Abstract
Infrastructure development strategies on the African continent include significant hydropower investment to meet growing energy demand. However, long-lived assets such as hydro facilities face climate and other risks that shorter-term investments may not. Decision-makers are looking for appropriate tools to quantify these risks and evaluate policy choices and investment decisions under climate uncertainty. We investigate three methods of analysis to assess whether they are effective for capturing the full implications of climate risk for infrastructure investment: Benefit-Cost Analysis under uncertainty (BCA), Robust Decision Making (RDM), and Real Options Analysis (ROA). The paper then illustrates each within the same project opportunity – the Batoka Gorge Hydropower Facility. We find that within the context of Batoka, the three analyses point to similar design choices with one important exception: Real Options offers values for the flexibilities embedded in projects or suites of projects, whereas the others do not necessarily incorporate these valuations.
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