9 10.8 Increase in interest rates because of financial crisis

Table 9 Analysis of the investment cost of Sifrin hydropower plant (P = 6.74 MW, unit investment cost = 2971 $/kW)
Estimated Cost Share of total
Description cost ($) Actual cost ($) increase (%) cost (%) Reason
Project design 300,000 354,000 18 0.95 Revision of the project
Civil works 8,174,345 16,865,500 106.3 45.33 Unforeseen geotechnical conditions and
project revision
Electromechanical 5,013,806 5,013,806 0 13.48 –
equipment
Hydromechanical 1,984,469 1,984,469 0 5.33 –
equipment
Grid connection 1,080,000 5,423,667 402.2 14.58 The length of the power supply line was
increased
Land use and permits 225,000 600,000 166.7 1.61 Unforeseen expropriation costs
Financial 6,120,000 6,120,000 0 16.45 –
Extra costs 750,000 845,500 12.7 2.27 –

Table 10 Analysis of the investment cost of Koknar hydropower plant (P = 8.24 MW, unit investment cost = 1551 $/kW)
Estimated Share of
Description cost ($) Actual cost ($) Cost increase (%) total cost (%) Reason
Project design 600,000 600,000 0.00 2.61 –
Civil works 10,000,000 13,000,000 30.00 56.52 Landslides occurred during the
excavations
Electromechanical 2,800,000 2,800,000 0.00 12.17 –
equipment
Hydromechanical 1,000,000 1,000,000 0.00 4.35 –
equipment
Grid connection 300,000 400,000 33.33 1.74 Increase in material prices
Land use and permits 200,000 300,000 50.00 1.30 Additional permission costs
Financial 2,500,000 3,600,000 44.00 15.65 Additional loan costs
Extra costs 600,000 1,300,000 116.67 5.65 Challenging site and weather
conditions

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Fig. 7 The photo of the serpentine at the tunnel route of Kulp IV hydropower scheme. This unforeseen rock type along the
tunnel alignment caused the increase of the construction cost by a factor of two

Although the installed capacities of the evaluated projects are very close and in the range of
8.2–12.7 MW, the unit investment costs of the projects vary between 1,551 and 4,162 $/kW (Table 7).
Those results confirm the site-specific characteristics of the hydropower projects. For all assessed
projects, civil works dominate the total cost in the order of 45–56 % which are consistent with the
published data (IRENA 2012). Tables 8, 9, and 10 present the investment cost analyses of Kulp IV, Sifrin,
and Koknar hydropower plants. All of the three projects experienced cost overruns (100 % for Kulp IV,
57 % for Sifrin, and 28 % for Koknar) mainly because of the unforeseen geological conditions. For
example, the estimated cost of civil works for Kulp IV increased twofold because of the unexpected rock
type (serpentine) along tunnel alignment (Fig. 7). Those findings are in agreement with the judgments of
Binquet (2010) and Palmieri (2012).
Table 11 shows the application of the risk assessment tool to the Koknar HPP. The project risk scores
are attained based on the principles and procedures presented in Table 2, and the justifications of risk
scores are given in Table 11. For the given project, the key risks appeared to be country related such as
macroeconomic risks and regulatory uncertainties (Table 11). For instance, Turkey’s current account
balance as a percentage of GDP is 7.5 % at the end of 2013 which indicates that the country has high
macroeconomics risks which can lead to an increase in currency and interest rates. Therefore, the
macroeconomic risk factor has a score of 4 for the project. Turkey does not have stable and sufficient
regulations for the devolvement of hydropower and for environmental issues. Electricity Market Law
(Law No. 4628) has changed 8 times since 2001 and EIA Regulation (Regulation No. 25318) has changed
13 times since 1994. The frequency of annual legislation change is 0.72. For example, the Environmental
Impact Assessment (EIA) report was not required for hydropower plants with less than 50 MW installed
capacity before 17 July 2008. The regulation was changed on this date stating that hydropower plants
having an installed capacity between 0.5 and 25 MW have to undertake an EIA. So, the regulatory risk
factor has a score of 3 for the project. Another regulatory risk for hydropower development in Turkey is
the implementation of European Union Water Framework Directive. Since Turkey is a European Union
(EU) candidate, its laws and policies are expected to be consistent with those of EU. European Union
adopted the Water Framework Directive (WFD) in October 2000 which constitutes that a good ecological
status for all aquatic ecosystems must be sustained. In this respect, EU countries must prepare their
integrated river basin management plants and establish their monitoring networks. Turkey has begun to
adopt the Water Framework Directive in its legislation system by 2012 with the enactment of Regulation
on Protection of Water Basins and Preparation of Management (Official Gazette no. 28444, 17 October

