Planning water resources development in an uncertain climate future: a hydro-economic simulation framework applied to the case of the Blue Nile

This research developed an integrated framework for conducting economic assessment of water resources infrastructures in the context of climatic and development uncertainty. Two levels of simulation make up the framework: the hydrological, based around the river basin routing model; and the economic, which utilizes Monte Carlo simulation methods to simulate the net present value of projects given variation in economic model parameters. A number of linkages between climate and the performance of the system were included: changes in runoff, reservoir evaporation rates and crop water requirements, as well as economic changes in the value of water, energy and carbon offsets. The framework was made operational for a real-world planning application in the Nile Basin. It was first used to study in detail the effect of the climate linkages on the economics of a single proposed hydropower dam on the Blue Nile in Ethiopia. An illustrative climate scenario, drawn from the set of emissions futures considered by the Intergovernmental Panel on Climate Change (IPCC), was used for this evaluation. Several climate change linkages were found to have important effects on the system and the economics of the project: climate-perturbed runoff, increases in crop water requirements due to higher temperatures, and changes in the value of energy and carbon offsets. The research was then extended to evaluate the costs and benefits of constructing alternative configurations of Blue Nile hydropower dams, for four possible water withdrawal conditions and a range of climate scenarios. The effects of project design and operational features were also evaluated. The analysis showed that: 1) many projects provide positive net benefits across a range of conditions; 2) increased system water withdrawals have a significant negative impact on the economics of Blue Nile dams; and 3) results are most sensitive to assumptions about discounting and future inflows. Also, the infrastructure with the best economic outcomes is dependent on the unknown future climate of and water use in the system. An approach was therefore developed for comparing the relative performance of alternatives, and comparative metrics were used to identify alternatives with relatively low risks and high upside across a range of plausible future situations.