China’s Ambitious Hydropower Project: A Key Step Toward Decarbonisation with Significant Risks Ahead

China’s new hydropower project will be the world’s biggest and crucial for energy decarbonisation, but this will be expensive and challenging, S&P Global Ratings said.

“The project will also be very risky. The geographic challenges will be unprecedented: it will be built in remote Tibet, with little existing infrastructure to move or shelter workers and equipment,” said S&P Global Ratings credit analyst Miranda Wang.

The project will be completed in 10-15 years and will boost China’s hydropower capacity by 16% and generation by 22% with its 60 gigawatt capacity. It will have almost three times the capacity of the Three Gorges Dam, which generates 15% of Europe’s hydropower output.

S&P Global Ratings noted that the central government is designating a new state-owned enterprise, China Yajiang Group Co. Ltd., to undertake all risks from this project.

“We believe the establishment of the new entity isolates all execution risks from the existing rated power producers, which have limited financial headroom,” it said.

The project will use novel engineering that will channel a river into a tunnel blasted through a mountain, thus spinning turbines and generating electricity. The government estimates construction costs at about $167b.