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Table 11 Risk scorecard for the Koknar HPP

No Risk factor Score Evidence
1 Site geology 1 There is no tunnel construction under the scope of the project
2 Grid connection 1 Grid connection distance of the scheme is 4.9 km
3 Access road 1 Existing roads are capable for the construction of the scheme, and there is no need to build new
roads
4 Land use and 1 The scheme is located in a forest land
permits
5 Environmental 2 The project has Environmental Impact Assessment Report, but the biodiversity issues are not
impact investigated in detail, supported with field studies
6 Social acceptance 2 A public consultation process has been carried out. The locally affected community has been
notified, and adequate mitigation measures have been taken
7 Macroeconomic 4 Turkey’s current account balance as a percentage of GDP is 7.5 % at the end of 2013
(Economist 2013)
8 Regulatory 3 Turkey does not have stable and sufficient regulations for deployment of hydroenergy and
uncertainties environmental issues. For instance, Electricity Market Law has changed eight times since 2001
and EIA Regulation has changed 13 times since 1994. The frequency of annual legislation
change is 0.72
9 Natural hazard 3 The most important natural hazard for the project site is severe earthquake, and its occurrence
probability is between 10 % and 50 % (Linnerooth-Bayer et al. 2005)
10 Revenue 2 There is no weir and dam at the upstream of the scheme. For the energy yield estimate,
sufficient and reliable stream flow data are used, and calculations are done by experts in this
field
Project risk score (PRS) = 0.47

2012). In the near future, it is highly possible that small hydropower plants may sustain their current
operational conditions and be largely developed in Turkey if they generate electricity with respect to the
environment and meet the ecological requirements (Kucukali 2014a).
For the energy yield estimate of the Koknar HPP, sufficient and reliable stream flow data are used and
calculations are done by experts. Also, there is no weir and dam at the upstream of the facility (Fig. 8). So,
the revenue risk has a score of 2. There is no tunnel and new road constructions under the scope of the
project which yield the score of site geology and access road as one. By using Eq. 2, the cumulative effects
of ten risk factors were evaluated and the PRS of Koknar HPP is computed as 0.47 which means that
the project involves low risk. Based on the PRS of the facility, unit investment cost falls into
1,000–2,000 $/kW range which is in agreement with the observed unit investment cost value of
1,551 $/kW. The risk assessment tool is also applied to other hydroenergy projects. For Sifrin and Koknar
HPPs, PRS values are calculated as 0.67 and 0.78, respectively. Again there is good agreement between
the forecasted (Table 2) and actual unit investment cost values of the projects (Table 7). Figure 9 shows the
risk profiles of assessed hydroenergy projects in a spider chart. This graphical representation enables one
to compare risk-reward characteristics of alternative projects in an easy-to-read profile.

Conclusions
In this study, a practical risk assessment framework is proposed for hydroenergy projects based on an
integrated approach. The proposed risk assessment technique is applied to three different hydropower
projects in Turkey. Project risk score (PRS) values calculated are 0.47, 0.67, 0.78 for Koknar, Sifrin, and
Kulp IV hydropower schemes, respectively. The Koknar HPP has the lowest project risk score (PRS)

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Fig. 8 Photos of the Koknar hydropower plant. (a) power house and (b) stream flow measurement gauge

Koknar
Site Geology
Sifrin
Revenue Grid Connection
Kulp IV

Natural Hazard Access Road

Land USe and

Regulatory Risks Permits

Environmental
Macroeconomic
Impact
Social
Acceptance

Fig. 9 Risk profiles of Koknar, Sifrin, and Kulp IV hydroenergy projects. For each identified risk factor, the level of risk is
scored on a scale from 1 (low) to 4 (very high)

mainly because the large underground works under high rock cover such as tunneling were absent in this
project. The calculated PRS values of the assessed hydropower projects are in agreement with the unit
investment cost values of HPPs.
By applying the proposed methodology, investors and project developers can understand the chal-
lenges and risk-driven factors at the initial stage of a project in order for their businesses to be successful.

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Equally, potential investors and financiers can understand and quantify potential risks such as environ-
mental issues and geological risks before deciding to proceed. The risk assessment tool can give a
competitive advantage in the field of hydroenergy system deployment, and it can reduce predevelopment
time and costs. Additionally, project developers and investors can develop a strategy in project planning
stage to cope with the project risks and complex permitting procedure. For now, the investigated sites
cover Turkish hydropower plants. However, the developed tool can be applied to other hydropower
projects worldwide by adjusting the relevant parameters. The main advantages of the proposed method-
ology are its ease of use and simplicity.

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